Welcome to this second panel in today’s spotlight on industrial strategy. Today, we are looking at cross-cutting issues of concern and sectors of concern. One sector that this Committee is especially worried about is the automotive industry.

I state for the record that I am chair of the All-Party Motor Group, which SMMT is one of the secretariat for. Thank you for that. The industrial strategy hopes to significantly increase UK vehicle production by 2035. If we look at last year’s total figures of just over 750,000—the lowest since the 1950s—there were probably some one-off factors that contributed to that. If you look at the decline in the last nine years since 2016, total production has gone down by about a million units. We are massively heading in the wrong direction, yet we have a strategy here that wants us to almost double where we are at the moment. How realistic do you think that is?

Good afternoon. I am Matthew Ogg, director of policy at the SMMT. It is a hugely ambitious target and that is certainly something that we reflected on when the industrial strategy was published last year. Perhaps it is worth saying that I think the publication of the industrial strategy was a huge step forward. This sector thrives on certainty, ambition and long-term stability. Putting out a 10-year strategy that the industry can understand and get behind was a really important start. You are right that last year we produced only 764,000 vehicles. It was a nadir, we hope. As you said, there were some very significant structural changes. It is worth recognising—and I know that it is a conversation we will have this afternoon—that we are going through a generational transformation to zero-emission vehicles. Historic production of 2016, I think, is behind us, but we hope that there is a really bright future ahead and that the industrial strategy can be a catalyst for private investment in the UK. That target would see production double between now and 2035. At the moment our own outlooks can see a narrow path back towards a million by the end of the decade in the early 2030s. That requires us to have all the right enablers in place for that transition, so everything from infrastructure to energy prices. To get to 1.3 million, we need to attract new models and probably new entrants to the UK market, so we need everything in our power in the investment prospectus the UK puts forward. We are a global sector, so we are competing with Europe, the US and markets in the east as well. I will pause there. There is plenty more to get into.

I think, very similar to what the SMMT has said, that it is an ambitious target. It is a target the industry welcomes. I would caveat that that we think that it is probably unachievable with the current manufacturers in the UK. We need to attract a new manufacturer. That new manufacturer, we would hope, would bring its supply chain with it, adding a degree of security and resilience to a supply chain that is particularly fragile at the moment. We need to do that. Just the new OEM alone will not do it, so we need to address those other parts of the industrial strategy that are looking at some of the underlying systemic challenges. I know that the previous panel spoke about some of those. There are other ones out there as well that I am sure we will get into. Those are the two key ingredients needed for that target to be achieved. If those do, the target by 2035 could be achievable.

We do not manufacture vehicles in the UK, and the industrial strategy has talked about vehicle production, which is a really narrow focus. Automotive is much broader than that. We employ 5,500 people; 3,000 of those are really high-skilled engineers involved in development of commercial vehicles for Europe and the world, and the rest are involved in manufacturing components that we export. We export about £1.5 billion worth of exports from UK plants. Although we understand the beacon of vehicle production, we think that automotive is much broader. We have some really challenging commercial environments at the moment. It is very difficult to have industrial investment and success without commercial success in a marketplace. The industrial strategy has to have an eye on not just growth but also maintaining the jobs that are here, so that we do not lose the investment that is already in the UK in the automotive industry.

Can I come back to what both Murray and Matthew said? It was very interesting that you both gave similar answers—that to get to this target, we are going to need a new entrant into the market. Who in Government is leading the way in terms of attracting that new entrant? Is anyone doing anything to attract new entrants to the market?

