Will Labour drive growth in the UK automotive industry?

This article was originally published in AM Online 

While there are positive signs of an industrial strategy for automotive and pledges of investment in EV infrastructure, the new government's actions will be determined chiefly by ongoing political uncertainty and competing national priorities.

The need for long-term consistency in policies is critical for the sector's stability and growth. Ensuring a skilled workforce, reducing energy costs, and maintaining incentives for electric vehicle sales count among the most important factors that the industry has lobbied for to ensure a sustainable and competitive automotive sector

At the latest Vehicle Remarketing Association meeting, a panel of industry experts discussed the scope – albeit limited - of the new government to provide the vital support that the sector needs

Industry experts Lee Swinerd, director at Interpath; Alastair Cassels, automotive advisory partner at MHA; and Louise Wallis, director at Auto Strategists, shared their insights on whether Labour's policies and initiatives are likely to provide the necessary support for growth.

Lee Swinerd, director at Interpath, noted that while there has been an absence of a robust industrial strategy in recent years, the new government plans to use the automotive manufacturing sector as one of its strategic cornerstones.

We haven't had in recent times an industrial strategy and I think this government plans to use the automotive manufacturing sector as a key component of that industrial strategy going forward.

Swinerd said, adding that the lack of a solid strategy has left the industry in a state of uncertainty in recent years, making it difficult for businesses to plan for the future.

Consumer-Focused Governance

While the Labour government currently holds a significant mandate after the General Election, the political landscape remains volatile, however, which could impact long-term decision-making. Swinerd points out that the high number of marginal seats and potential vote swings in the future could still make for an uncertain future.

Such political uncertainty could influence the government's ability to implement long-term strategies effectively, potentially hindering the progress of the automotive sector at such a critical time of transition.

The next election is not a slam dunk for Labour, and that may impact their longer-term decision making.

Louise Wallis, director at Auto Strategists, highlighted the sense of urgency underlying the consumer-minded focus of the new Labour government, expressed in the ambition within the King's Speech. This will, however, be driven by the need to secure sufficient votes in order to secure a second term.

Labour's approach to governance will therefore prioritise consumer interests, equating consumer satisfaction with electoral success. Despite the current majority, the government will remain acutely aware of its reliance on narrowly won seats and the need to deliver tangible results to maintain voter support.

Generally, Labour governments are very consumer-minded... it will be about votes because ‘consumer’ equals votes. - Wallis said. 

The automotive sector must therefore compete with other national priorities such as defence, healthcare, and education. And since the industry remains profitable, its needs will likely not be top of the government's list. 

The automotive industry still makes money. It's not on the verge of an exodus. - Agreed Swinerd. 

Cassels however argued that capital investment should be prioritised rather than incentives, focusing on long-term benefits such as infrastructure development and skilled workforce training. Such investment in infrastructure and workforce development will provide the much needed long-term benefits and stability for the automotive sector.

Industrial Manufacturing Strategy

A clear and consistent strategy is required to provide the necessary certainty for the automotive manufacturing industry, which has faced a lack of clear direction in recent years.

There have been some positive signs (from Labour) like an industrial strategy and what they are going to do in the environmental space, which hopefully will give some certainty to the industry after an awful lot of wishy-washyness. - Wallis added. 

Cassels also discussed the ZEV mandate and its implications for the UK automotive manufacturing base.

Without significant investment here, the industry risks stagnation. “Without it, it will die off,” Cassels explained, adding that the UK's relationship with European manufacturers with production bases in the UK could have a significant impact on the the domestic automotive sector.

There are a few good things that we've had so far – firstly, the strategy for automotive and, in fairness, the ZEV mandate. The legislation was actually quite good.

Cassels remarked, who added that while legislative steps are now essential to support the sector, maintaining strong relationships with international manufacturers is equally important.

Pre- and post-election sentiments from car makers such as Stellantis have highlighted concerns about the UK's ability to guarantee their competitiveness so the new government's ability to navigate these relationships and foster a favourable investment climate will be critical.

Protecting and supporting key manufacturers is crucial for the stability and growth of the automotive sector with Swinerd highlighting the need to protect key manufacturers such as JLR, Nissan, Toyota, and BMW Mini.

The first thing they need to do is protect those four and make sure that they stay because it's not certain, for example, what Toyota's longer-term strategy will be. - Swinerd said. 

Furthermore, as ICE engine production declines, it is vital to support the UK's capability here to transition to battery and electric motor production in order to protect the country's manufacturing base.

Manifesto Strengths and Gaps

Ensuring a skilled workforce, especially in EV technology, is vital for the sector's future and the Labour manifesto featured promising initiatives for skills development, particularly repurposing the Apprenticeship Levy to better serve the industry's needs.

However, the manifesto is light on specifics regarding fiscal policies and incentives expressly for the automotive industry. Addressing issues such as reducing ownership costs for EVs will however be crucial for making these vehicles more attractive to consumers.

Even so, from 1 April 2025, thousands of EV owners will pay for road tax for the first time. The new 2025 Vehicle Excise Duty (VED) rules will impact 70% of EVs as they will likely fall within the scope of the 'luxury car' premium tax of £410 per year when the current exemption ends.

There's no real idea about how they're going to handle things like the luxury car tax, as there aren't really any EVs available that are under £40,000 now, and really what we want to do is to try and make EVs as attractive as we possibly can and cost of ownership is clearly an influence. 

Cassells said adding that clear policies and incentives will remain essential in encouraging consumers to transition to electric vehicles.

Infrastructure, Energy Costs, Confidence

The transition to EVs requires robust infrastructure and standardisation efforts, and although they are significant challenges, they are critical to stimulate demand.

Reducing energy costs is also essential for making the UK competitive in battery production and supporting the automotive manufacturing sector's growth.

Initiatives such as GB Energy, focusing on onshore wind farms, which aim to reduce energy costs, will benefit not just automotive but could lead to lower consumer prices, boosting overall demand through increasing disposable income.

At the moment, the UK is probably not competitive with other locations on production costs, and therefore it's really difficult to make a battery plant of scale make commercial sense because of the cost of the energy. - Swinerd said.

Regulatory and Legislative Outlook

Louise Wallis said she believed the regulatory environment would likely be driven by bodies such as the Financial Conduct Authority and the Competitions and Mergers Authority and will not directly stem from any new government legislation, rather through independent bodies rather than direct government action.

I think we will see a lot more regulation. It's not necessarily a symptom of a Labour government. It's a symptom of government in general, and I don't think it matters what colour of government. We will see more and all of that is already underway and will continue. - Wallis noted.

Despite no longer being bound by EU regulations, the UK is also likely to further align with European standards to facilitate trade and help develop best practice. This alignment is generally positive, said Wallis, and will simplify operations for businesses engaged in import and export activities.

Some of the work in the finance sphere is actually following what is going on in Europe. It makes life simpler for export and import, but also it takes on board best practice as well. So, I think we will see a lot more of that continuing and it would just make life easier if business are operating on a level playing field. - Wallis added.