House of Commons - Environmental Audit Committee

The Green Investment Bank - Environmental Audit Committee Contents

Written evidence submitted by the Society of Motor Manufacturers and Traders

ABOUT SMMT AND CONTACT

1. The Society of Motor Manufacturers and Traders (SMMT) is the leading trade association for the UK motor industry, providing expert advice and information to its members as well as to external organisations. It represents companies throughout the automotive sector ranging from vehicle manufacturers, component and material suppliers to power train providers and design engineers. The motor industry is a crucial sector of the UK economy, generating a manufacturing turnover of £51 billion, contributing over 10% of the UK's total exports and supporting around 800,000 jobs.

2. SMMT welcomes the opportunity to submit evidence to the committee's inquiry into the Green Investment Bank and also welcomes the principle of the Bank.

3. Summary

SMMT supports the establishment of a Green Investment Bank that looks to drive low carbon growth in the UK, supporting manufacturing, development of low carbon technology to market, as well as infrastructure projects.

SMMT believes the Green Investment Bank must not only look at UK CO₂ emission reductions as a core criterion but look to support low carbon sectors that are building industrial capacity in the UK and exporting products that will ultimately reduce global emissions.

The Bank should be able to utilise substantive capital to ensure access to finance is eased for both large and small firms throughout the automotive sector.

The UK automotive industry is well placed to contribute to an export-led growth strategy, and is central to the low carbon agenda and a re-balanced economy.

A STRATEGIC APPROACH TO LOW-CARBON GROWTH

4. The UK automotive industry is a key sector of the economy with significant growth potential in the low carbon economy, contributing to an export-led recovery and a re-balancing of the economy. The sector's reach is substantial, encompassing the design, development, manufacturing, retail, service and repair of motor vehicles, engines and vehicle components.

5. Government should prioritise support for key growth sectors, such as automotive, when it comes to determine the scope of a Green Investment Bank. The Bank's focus should reflect nationally-led sustainable growth policy, paying particular attention to government's ambitions to re-balance the economy, make the UK an attractive place to do business and stimulate low carbon growth. Automotive is a strategic industry that is dynamic, globally competitive and a strong exporter.

6. Criteria for eligible sectors or companies should encompass the principle of supporting low carbon growth and industrial capability, as well as looking at reducing emissions. Road transport accounts for 18.9% of total UK carbon emissions,[10] and the automotive sector is well placed to use Green Investment Bank support to invest in low carbon solutions to reduce emissions and meet climate change goals. Recommendations from the Green Investment Bank Commission[11] suggest linking the establishment of the Bank, "to support the delivery of the UK's emission reduction targets as set by the Climate Change Act 2008". SMMT urges government and the Committee to consider not only investments that will impact on UK emissions, but also global emissions. As outlined previously, the UK automotive sector is an export-driven industry, vehicles and components designed, developed and manufactured in the UK will have a global reach and global impact in reducing CO₂ emissions. Furthermore, successful low carbon investment in the UK will rely substantially on demand from export markets.

7. SMMT outlined in its submission ahead of government's Comprehensive Spending Review that industry and government must work together to identify priority needs and maximise the effect of limited resources to strengthen economic growth. Government should also work with industry on the Green Investment Bank to ensure it can be of maximum value and contribute to long-term growth.

8. The Automotive Council has been established to bring together government and industry to implement key policies where collaboration is essential in providing the basis for growth within the sector. It seeks to make the UK a leading player in the transition to ultra-low carbon vehicles with particular emphasis on encouraging R&D and rebuilding the UK supply-base for current and emerging technologies. As part of this initiative a Technology Group was established to take forward work that was carried out through the New Automotive Innovation and Growth Team (NAIGT),[12] which looks to identify the opportunities for the UK in low carbon technology. SMMT welcomes government's commitment to the Automotive Council and the work being undertaken on promoting low carbon technologies.

INVESTMENT CHALLENGES FOR UK AUTOMOTIVE

9. SMMT believes the Green Investment Bank should be able to leverage more capital for longer-term investments at lower interest rates to allow for investment in new technology. Previous experience of government loan guarantee schemes demonstrates that government guarantees which underwrite lending are not sufficient unless lenders' credit committee criteria are modified to recognise the risk mitigation HM Government underwriting brings. In establishing the Green Investment Bank, government should be prepared to take equity risk as low carbon projects require longer term funding, which many commercial banks do not provide.