We ourselves, as SMMT, are doing a huge amount. We do a lot of trade promotion work around the world. We try to put forward the best position we can. We launched a new campaign this year called Opportunity Auto, which was all about profiling the UK as a place to do business. Ultimately, DBT is leading the charge. It is the Department for Business and Trade that has been working closely with us, along with the FCDO and the overseas desks and embassy posts. We have great relationships with a number of those posts. I highlight Germany and places like that, where we have those strong automotive links. It is incredibly challenging. We have seen the rise of new players in this market. Certainly the ZEV transition is not just about those that already had automotive. There are a lot of people who want an automotive sector, so the competition is the fiercest it has been, at least in recent years. At the moment, the only people that seem to be looking at Europe possibly are from the far east, but we would like to see new upstarts from anywhere, so anyone that wants to come to the UK and can add to that value, supply chain and manufacturing footprint. We would welcome that conversation, but the finer details of where that comes from would be commercial decisions, and that means that we need the pitch in the UK to be right. Lisa is absolutely right, I should say. We focus a lot on cars, but the UK is hugely diverse. We are very blessed in that we do buses, trucks, everything in the supply chain and aftermarket. We have a really diverse and unique pitch, but, as we said, we need to protect the foundation and keep those anchors that we already have. That, we hope, will be a magnet for future investment as well. In theory, the UK has always been very open. We have seen waves of international investment that have reinvigorated the sector, so it could come from anywhere. We would be open to anyone that has an interest in doing business and playing within that competitive space here.

Murray, the past year has seen significant disruptions to trade, to put it lightly. How effective do you think the Government have been in responding to these challenges from JLR’s perspective?

We are really positive about the actions that the Government have taken. Three of our biggest trading blocs or markets, if you like, are the US, China and the EU, and all either have got things over the line or are pushing relationships in a positive direction that will serve to improve future relationships. In the US, we were party to the announcement of the economic prosperity deal with the Prime Minister. It is one of the most important markets for Jaguar Land Rover, and to know that we have certainty over a rate that keeps us competitive in the US market is a huge win. There is still stuff to do on the economic prosperity deal. We are particularly concerned about the tariff quota rate, administration of that, the vehicles and making sure that the UK is extracting the highest value out of what it is trading with the US, not just settling for 100,000 cars of any value, and getting the right value for the economy. There is potentially £1 billion worth of trade to lose for substitutional trade in there, so we are particularly concerned about that and advocating for a predictable rules-based licensing arrangement in that. We are in active discussions to see that, but overall the headline for the US is positive. Similarly with China and the EU, there is work that we want to do on that to improve the trading relationship but the relationships are all moving in the right direction. We recognise that none of this is overnight stuff. It is all work of persistence, long-term engagement and relationships. In both those jurisdictions, those are heading in the right directions and we should start to see the fruits of that labour.

That is good to hear. Coming in on the quota, my understanding was that there was some discussion about how the quota was allocated between different exporters. Have we come to a conclusion in those conversations yet? Is it still open? I think the quota was pretty fully utilised in the second half of 2025.

We are not at a conclusion yet. Inherently, it is a first-come, first-served system at the moment, which has an in-built inefficiency in it. The difference, if you fall out of it, is putting a car on a boat thinking it is going to land at 10% and working out at the other end it has landed at 27.5% because another manufacturer has utilised the quota before you did. We are all slightly worried about incurring that extra duty. There is a 10% inefficiency built in that everybody is holding back. We need to bring some certainty to that and ensure that the spirit of the EPD is reflected, which is for demonstrably British vehicles of British design and origin, not just British assembly.

Lisa Brankin, the other thing that has happened this year is that we have had the 15th five-year plan in China. You have a real problem with over-subsidisation of Chinese industry. When we meet with our counterparts in Korea, they talk about the dual shock of American tariffs and Chinese over-subsidisation. How well do you think the UK Government are policing the perimeter when it comes to this over-subsidised Chinese competition?

Chinese manufacturers have free access to the UK market as it stands. Everyone welcomes competition. It keeps you sharp and pushes you to do better, but a fair and equitable trading environment is what we would honestly ask for.

Do we have that today?

If you think about the way that the EU has responded, it has taken the view that we do not. The UK Government have a different position. Maybe it is something that should be considered.

The EU might have something to teach us about how we police this.

Maybe. Q818 Chris Bloore: Murray, I wanted to go back to the events of earlier this year. My constituency in Redditch has many manufacturing firms that were a part of the supply chain impacted by the cyber-attack. It was good to hear that you feel the Government have been successful and helpful in the way in which they have supported you regarding President Trump and tariffs. I wondered whether there were any lessons learned, particularly on how we can support the supply chain, if anything like a cyber-attack was to happen again. I hope that that will not be needed.

