Conclusions and recommendations
1.The Government must seek to ensure that it is able to preserve and build upon the success of the UK automotive sector as it enters negotiations on future trading arrangements with the EU. (Paragraph 5)
2.It is difficult to see how it would make economic sense for multinational volume manufacturers—the bulk of the UK automotive sector—to base production in the UK in a no deal or WTO tariff scenario. The shift of manufacturing to countries within the customs union and single market would be inevitable; the cost in UK jobs could be in the hundreds of thousands, and inward investment in the hundreds of millions. For the automotive sector, no deal would undoubtedly be hugely damaging. The Government should not seriously contemplate this outcome. (Paragraph 12)
3.Whilst a “no deal” scenario would certainly be damaging to the automotive sector in many EU countries, especially Germany, the impact on the UK automotive sector would be far greater than that on each of the remaining EU Member States. We recommend that the Government should not contemplate this outcome in its approach to negotiations and that it should prioritise securing a customs arrangement which removes the risks of tariffs being imposed on vehicles produced in the UK. (Paragraph 14)
4.Longer journey times, with added risk of delay, plus extra customs bureaucracy would make the UK automotive sector less efficient and act as a disincentive to international companies looking for a base to manufacture cars for the European market. In a highly competitive market, small margins can make a significant impact on investment decisions. If the Government wishes to uphold the UK’s reputation as a good location for volume vehicle manufacturing, consistent with its Industrial Strategy, we recommend that it should in its negotiations on withdrawal place a high premium on securing frictionless trade for the automotive sector. (Paragraph 21)
5.There is no argument for a separate set of UK standards: the UK market is not big enough to warrant the additional costs to manufacturers of meeting another set of standards, nor does it make sense for the UK to require vehicles manufactured in the single market to require an additional approval by the VCA in the UK. (Paragraph 27)
6.In a global automotive market dominated by large multinationals, regulatory convergence is a desirable trend. It brings down costs, promotes consistent, high standards and therefore benefits consumers. No company wants to make cars to different sets of standards. It makes commercial sense for the UK to remain aligned with standards in the single market, which provides the majority of our trade. The establishment of a new regime for the approval of UK-manufactured vehicles would increase costs and bureaucracy for UK-based companies, and make the UK less attractive as a development and manufacturing base for vehicles. It is not a viable option and we recommend that the Government rule it out. (Paragraph 29)
7.We support the Government’s commitment to maintaining existing employment protections and high standards of environmental protection, for example by pursuing low carbon options for vehicles. We also welcome its preference for seeking similar arrangements on type approvals to those currently in place. Given this, and the continued need of UK-based manufacturers to have access to European markets, we have not identified any potential benefits from regulatory divergence from the EU, whether in terms of competitiveness or improved access to new overseas markets. There are only costs. We recommend that the Government, in negotiations, prioritise the continuation of existing arrangements for the Vehicle Certification Agency to authorise type approvals for the European single market, whether as part of a Mutual Recognition Agreement or some alternative arrangement. As a negotiating objective, the Government should seek to ensure that it is able to retain regulatory alignment with the EU regulatory framework for the short to medium term. (Paragraph 30)
8.We recommend that the Government should adopt a pragmatic approach in relation to any potential continuing ECJ role in the automotive sector. (Paragraph 32)
9.We welcome the ambition of the Government to continue to work with existing European regulatory agencies, which for the automotive sector is the best way to exert influence at a global level. We recommend that, in the negotiations on the withdrawal agreement, the Government seeks to support the interests of the UK automotive industry by maintaining a close association with the EU expert groups that develop regulatory standards. (Paragraph 36)
Trade opportunities post-Brexit
10.The UK cannot expect an expansion of trade overseas to outweigh the loss of trade to Europe arising from a hard Brexit. As most volume manufacturers in the UK are global and foreign-owned, any new bilateral trade deals secured by the Government are unlikely to lead directly to a significant increase in investment and jobs in the UK automotive sector In its negotiations, we recommend that the Government prioritises continued friction-free access to the single market in automotives over securing the freedom to secure new trade deals with third countries. (Paragraph 41)
11.We welcome the Government plans to improve the UK content of supply chains, but this is not going to deliver what is needed in the short to medium term. The Government should therefore prepare the ground to negotiate new trade deals which allow for a lower than usual threshold for domestic content in vehicles or ideally to be able to continue to include EU content for FTAs with other countries in the future. In negotiating the roll-over of existing EU FTAs to the UK, the Government should seek to secure the necessary amendments to allow UK content to count as EU content for rules of origin purposes in the automotive sector. Without such provisions, the business case for locating volume manufacturing of vehicles for export in the UK would be flimsy at best and non-existent at worst. (Paragraph 44)
12.Whatever choice the Government makes regarding the future UK-EU relationship, it should make it quickly. The wait-and-see approach to the future direction of regulation may be a convenient compromise for the short term, but it would not provide the certainty needed by the sector and would undoubtedly lead to a shift in jobs and investment from the UK to the rest of the EU in the period up to exit. We recommend that the Government clarifies its intention at the earliest opportunity to seek continued regulatory alignment with the EU in the automotive sector. (Paragraph 48)
13.In determining its negotiating objectives on freedom of movement and subsequent immigration policy, the Government should prioritise ensuring that our key manufacturing sectors such as automotive retain sufficient access to essential skills to ensure that gaps can be filled adequately with UK workers. (Paragraph 51)
14.We welcome the investment the Government is making in Research and Development 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. (Paragraph 54)
15.There are no advantages to be gained from Brexit for the automotive industry for the foreseeable future. The negotiations are an exercise in damage limitation. The Government should acknowledge this and be pragmatic in seeking for the sector as close as possible a relationship with the existing EU regulatory and trading framework to provide for volume car making—one of our great manufacturing success stories—a hopeful future. (Paragraph 56)
28 February 2018