Rishi Sunak has been warned by one leading think tank against entering a “subsidy race” with the US and the EU in an attempt to defend the British car industry.
Britain is currently embroiled in a subsidy battle with Spain as the British Prime Minister tries to persuade the Indian conglomerate Tata to build a new gigafactory in Britain to supply batteries to its Jaguar Land Rover range.
But Policy Exchange, a think tank founded by senior Conservatives including Secretary of State Michael Gove, argued in a report published Friday that ministers should improve the business climate in the UK rather than try to protect the car industry with subsidies.
Sir Geoffrey Owen, author of the report and former editor of the Financial Times, said: “The UK should not engage in a subsidy race with the EU and the US.”
Owen said strategic planning was crucial, in addition to addressing specific issues facing the auto industry: “If there are obstacles that discourage investment, such as high energy costs, the government should try to eliminate or reduce them.”
Owen lamented the “erratic behavior of UK industrial policy over the past two years”, arguing that scrapping former Prime Minister Theresa May’s industrial strategy in 2021 would have been confusing for business and bad for investment.
The report says more stability in government policy is needed and any support for the car industry must be realistic and based on how the UK can best compete in the global marketplace.
It argued that the size of the EU market gives the 27-member bloc an advantage in attracting investment from Asian firms, now that Britain has left the single market and customs union.
Tata is expected to choose between building a new battery gigafactory in Spain in the near future or at a site near Bridgwater in Somerset, with UK ministers confident the project will come to Britain.
A subsidy package of at least £500 million is expected to be put on the table, along with an indefinite commitment to reduce energy bills for the plant and other energy intensive users.
Separately, Britain has expressed concern over the operation of US President Joe Biden’s Inflation Reduction Act, a $369 billion subsidy package designed to boost green energy projects in the US.
Kemi Badenoch, company and trade secretary, has called on the US to ensure that UK-based companies and other Western allies can take advantage of the subsidies without moving their operations to the US.
Sunak is meeting Biden in Washington next week, but the British prime minister’s allies said they did not expect the so-called IRA’s operation to be “high on the agenda”.
The British Prime Minister’s attention has recently been on the opportunities and risks of artificial intelligence and he will discuss those issues with Biden.