If we look at that in more general terms, there is no such thing as “never” in that game. Businesses need to be lucky every single time—well, not lucky, but it needs to go in businesses’ direction every single time. The criminals only need one win. Our real learning and focus point is on recovery. That is what we want to take into the resilience work. After an attack, how do we stand our operations back up? That is true for so many different businesses in the economy. One active conversation we have with the Government at the moment is how we can collate recovery efforts. A huge amount of business is run on enormous real estate for servers. It is not practical for every business to replicate that, for an empty estate to tip into, should their main estate be subject to an attack. How can we aggregate that together? How can we work collectively to ensure that that recovery can happen in a matter of hours, minutes or days, depending on what the business is? That is where we would also encourage that sort of insurance behind the industrial strategy to build resilience into the economy.

In terms of the “made in Europe” shift and the requirements that are going to come into place, what risks do you think the EU “made in Europe” requirements pose to your UK operations?

They are sizeable. Net across the UK, there is £2.5 billion to £3.5 billion of risk in lost sales, principally in the EU.

Is that just for you?

No, to the industry, but per year. Some 50% to 60% of all vehicles manufactured in the UK go into the EU. We have had some really good work from the Government to get UK content included, which works for some parts, but it is not the end of the road to get this into a place where it is not pretty catastrophic. It is the parts that are assembled in the EU that are the sticking points at the moment. Our push for Government is to make more of the existing level playing field arrangements within the TCA. If we have a level playing field arrangement with the EU and we are not involved in trade-distorting practices as a country, under those arrangements the EU should be able to recognise UK vehicles as made in the EU and, in the same respect, protect its own market access from other countries that it may have a trade agreement with but that do not follow level playing field rules. There is an encouragement bit for the EU in there and a protection in the same mechanism. We absolutely need to make further progress on that. The positive thing to say is that I have spoken numerous times with the Business Secretary on this. He absolutely understands the severity and is working on it. I am also very heartened to see the level of misalignment across the EU on it. In itself, that shows that they are certainly not unified in their own opinion of the merits of it as it is written at the moment. That gives me an amount of confidence that there is a landing zone that we can happily operate within.

Lisa Brankin, what is Ford’s view of this?

“Made in Europe” has a smaller impact on our UK operations, but it will impact the components I talked about that are manufactured and exported into European production for us. Probably a bigger concern for us is the rules of origin legislation coming in from January of next year. That means that a higher percentage of parts in vehicles imported from Europe must be sourced in the EU. There is a really high percentage of battery components, which means that batteries need to be assembled within the EU. We have not seen battery production ramp up within the European market, as had been expected when the legislation was planned. The upshot of that means that, from January, if we do not have EU-sourced batteries in our vehicles that come into the UK, we will pay a 10% import tax, which would not be applicable to Chinese competitors that come in. We are penalising the vehicles that we are trying most desperately to sell to try to hit our CO2 targets. We are working really closely with the Department for Business and Trade, which understands the issue and is talking to Europe about it. We need to find a way to mitigate that landing point and help us manage that transition.

That sounds like quite a big, impending threat.

Yes, it is really significant. I hope that we will get on to talk about VETS and the implications of that. That plays directly into the business challenges in that space as well.

I wanted to pick up on that point specifically, because I think that at the moment it is about 30% of a battery, is it not? It is going to rise in 2027 to be 65% to 70%, which is really massive. As we move towards electric cars, it is going to be a much larger part of the overall cost of the vehicle. We heard evidence in our critical minerals inquiry last week about this problem of being able to manufacture and recycle the battery fluid, components and that that is needed. We heard that we do not have enough throughput in the UK to do this ourselves, so there is a real issue about who our partners are, whether that lies in the EU and who is picking it up there. Do we go further afield and look, for example, to India or somewhere to start to say, “Who is it that we can pull together to make sure that the throughput is there so that we can do this manufacturing?” At the moment, we are exporting all this battery fluid and trying to get the lithium back from China. That whole supply chain is a big issue, is it not?

Yes, it is.

Do you have thoughts on how, as an industry, you are trying to mitigate that, or does it feel like it is too far off?

