Environmental Audit CommitteeWritten evidence submitted by the Society of Motor Manufacturers and Traders (SMMT)


1. The Society of Motor Manufacturers and Traders (SMMT) supports the interests of the UK automotive industry at home and abroad, promoting a united position to government, stakeholders and the media. The UK automotive industry is dynamic and globally competitive. Our sector is a vital part of the UK economy with £50 billion turnover and £10 billion value added. With over 700,000 jobs dependent on the industry, it accounts for 11% of total UK exports and invests £1.3 billion each year in R&D. The industry plays an important role in the UK’s trade balance, with vehicle manufacturers exporting almost 80% of production. The UK is home to the world’s largest number of low volume vehicle manufacturers.

2. SMMT welcomes the opportunity to input to this inquiry. SMMT has recently outlined the views stated in this paper in its own industrial strategy paper and will also be submitting these views in its comprehensive response to the Chancellor ahead of the Autumn Statement 2012. Should any more information be required please do not hesitate to contact us.


3. The automotive sector welcomes recent statements on Industrial Strategy and sees long-term sustainable growth, delivered by a re-balanced economy with a stronger UK manufacturing sector, as essential for the UK. The global automotive industry has shown its commitment to the UK through unprecedented levels of investment announcements, totalling almost £6 billion over the last two years. This investment provides a unique window of opportunity to deliver long term growth and capabilities in our sector.

4. We believe that only an explicit UK industrial strategy that delivers long-term policy making and support structures and focuses on six critical policy areas—proactive government-industry collaboration, support for the Automotive Council’s five sticky technologies, a leading ultra-low carbon vehicle market, delivering supply chain opportunities & access to finance, developing the UK’s flexible workforce, and a strong voice in Europe—will secure the long-term growth and jobs prospects that the automotive sector can provide for the UK.

5. Through the Automotive Council industry and government are creating joint commitment and focus on the UK’s strategic opportunities in automotive around ultra low carbon technologies and growth in the supply chain. Making the UK a lead supplier and market for low and ultra-low carbon vehicles (ULCVs) to foster growth, innovation and jobs is an ambition that enjoys support across party lines and is at the heart of the work by industry and government in the Automotive Council and through the Office for Low Emission Vehicles (OLEV).

6. Long-term policy making and support structures which provide continuity are critical, and the annual Budget process needs to reflect this. Until Budget 2012 the UK was leading internationally in offering a consistent, visible and significant package of incentives for consumers, businesses and industry to grow the early market for ULCVs. The Plug In Car and Van grants, support for infrastructure, capital allowances and exemptions for ULCVs under VED and CCT for private buyers and business drivers were critical elements of this package that influence manufacturers’ decisions on where to market and locate manufacturing activity on ultra low carbon vehicles.

7. In Budget 2012, market confidence has been significantly damaged by the decision to raise CCT from zero for electric vehicles to 13% for all vehicles below 95g/km CO2 by 2015, rising to 15% in 2016, effectively disincentivising ULCVs amongst early adopters. This unexpected announcement has caused fleet market instability and mixed messages on market support and government ambitions. It brings into question the commitment by government and post-2015 prospects for the incentives necessary to accelerate market transformation to match the UK’s industrial ambitions and carbon policies (Carbon Budgets).

8. To rebuild confidence and accelerate the ULCV market, in the Autumn Statement and Budget 2013 government needs to:

ensure policy alignment on ULCVs across all Whitehall departments, recognising the critical role of a strong and stable framework of fiscal incentives and grant support in the early market development, its global visibility and influence on investment decisions;

review Budget 2012 decision and announce a revised set of CCT rates from 2015 with greater differentiation below 95g/km and significant levels of incentive for ULCVs;

increase the use of public procurement and consumer communication to support the early market;

continue a significant post-2015 incentive package for ULCVs, including UK plug in vehicle incentives, with an extension of support to heavy commercial vehicles; and

deliver with the electricity industry on strategic infrastructure investment to decarbonise and reinforce the grid and on a comprehensive consumer offer on safe, affordable and interoperable public and domestic charging options.

9. On VED, industry has met with HM Treasury as they progress their wholesale review which was announced in Budget 2012. Industry is keen to continue engaging on this review and hopes for a constructive consultation by government. Industry also seek certainty beyond 2015 to reflect the need to support market confidence and reflect other key policy horizons; retention of the graduated regime for cars; and recognise and replicate business’ commitment to better environmental choices with durable incentives to support market transformation.

10. In addition to measures to ensure long-term market support and development, support for innovation and investment in the UK is also critical for growth. The automotive industry is a leading global investor in R&D, and the Automotive Council’s strategic roadmaps and the identified sticky technologies present the UK with a significant opportunity to increase its share of global automotive R&D investment and leadership in technology development through focus and consistency of support. In particular, industry calls for a Low Carbon Vehicle Catapult to be established at the earliest opportunity, to provide focus and collaboration on low carbon vehicle technologies as the key industrial and carbon agenda for the UK, realising a global growth opportunity for UK automotive.

11. UK automotive is part of an increasingly competitive global industry. In the UK, its use of energy is affected by a myriad of energy tax and efficiency regimes—the EU ETS, Climate Change Agreements (CCAs) and the Carbon Reduction Commitment (CRC), as well as the standard Climate Change Levy (CCL). These regimes result in complex, overlapping compliance obligations under differing processes and to varying time periods. This is an extra, unnecessary regulatory burden on businesses across our sector.

12. We welcome developments on the new CCA which will ensure greater coverage of the sector in the scheme and appropriately cover the overlap with EU ETS emissions. However, we remain concerned over the lack of development on the CRC. Budget 2012 announced a review of the CRC scheme and we await further information on whether the CRC will remain or be replaced by a simplified taxation measure. We believe the scope of our sector’s coverage in CCA and EU ETS means that automotive, like all manufacturing sectors, should be outside of the CRC or its replacement. We also believe the CCA exemption rule in CRC should be retained. We remain concerned that these schemes increase energy costs and reduce competitiveness; which will be further exacerbated by the introduction of a Carbon Price Floor in 2013.

13. As aforementioned, the automotive sector is committed to reducing its environmental impact from both products and manufacturing processes, and would seek for government to ensure policies that support and incentivise investment in measures to achieve this, such as the Green Deal and Green Investment Bank, are readily accessible and deliver for companies of all sizes in global sectors, such as automotive.

16 October 2012

Prepared 19th November 2012