The impact of Brexit on the automotive sector Contents

8Research and Development

52.Recent governments have supported the UK automotive industry through strong investment in relevant research facilities and match-funding for applied research. Much of this has been geared towards enabling the UK to be at the forefront of the development of new, low-carbon technologies in place of petrol and diesel engines. For example, the Government has invested £500m over ten years from 2013 in low-carbon automotive technologies and has announced £246m funding for research and development (R&D) for electric vehicle batteries. This followed the investment of £225m to support R&D in the automotive sector from 2023 to 2026.159 The availability of such funding has helped to make the UK an attractive option for international companies to locate the design and manufacture of vehicles, and now electric vehicles,160 as well as providing facilities for smaller, high-end manufacturers. The industry as a whole invests £2.75bn each year in automotive R&D.161

53.European Union R&D support for transport is provided under the Horizon 2020 programme, which allocates around £6bn to transport-related research out of the total of £70bn for the 2014–2020 period.162 The UK automotive sector has been a significant beneficiary of EU funding under the Horizon 2020 programme, securing €21m out of a total budget of €344m for 2014 and 2015, a respectable 6 per cent. We heard that companies welcomed access to this stream of funding, which had helped to facilitate the integration of R&D with EU countries.163 The Government has committed to underwrite the funding for all successful bids made by UK participants for Horizon 2020 projects that are submitted before EU exit,164 but it is not yet clear whether this will support collaborative R&D projects promoted by industry. Mike Hawes of SMMT reported anecdotal evidence from universities of an adverse effect on the willingness of European partners to engage with UK institutions because of the uncertainty around the future eligibility of UK partners.165

54.The longer the current uncertainty persists, the greater the chances of UK institutions missing out on participating in collaborative projects of potential benefit to UK manufacturers. This would be unfortunate, but not disastrous. The amount of EU funding available to all 28 countries is less than half of the £2.7bn total investment in R&D by UK industry. Despite this, the Government has said that the automotive sector is “suffering from suboptimal business investment in R&D”.166 It is therefore vital that, if the UK automotive sector is to thrive post-Brexit, the Government continues to offer incentives to locate R&D activities in the UK, particularly to counteract the negative impact on manufacturing of any new barriers to trade with EU countries. We welcome the investment the Government is making in R&D activities, particularly in low-carbon technologies, and we recommend that the Government reviews its investment strategy once our future relationship with the EU becomes clearer, with a view to enhancing existing incentives to locate automotive R&D in the UK.

159 HM Government, Automotive sector deal, 10 January 2018

160 The Nissan Leaf Electric Vehicle is being manufactured in Sunderland; Rolls-Royce has announced it will produce an electric version of its vehicles; BMW is to manufacture electric Minis in Oxford.

161 SMMT (BRA0005)

162 SMMT (BRA0005)

163 Q84 [Hawes]

164 HM Treasury, Press notice, Chancellor Philip Hammond guarantees EU funding beyond the date UK leaves the EU, 13 August 2013; see DExEU policy paper, Collaboration on Science and Innovation – a future partnership paper, September 2017

165 Q84 [Hawes]

166 Second Special Report of Session 2016–17, Government Response to the Committee’s Report on the Government’s Productivity Plan, HC 931

28 February 2018