We are working really hard trying to localise battery production into Europe, but it is about the speed of that transition. There are cost implications. Producing in Europe versus importing from China will be more expensive, but versus a 10% tariff there is an offset to that. We know that battery production will localise. It is just that it will not all be in place for 1 January next year. It is about how we might be able to smooth that tariff introduction and help us make this transition, rather than in a step, in a more managed way. It is counterintuitive to what everyone wants to get to and if it goes ahead it will have a significant impact on our business.

What are the consequentials of that? If we do not get this fixed, what is it going to do to your business?

We might come on to talk about it later, but the challenge we have at the moment is that demand for electric vehicles is not at the level the Government would like us to be set with the VETS trajectory. To get to those targets, we are discounting really heavily. The SMMT estimated that last year it was in the region of about £5 billion of discounting. That is not sustainable. We are already compromising margin on electric vehicles to avoid paying the £12,000 fine. If you add a 10% tariff on top of that, it becomes unsustainable. I talked at the beginning about the industrial strategy saying that you cannot really have investment and industry if you do not have a sustainable business model in the market. Looking forward, that is where we would be heading to. It is a very challenging outlook as we stare into next year, with the combination of rules of origin and the VETS trajectory heading towards us.

Let me move on to ZEV. When I look at the projections that are going to be needed, we are talking about a 100,000-unit uptick in EV sales in 2028, 2029 and 2030. It does not look remotely plausible.

No, I do not think that it is. If you roll back to when the trajectory was set and the idea came, the forecasts for electric demand were really bullish and very strong. Our Government’s ambition was probably the most ambitious of anyone in the world, so we set a very aggressive growth target. Within a decade we were going from virtually no electric vehicle sales to 80% of the market being electric in cars and 70% in commercial vehicles. If we look at where we are now, we are not seeing customer demand following that. In one respect, the targets delivered one objective and we now have a really great supply and range of electric vehicles available, in terms of both cars and commercial vehicles, but demand from customers is not quite at the level we want it to be. Today, on cars, we need to hit a 33% mix; we are not at 25% this year. More concerning for me, because half of our business is commercial vehicles, we have to sell a 24% mix, and currently the industry is at 10% percent on commercial vehicles. We are balancing how you get there and how you manage that. It is a really difficult thing to manage. Other Governments have understood and made adjustments. In the EU, which is obviously our closest neighbour, there has been a lot of discussion around its CO2 requirements. If you think about that commercial vehicle target I talked about, it has revised downwards to a 40% target in 2030. Canada, which had a very similar scheme to us, suspended that scheme in 2016 and pushed out its targets, recognising the challenges. We are in a situation where we have a framework that is very complicated to manage and very ambitious.

It is also completely implausible, because we are talking about more than tripling the share of EVs in four years.

Yes.

There is not a hope in hell of it in that time period.

No.

I am conscious that these targets are basically driving fines for businesses.

Yes.

Presumably these fines are now a substantial business cost for companies such as Ford.

At the moment, our objective is not to have to pay a fine. There are some flexibilities allowed. You can trade CO2, etc. On the grounds of a target that is 30% or 33%, we have been able to move things around. We have been pushing demand, discounting vehicles and trying to drive the market. As you move forward and those mixes accelerate, I am not sure that that is possible.

At the moment, you are not transferring money to buy credits from other car makers. You are just discounting.

We are using all the flexibilities available to us to be compliant.

Are there some pure EV makers—let us say Tesla or some of the Chinese makers—that are basically harvesting credits from UK-based car makers?

Yes, absolutely, because that is where you get your credits from. To be able to sell credits, you have to have met your objective and have something spare.

I want to make sure that I have understood this. If I am a Chinese car maker, I am currently enjoying massive over-subsidisation from the Chinese state. I am exporting into Britain with pretty much zero barriers, unlike the EU, and gathering credits from UK manufacturers as well. That sounds like a great business for the Chinese.

Yes.

Matthew, this does not sound like a very sustainable position.

No, absolutely. The SMMT has been very clear that the ZEV mandate always foresaw a review this year. At the moment, that is scheduled to start this year, but not report until next year. One thing we have been calling for is to bring that review forward. We need a whole market review across Government to look at all those enablers and that performance. As we said, the cross-subsidisation and indeed the £5 billion per year in subsidies we are putting on the bonnet to sell these vehicles is an unsustainable financial model. We have always been very strong on the fact that mandates do not make markets attractive or attract investment in manufacturing. We started talking about industrial strategy. We see the gap widening between performance and the target, year on year, which needs an immediate response.

