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3 July 2017

After Brexit, we should just let the UK car factories close

They aren't worth paying for any more.

By Will Dunn

In her speech announcing the formal dissolution of parliament on 3 May, Theresa May said the next government would “face one overriding task . . . to get the best possible deal for this United Kingdom from Brexit”.

The Conservatives’ election campaign called on the electorate to choose between the Prime Minister and Jeremy Corbyn to negotiate the Brexit deal, insisting that May was the obvious dealmaker. But her government’s only firm Brexit handshake so far has been with the car manufacturer Nissan, to get it to remain (sorry, “stay”) in Sunderland. This was a great boon, for Nissan. For the government, it was a faulty 1997 Reliant Robin.

For Nissan, the deal – under which the British government provides “assurances” that the firm will not incur costs from tariffs after Brexit – is a bargain. In return for Nissan’s continued presence, the government takes on a cost that is unpredictable and potentially ruinous. If the UK ends up in a “no deal” situation with the EU, the standard 10 per cent tariff for non-EU vehicles will apply. Nissan’s UK-to-EU exports total almost £3bn, so the government will become liable for nearly £300m a year in tariffs. With Nissan’s 2015 wage bill at £288m, it would be cheaper for it to pay all its workers to sit at home. If the rest of the industry demands the same treatment, the bill will rise, Reuters forecasts, to more than £1bn a year.

The government didn’t even negotiate a share in the returns of the deal through tax. Nissan’s most recent accounts say of the turnover from more than £5bn in car sales: “In the opinion of the directors . . . its destination is Switzerland.” “In other words,” writes the tax blogger Richard Murphy, “not a single car from Sunderland is sold to anyone but Nissan in Switzerland.”

The most impressive thing about the Nissan deal is that it’s a bluff. The company’s one bargaining chip – the threat to take its jobs elsewhere – doesn’t exist. It has invested billions in Sunderland, training generations of skilled workers in advanced productivity methods. Sunderland produces more cars per worker than any other factory in Europe. It would take a huge investment and several years for Nissan to replicate this workforce elsewhere in Europe.

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In future, manufacturing will increasingly be done by robots, and this is another reason why Nissan would be less likely to leave the UK. The OECD ranks the UK below every other country in Europe for employment protections. British workers are easier to lay off than workers in Germany, France, Slovakia or Poland. It is cheaper to maintain a skilled workforce that can be easily downsized than it is to build new factories in more heavily regulated EU countries.

And when our auto industry does move, it will go not to the EU, but to North Africa. Morocco is close to Europe and offers even more generous tax breaks to companies that move south. Renault has factories in Tangier and Casablanca, and recently announced a further billion-dollar investment in the country, while Peugeot-Citroën has invested $630m in a new Moroccan plant. By 2020, a fifth of France’s cars will be made in Morocco. Would it be a good thing if the UK undercut Morocco on subsidies, tax breaks, environmental regulation, wages and employment rights?

Investing heavily in the car industry may also represent a bad deal for the wider economy. Long-term trends, especially among the young, point to a decline in car-buying, but record numbers of new cars are being sold on cheap finance deals called personal contract plans (PCPs). In 2016 alone, British households borrowed £31.6bn to buy new cars on these PCP deals, which constitute the fastest-growing element in a huge upsurge of consumer debt that has led to repeated warnings from the Bank of England.

It is disgraceful, of course, for a journalist from London to suggest that any British government wash its hands of Sunderland’s workers, who do proper work, making machines. But if the money from that work goes immediately to Switzerland, if subsidising it inflates UK household debt, if keeping it in the UK costs billions and if the jobs will be gone in a few years anyway, is it work worth paying for? 

This article appears in the 28 Jun 2017 issue of the New Statesman, The Brexit plague