Britain's Brexit
subsidies for carmakers could top wage bills
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[November 02, 2016]
By Tom Bergin
LONDON
(Reuters) - Compensating carmakers in Britain for any post-Brexit
tariffs on exports to Europe could see the government hand the companies
more money than they need to pay the salaries of all their British
workers, a Reuters analysis of corporate filings shows.
Japan's Nissan <7201.T> said in September it would only commit to new UK
investment if it received a guarantee of compensation to offset any such
tariffs. Last week, it agreed to build new models in the country after
Prime Minister Theresa May assured it the government would provide
support to preserve its competitiveness in the EU market after Brexit.
The nature of the Nissan deal - which gave Britain a crucial corporate
endorsement as it prepares for life outside the European Union - is
unknown. The government said there hadn't been a "detailed and specific"
agreement on tariffs.
If Britain does not secure a free-trade deal with the European Union,
carmakers in the country could face export tariffs of 10 percent - the
level the EU imposes on cars imported from outside the bloc.
The cost of compensating Nissan, which has 2.9 billion pounds ($3.5
billion) of annual EU exports, would be 290 million pounds a year. That
would exceed the company's British wage bill, which was 288 million
pounds in 2015, accounts for Nissan's main UK operating unit show.
The pattern is followed across Britain's carmaking industry.
![](http://archives.lincolndailynews.com/2016/Nov/02/images/ads/current/hartsburggrain_daily_sda_021115.png)
Reuters examined the accounts of eight of the biggest car exporters,
including Jaguar Land Rover, Toyota <7203.T>, Bentley, Mini,
Rolls-Royce, Aston Martin and Honda <7267.T>, which are all
foreign-owned. Their wage bills averaged 7.5 percent of total operating
costs and 7.7 percent of turnover.
This suggests the cost of tariffs on vehicles exported from Britain to
the continent - levied at 10 percent of turnover - would exceed the
wages paid to British workers to build those vehicles.
BILLION POUNDS
The UK Office for National Statistics and the Society of Motor
Manufacturers and Traders industry group do not compile figures for the
value of car exports to the European Union.
But a Reuters estimate based on corporate filings and company statements
suggests they totaled over 10 billion pounds in 2015 - around 40 percent
of UK carmakers' exports.
This would mean carmakers in Britain could face additional tariffs of
over 1 billion pounds a year after Brexit, if the government does not
secure a free-trade deal for the industry.
Kevin Farnsworth, a professor of social policy at the University of York
who has researched and written extensively about government subsidies,
said the cost would go beyond any previous support offered to British
industries.
"A subsidy of this magnitude would be huge," he said. "An ongoing
commitment to subsidize a company would be unprecedented."
When asked about the government's plans for supporting carmakers, a
spokesman for the Department for Business, Energy and Industrial
Strategy referred to comments from minister Greg Clark at the weekend,
when he said the government believed it could secure a trade deal with
Europe that would not involve tariffs on vehicle imports or exports.
However such an outcome is far from assured.
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![](../images/110216PICS/busine51.jpg)
Nissan technicians prepare doors for the Qashqai car at the
company's plant in Sunderland, Britain, November 9, 2011.
REUTERS/Nigel Roddis/File Photo
![](http://archives.lincolndailynews.com/2016/Nov/02/images/ads/current/rohlfs_lda_051513.png)
The biggest European business lobby groups, including some which have
carmakers such as Daimler and Volkswagen as members, have urged their
governments not to grant Britain single market access without following
all the EU's core rules - something British ministers have said they do
not want to do.
'HIGH-LEVEL COMMITMENT'
Clark told the Times newspaper last week that the Nissan deal had been a
"high-level commitment" and that it did not go into details on issues
like compensating the company.
Some analysts have said that the government could make good on its
promise to keep the UK car-making industry competitive post-Brexit,
without fully making up the cost of tariffs because exporters are
already benefiting from the sharp drop in sterling since the June vote
to leave the EU.
For carmakers, key sterling-denominated costs - where they would benefit
from the currency's weakness - are wages and local procurement.
However, their wage bills as a proportion of operating costs are modest
compared with many other sectors, such as banking and pharmaceuticals.
Only 37 percent of the UK automotive industry's total supply chain spend
was sourced locally, according to a 2014 report from accountants KPMG.
Much of that was supplied by companies whose products used imported raw
materials and components.
This all suggests that for UK car exporters to remain competitive in
Europe, if Britain does not secure a trade deal, they will need
significant financial support from government.
Even if the government made good only half of the tariffs that the
exports of a company like Nissan faced, this would represent a level of
subsidy that far exceeds precedents.
![](http://archives.lincolndailynews.com/2016/Nov/02/images/ads/current/almh_lda_Ffarm_2015.png)
Nissan's main UK operating unit employed 7,240 workers last year. If the
government did subsidize the company just 145 million pounds a year to
make up for half the 10 percent tariff on its exports, the cost would
represent 20,000 pounds a year.
($1 = 0.8165 pounds)
(Reporting by Tom Bergin; Editing by Pravin Char)
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