Can we be really clear about what happens if the Government do not reset these targets? If I am sitting in Ford or BMW globally and I have production in the UK and I am looking at new tariffs coming from Europe, the risks of an Industrial Accelerator Act and unfair competition from China, I am just going to shut down my UK production.

It makes it very difficult to put the UK in a positive light at the boardroom table. We have been working very hard with the Government and trying to solve these problems before they become an issue, but certainly this is a pivotal year. If we do not get a successful resolution on “made in Europe”, solve the rules of origin crisis and look at the VETS review holistically and across Government, absolutely we will find ourselves in a challenging position. We are hopeful that Government are pulling out all the stops and all the levers and backing us to the hilt.

To put it bluntly, Matthew, when you say “challenging position”, are you talking about the shutdown of UK production?

I could not speak for the commercial choices of particular businesses, but certainly the environment looks less competitive than those elsewhere around the world at this moment in time.

You know this industry. What is your gut feeling?

It is highly difficult to see how, if we do not fix those solutions by the end of the year, we do not find ourselves in a really precarious position next year. We saw challenges already last year with the closure in Luton of the Stellantis plant. We want that to be the outlier, not the way forward at the moment. It is a possibility, which is why we are so exercised about the issues we are talking about today and that the Government need to do everything in their power to back us. That was why we welcomed the industrial strategy, but we have only made those first steps on that. We need to move much more quickly. We are ready to work with Government to do that, to make sure that every plant we have, and more, stay open today and in the future, as we transition through that precarious transformation in technology, as well as the market.

I want to follow up on the review. It is absolutely crystal clear from what you have said that this is potentially existential for the industry. What possible reason could there be for the Government wanting to wait until next year for the outcome of the review?

From where we sit, there is no reason. Going back to all those levers, there are two elements. We talked about international trade, which is not entirely in our gift, but we can look at the things that are in our gift, which is bringing forward the ZEV mandate review and looking at the things other Government Departments are doing, which are actually going to make the transition even more challenging. Just last year in the Budget, we had the imposition of the electric vehicle excise duty. The OBR figures say that that could potentially wipe a net 120,000 vehicles from the market. We are making choices across Government in the industrial strategy and in the electric car grant from DFT, where parts of Government are working in concert under the industrial strategy. Then we have other elements of Government that have put more barriers in place. We have always said that we need to do everything in our gift and then work at full pace on those things where we need our partners, so the Europeans in particular for “made in Europe” and rules of origin, to get those barriers out of the way so that the UK remains in a position where it is a good place to invest and do automotive business.

You are being polite, but it sounds completely incoherent to me.

It is difficult at the moment, yes. To be fair, we give a lot of credit to the Secretary of State, Jonathan Reynolds and now Peter Kyle. They really understand the problems and have been going out to bat for us. We know that there are lots of challenges in this economic environment, but we are doing everything we can to make sure auto is at the top of the pile.

It is absolutely the case that the Government are doing a number of things to support the sector, but getting a review of this mandate brought forward is critical. Part of the problem the industry has is demand, is it not? There have been some initiatives to spike demand. What are the Government doing themselves in terms of encouraging procurement to help the industry?

Do you mean in terms of supply chain or manufacturing?

I mean manufacturing. In terms of Government and public sector purchases of vehicles, how many are UK manufactured? How many are electric? Is there a drive within the public sector to support the industry through that?

I do not think that there has been enough in those pillars yet. There is the opportunity for Government to do more in public procurement and look at those opportunities. We have always maintained a very open competitive market, but we certainly see those in Europe and others making different choices. The “made in Europe” choice is one of those. That is why the UK has to be included, because it could exclude us from public procurement both overseas, where we could do very well, especially in fleet purchases, and at home. There is much more we could do, but we do not want to end up in a race to the bottom where we all put barriers up and start to close the doors. That is not where the UK has succeeded historically and we do not see that as a positive future whereby we start to play the same game and end up in a race to the bottom, because the UK now is a smaller footprint. We have to work in a European region. We have integrated supply chains. We rely very heavily on and benefit from that relationship. That is why we see “made in Europe” as a potential existential threat. Ultimately, we do not want to see tariffs on the types of products we are building and trying to get consumers to buy this year, next year or going into the future, particularly with Europe, which is our biggest export market and, indeed, importer as well.

