The UK’s car industry is a bright spot in the economic gloom – let’s not jeopardise it by pulling out of Europe
We may have just overtaken Brazil to become the world’s sixth largest economy, but the overall economic outlook for the UK remains relatively bleak. Some economists foresee a full-blown triple-dip recession, and with consumer spending and domestic investment remaining sluggish and more public spending cuts just round the corner, even minimal economic growth will be highly dependent on an increase in British exports.
Despite the doom and gloom, one sector continues to provide a small glimmer of hope: the British car industry. Rapid growth in output and productivity is bucking the wider trend of relative economic decline and restoring the UK’s position as a global manufacturing hub. This resurgence has been driven by a range of factors, but especially important has been an increase in foreign investment, international trade and innovation. In each of these areas, Britain’s membership of the EU remains crucial.
Over the past two years, the British automotive industry received nearly £6bn of foreign investment. Just as with the Japanese companies hailed with rescuing the British car industry in the 1980s, this investment has been primarily motivated by the UK’s position as a launchpad into the highly regulated EU market. And while domestic demand has grown in the past year, 80% of all vehicles produced in the UK are still sold overseas, over half of them in the EU.
If the UK were to leave the single market British-produced vehicles would face import tariffs from 10% to 22%, as well as numerous regulatory barriers. Major foreign investors such as Nissan, Ford and BMW would rapidly look elsewhere, probably to more secure EU members such as Poland or the Czech Republic. Even if the British government was able to renegotiate a unilateral free trade deal with the EU, it would be unlikely to enjoy unrestricted access to the single market and the accompanying uncertainty would make any would-be investors think twice.
Admittedly, the EU market has seen a dramatic decline since the eurozone crisis. This makes it essential to expand exports into emerging markets through free trade deals. The EU-South Korea trade agreement, signed last year, has helped bring about an 8% increase in vehicle exports from the UK. The recent trade agreement with Singapore should also give a major boost to British car exports.
Yet this will be small change compared to the breathtaking potential of EU free trade negotiations with Japan and the US, due to be launched in the coming months. While it could negatively impact the EU car industry as a whole, a deal with Japan could help boost investment in the UK and decrease the input costs of British-manufactured Japanese cars. The US on the other hand is the UK’s largest export market, and currently far more British vehicles are exported to the US than vice versa. However, without the economic weight of the EU, it is unlikely the UK would be able to gain any favourable concessions in the politically sensitive American automotive sector.
Finally, EU carbon emission targets and specific incentives to produce low-emission cars have helped spur innovation in the UK automotive sector. The European Commission has also invested billions of euros in research and development funding, encouraging cross-border research projects and ensuring that Europe remains a world leader in developing smarter and greener technologies.
The importance of this can be seen in the UK, where soaring petrol prices have encouraged consumers to switch to more fuel-efficient cars. Meanwhile sales of electric cars have more than doubled and are expected to increase further as new models become available – notably the Nissan Euro Leaf, which will start production in Sunderland next year. Outside of the EU, the UK would soon lose its competitive edge in the global transition towards more innovative, low-carbon vehicles.
Britain’s car industry is a vital part of its economy, supporting 730,000 jobs and accounting for 11% of manufactured exports. It also plays a crucial role in offsetting the UK’s huge trade deficit; this year Britain sold more cars abroad than it imported, for the first time since 1976. And thanks to the presence of factories and supply chains throughout all UK regions, it’s an industry that helps to balance the growing north-south divide.
As a group of senior business leaders recently warned Cameron in the build-up to his much anticipated Europe speech, casting doubts over Britain’s EU membership at this time risks creating a climate of “damaging uncertainty”. Such uncertainty would be especially harmful for Britain’s thriving car industry, and thus for the British economy as a whole.