There is no long-term future for carmaking in this country

The UK taxpayer, we are unreliably informed, is about to subsidise Jaguar Land Rover to the tune of £500m to help pay for a battery factory for the company’s electric Jaguars and Land Rovers. The subsidy on offer from the UK seems to have beaten that from Spain, so a “gigafactory” is to be planted in Somerset.

There are worse ways to spend this money (we narrowly avoided wasting it on the BritishVolt battery factory that never was) but not many. Unfortunately, as so often, politics beats economics, and the prospect of seeing Britain’s dwindling motor manufacturing sector take another step to oblivion is too much for the government to swallow.

We are unlikely to know the terms for the half-billion bung, hidden behind the usual catch-all of “commercial confidentiality.” The picture will be further muddied if it includes a subsidy to modernise (“green” in the current jargon) steel-making at Port Talbot, which is also owned by JLR’s parent Tata group.

The money should slow the decline of both industries in Britain, but will not stop it. A big subsidy to build batteries is understandable, if misplaced. After all, everyone else is doing it with taxpayers’ money as part of the Gadarene rush towards “net zero” which is convulsing western economies. The result, a year or three hence, will be a surplus of this exotic manufacturing capacity, but that is not the worst aspect of this deal.

We will not be told, but it’s a racing certainty to include an agreement to provide cheap energy for years ahead. Without it, even if the UK taxpayer gave the plant to JLR for nothing, there is no long-term future for carmaking in this country. Successive governments are committed to making energy expensive, and any manufacturing company competing internationally that is not subsidised will eventually be driven out of business.

This is not just a threat to UK carmaking, but to what’s left of the industrial base that actually makes things. A new study from Civitas, the think tank, asks “whether energy and industrial policy is helping needlessly to render unprofitable energy intensive industries.”

JLR is already feeling the heat, as it were. Sales of its marques have nearly halved in five years, from 614,309 in 2017/18 to 367,381 last year. Competition from the Germans was tough enough in the past, but they too are handicapped by the decisions to make energy expensive and, quite possibly, scarce as well, all across western Europe.

Unfortunately for the makers, the Chinese are not listening to the green stuff. Rather, they sense a golden opportunity to dominate a key economic sector. They are building gigafactories to match their burgeoning output of electric cars, which are coming to a showroom near you. They may not carry the same bragging rights as your Jag or Merc, but in the end, the price matters more, and building them using using cheap electricity generated by burning coal, ensures that they will have an unassailable cost advantage.

A Long Time In Finance is also a Podcast with Jonathan Ford and me. Listen free on Spotify or Apple apps.