If we look to what other countries have done in terms of the move to electric vehicles, everyone has adjusted their approach in light of the commercial reality. This is only going to go one way, so there is not any reason for delay, is there?

Absolutely not, no. We are careful not to prejudge the outcome of the review because there are so many assumptions from 2021 that have not come to pass. There are a couple of good examples. We thought that battery prices would be $80 per kilowatt-hour. They are $105 today, which is 30% higher. We expected 590 gigawatt-hours of battery manufacturing across Europe. We are at 325. We have all lived through the last few crises, such as the semiconductor crisis, war in Ukraine, now war in Iran and other things. We have to adapt and be agile, and that is probably where we have been a bit too slow off the mark. Everyone wanted to wait and see what happened, but, in this environment, when everyone else is moving quickly, we need to play the same game, start to make some really quick choices and accelerate some of those things that I think the review will bring to light. Each manufacturer has its own commercial interests. They will have their own views of what that looks like, but we are almost at a point of consensus where everyone agrees that some form of change is required and is needed now.

We need to get on with it. Matthew, give us a personal view, if you like. What is your view about what the mandate needs to be reformed to?

That is a really challenging question.

Is there much consensus among your members, or is everyone in a different place?

Not yet, no. We are getting close, though. We hope to have an updated position very soon. There have been different positions in the market because some people have brought new products in and invested at different paces. The consensus is that there is a problem and that we need to look at this soon. On the exact changes that require the extension of flexibilities, I am sure colleagues could speak to which particular flexibilities or changes would most benefit their business. At the moment, that is why we want that review to make sure we fully understand the data as it is today and make good choices based on that information. On everything we have looked at so far, all those assumptions have not come to pass, which suggests that we need to adjust the transition pace to match market reality and make sure all those other levers are in place as well.

Do you have a sense about what the landing zone might look like?

It is quite wide, depending on the members, but I am happy to defer to colleagues on the panel on particular flexibilities.

As we have you, we will ask you. Lisa, what is your view about where the right landing zone is for this?

If we think about the commercial vehicle industry, I mentioned that the trajectory in Europe has been reduced to 40% in 2030. We need to be at that level or even a little bit less to get us there. The challenge, particularly in commercial vehicles, is not about individuals. It is the impact on business, the cost on business, the speed of transition and the functionality. Forcing an industry that is not ready to move is not a good thing for the manufacturer or for business in general. In terms of passenger vehicles, we are looking for a really significant reduction. It is an 80% target. It should be closer to 40% or 50%. We have all invested really heavily in developing electric vehicles, so we are heavily invested in selling electric vehicles. It is the pace and—

It is the trajectory.

That is it, yes. We need to get that right. There is a way forward that focuses on reducing CO2 that is not in this space. We are not walking away from the mission that we are trying to get to. It is just that the pace of change needs to be reviewed.

I am really clear. This only counts for passenger cars; I do not want to speak for commercial vehicles. The original assumption was that a technology adoption curve would be the route for the market, but that has not been borne out. That is what drives that exponential climb rate over the next couple of years and the target. We would see that it is a linear transition now. Therefore, we want to see a linear target in there, which probably looks something like a flat line from this year or last year out to 2035, if the Government still want their 100% ambition. Today, right now, it is probably still too early to say that 2035 is unachievable, but we can say that 2030 is definitely unachievable. Let us not fix everything in one go. We also need to see the flexibilities extend in the applicable period. They are due to wash out next year. The flexibilities are born out of carbon savings. We do not need to be picky about where those carbon savings are delivered. What is important is that the carbon savings are being delivered, not how they are being delivered.

Lisa Brankin talks about a 40% number by about 2030. Is that ballpark the kind of number that you have in mind?

It is very difficult to say. It is somewhere between 40% and 60%. It is definitely not 80%, I am afraid.