10. An industry consensus technology roadmap was developed as part of the NAIGT's work, which looks to outline a broad timescale of the introduction of low carbon technologies within automotive companies' product development plans (diagram 1, annex). From the roadmap it is evident that a wide range of overlapping technologies will be vital in reducing vehicle emissions. A series of investments will therefore be needed, which may occur simultaneously and have differing delivery dates. SMMT calls on government to utilise the technology roadmap in looking at the prioritisation of funding for R&D, through existing support mechanisms, such as the Technology Strategy Board (TSB); and also the Green Investment Bank.

11. Following the publication of the NAIGT report and technology roadmap, the TSB produced a report[13] looking into current UK automotive capabilities. The study represents a first step towards gaining an understanding of current UK strength in each of the key technology areas identified through the NAIGT process. The report also identifies the UK's likely long-term capabilities where current levels of R&D investment should at least be maintained. The report and the ongoing workstream from the Automotive Council's Technology Group should frame areas in which the Green Investment Bank is focused and funding through the TSB is channelled. Particular attention should be paid to the Technology Group's work on priority technologies in the UK, so called "sticky technologies", which include: high technology internal combustion engines; energy storage and management; lightweight structures; low cost power electronics; and intelligent transportation systems.

R&D AND FINANCE

12. Encouraging R&D investment, whether inward or from abroad, should be a strategic priority for the UK. SMMT has called on government to support the stable and long-term funding for the TSB. The TSB's competitions and funding play a critical role in bringing together global companies, academia and SMEs to work on projects. Proposals on the Green Investment Bank and funding allocated to it should complement the work of the TSB, which SMMT sees as a crucial partner in investing in projects that support and sustain long-term growth in the automotive sector. Principally, TSB support is often targeted at projects in the very early stages of research and development through "seed" funding. The Green Investment Bank's role should therefore enable firms to access support in the middle to latter stages of development, providing certainty to companies to continue investment in the UK.

13. Low carbon manufacturing and R&D within the motor industry will be a driver for future growth, and as such government should focus resources on high-value added activities such as R&D investment and supporting manufacturing. This would support companies throughout the supply-chain. SMMT recently published a report[14] carried out by the Centre for Economic and Business Research (CEBR) which concludes that government support is vital for R&D investment, where the UK lags behind international competitors, and says that improving access to finance and credit is crucial for the UK to achieve sustained economic recovery.

14. Access to finance has been a priority issue for SMMT and its members throughout the recession and it is imperative that government promotes positive financial conditions to ensure that businesses can access credit to further recovery. The Green Investment Bank should be part of government's package of measures which recognises the significance and importance of finance being readily available for companies to invest in high value-added projects.

UK COMPETITIVENESS AND THE WIDER IMPACT OF LOW CARBON AUTOMOTIVE

15. SMMT believes that government support through the Green Investment Bank that is strategically targeted will not only benefit automotive and raise the prospects for future growth in the sector, but will also have a positive impact on the wider economy, supporting employment and creating new business opportunities. The scope of the Bank should enable not only small and medium sized companies access to finance that is much needed, but ensure larger companies throughout the sector, including the supply chain can be supported.

16. Companies within the UK automotive industry have established links with academia and universities across the country. Proposals around the Green Investment Bank should ensure that such institutions are engaged and that business and academic collaboration is encouraged.

17. The formation of the Green Investment Bank would enhance the UK's investment offer, promoting the UK and strategic low carbon growth industries. For the automotive industry, encouraging investment should be a strategic priority for the UK. Positive signals of support from government that support R&D investment will increase the attractiveness of the UK to potential investment.

18. As we emerge from recession UK government must recognise the competitiveness of the UK business environment compared to other countries. The UK must be an attractive place to invest and to keep investing in, with long-term certainty for business planning. To guarantee low carbon industrial growth in the UK, government should ensure its offer through the Green Investment Bank is internationally competitive. For example, the US government has instituted a $25 billion automotive investment scheme, the "Advanced Technology Vehicle Manufacturing (ATVM) Loan Program",[15] for OEMs and suppliers, which provides substantial capital to companies investing in low carbon manufacturing and R&D. There is a significant opportunity for the Green Investment Bank to spur similar investment in the UK.

19. The aforementioned CEBR report outlines that the UK ranks relatively low in terms of the total stock of R&D capital. Research from the European Investment Bank shows the R&D capital stock in the UK was around 7% of real value added in 2005, below the European Union average of 9% and the United States at 11% and Finland, Japan, Austria and Sweden all above 15%. This highlights the importance and urgency of UK government targeting funds to sectors which could invest in such value-added activities, like automotive. It also reiterates the need for the UK to recognise the competiveness and impacts of its policies on all types and sizes of companies, for example tax credits, and its support compared to other countries.

Annex

DIAGRAM 1: UK OEM CONSENSUS TECHNOLOGY ROADMAP