From the conversation so far, it looks like this is not particularly commercial at all at the moment. I was going to ask you about the largest growth opportunities. The Government have set out this advanced manufacturing plan. It has some future priority growth areas, including the next generation of zero-emission vehicles, self-driving cars and automated vehicles, and—we have already touched on it—batteries and the battery sector. How do you feel about those, given that we are currently still struggling with the present generation of zero-emission vehicles, let alone the future generation, self-driving cars or anything else? Matthew, do you want to start, as the spokesperson for the industry more widely?

I would like to take some positives out of this as well. As you said, in this present moment there are a number of crises, but, if we avert them, the medium to longer term could be quite bright. We have growth opportunities. We landed that investment from Agratas in Somerset for a gigafactory. We have AESC up in Sunderland. In the medium term, we will have battery manufacturing here in the UK and all the supply chain that goes with that, which supports those high-value jobs and skills, with batteries produced for vehicles made here and, potentially, contract battery manufacturing for others, particularly if we get the rules of origin right. The rules dictate that we will need batteries sourced in either the EU or the UK for the vehicles that we trade with each other. As we started with, that is the bulk of the trade that we do. In the car market in particular, more than half of what we build here goes to Europe. To come back to those risk factors, we have also been undertaking a huge amount of work to understand how to turn them into opportunities, what we could localise here and how we increase the critical mass of the UK supply chain. A lot of the OEMs in this country are not really competing with each other. They benefit from economies of scale. Certainly, “made in Europe” is a risk to that. We have been working with the different members in our organisation to highlight that there is about a £4.6 billion opportunity by 2030 for the localisation of different parts in the supply chain. There is demand from UK manufacturers for UK supply chain. You will not be surprised that more than £1 billion of that is batteries and battery power, but in this transition the majority of the car does not change. We will still need chasses, interiors and seats. Those bulky products that are quite challenging to move, logistically and otherwise, are opportunities. Again, we need the anchors. We need to get the environment right now so that those OEMs are still here producing when those opportunities come onstream and become available. Examples include, as I said, seats, plastic moulding injection and some of those bulky large items that you can do close to where you manufacture. There is opportunity there as well as the benefits of economic security and supply chain diversity. Certainly, we want to be able to manufacture those things and export them between the UK and the EU tariff-free. That has always been the goal since Brexit: to avoid putting tariffs on the exact types of vehicles that we want to sell. We have a huge number of investors here on both sides of the channel who also want to be able to move goods backwards and forwards.

Murray, do you have anything to add to that?

Only to say that auto is a growth opportunity. It was evidenced very clearly when, sadly, we had to stop production for six weeks starting in September last year. We alone accounted for a 0.2% suppression of GDP in the economy. There must be a commensurate upside. It is a mixture of getting those input costs under control and competitive, and then continuing the good work that the Government are doing at the moment in trade and market access to provide markets and routes to market for those things. That is where the growth will lie.

You have not mentioned India. Do you want to just mention that now?

It is definitely a market where there is a medium to long-term opportunity. We have a deal that will start to deliver trade there, so we are really positive. It is not China. It does not have the sort of wealth in the middle classes for the type of cars that we do, but, compared with where we are today, there is a significant growth opportunity. It is not limitless growth, but it is definitely a country—we might be slightly biased, given our shareholder—where we see further access and real speedy implementation of that trade deal.

Just reflecting on what you were saying, Matthew, one of the last seat foam manufacturers in the country, in my constituency, is closing in September as a result of the volume crisis. It is real and is here now in the supply chain. I wanted to come back particularly to cross-government working and cross-government alignment to the strategy. Many of us were surprised by the announcement around pay-per-mile in the Budget. If there were a Treasury Minister sat on the panel with us now, they would say, “On SMMT’s own figures, last month was the best month there has been for EV sales. It is going to be fine. Can you not see the hole in the public finances?” What would your response be to that point?

First, it is all about timing. Everyone on the panel recognises that, through the ZEV mandate to the transition to zero-emission vehicle mobility, there will be changes to fuel duty and receipts. We wanted to see a big conversation and a bit more analysis and engagement to understand what that pathway looks like and what those solutions could look like. Instead, we have something that has been imposed upon us a lot sooner than we had expected. Some figures that we have seen from OBR suggest that the receipts will not counter each other in the short term anyway. Again, rightly or wrongly, at the moment we are in the middle of a transition where we are trying to encourage everyone to make the switch to a technology that they are not used to. Pay-per-mile is not a concept people are used to. How much does a kilowatt-hour cost? A lot of people still very much understand how much a litre of fuel costs, but they do not have that commensurate understanding. We were very clear on the day that was published that it is the wrong measure at the wrong time. We would like to see it at least delayed and possibly revised. We should have a look at how that could happen, again, on a timeline that is more commensurate with the uptake of zero-emission vehicles. At the moment, we are still trying to get people into them. On the one hand, we have introduced the electric car grant to incentivise more people to make the switch. On the other—you saw the headlines the day after—there is going to be a new tax only on EVs. The other concern is that we want to see a decrease in what we call the delta between the cost of fuel duty and the cost to run a ZEV. Essentially, we want the cost of running a zero-emission vehicle to come down to and, if possible, go under that of a combustion engine today. We are not there yet. We always talk about price parity. Again, in the current marketplace, with the cost of making these more expensive vehicles, the cost of these more expensive technologies, the cost of energy and the cost of electricity, we are not yet seeing that affordability. We have always wanted a just transition for everybody, wherever you are. We have spoken about this with you. Even in charging, you pay 20% VAT on public chargers and 5% if you charge at home. How do you get everyone into an EV when you are trying to make it cheaper, more affordable and more attractive, but, at the last minute, you go, “There is also this new tax that you don’t understand, which we are going to put on in a couple of years’ time”? If I am a consumer, which I am as well, I might sit on my hands. My concern is that you do not buy that new car; you do not renew that fleet; you do not get the CO2 savings. That is something that is entirely in the Treasury’s gift. We would say, “Take the risk and invest now,” because, if we get the transition right, the benefits pay off for decades. We are at that most precarious bit where you maybe take a bit more financial risk at the Treasury to make sure that we are doing it in the UK, both on the manufacturing side and so that we have the best market to own, drive and operate an EV. At the moment, it is the wrong measure at the wrong time.

In closing, we are talking industrial strategy today. It is supposed to be the industrial strategy for the whole of Government, not DBT’s industrial strategy. We have spoken a number of times about how the different bits of Government are not aligned around what is in the advanced manufacturing sector plan, particularly for automotive. We have spoken about taxes, including road tax; we have spoken about the transition; we have spoken about energy costs. Are there any other areas where the Government are out of line with their own stated strategy that this Committee should be aware of?

It is not necessarily out of line, but I would look at skills. We have the advanced manufacturing sector plan. You sat in on the Transport Select Committee’s inquiry into transport manufacturing skills. One of the things that we said is that you want a road map across all elements. We would like to see a skills road map that goes alongside the sector plan. We have spoken about energy. BICS is really important for us. It is worth noting that the Department, to give it credit, recognised that we needed different criteria to make automotive eligible. We have never been traditionally energy-intensive, but we are absolutely large users and we are competing for investment globally. BICS is the first step. It takes us 25% down on electricity, but it is worth noting that we still pay higher gas prices as well. We do not yet have all the technology for paint shops and things. If we are going to put effort into the industrial strategy, if we are going to put effort into automotive, where can we take the opportunity to make sure that sectors such as ours are included in that ring-fence, however we do it? It might be SIC code or HS code. We are competing globally. You sometimes have to put a different hat on and think about absolute cost. That is really good. I come back to the regulatory regime. Talking about cross-government, boardrooms are cross-departmental as well. If I have a problem in the market, I have a problem in manufacturing, and vice versa. We want a holistic approach. It needs all parts of Government to play their part, but credit where it is due to DBT, at least on that.

I would agree with Matt’s comments.

We have to compose some input to Government Departments on this. It is an extraordinary list of things that we have come across today. We have the need to anchor a new OEM together with supply chain, focusing on automotive production in the round, the incoherence of demand incentives across Government, the urgency of getting action on rules of origin, ZEV mandate reform, policing Chinese competition, driving down input costs, driving up market access, better use of procurement and getting a skills plan in place. That is a heck of an agenda that the Government have to get right. Thank you very much indeed for your evidence today. A happy Staffordshire Day to those who are celebrating. That concludes this session.