britain’s plan to offer subsidies for carmakers could top wage bills
Last Updated : GMT 06:49:16
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Last Updated : GMT 06:49:16
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Britain’s plan to offer subsidies for carmakers could top wage bills

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Arab Today, arab today Britain’s plan to offer subsidies for carmakers could top wage bills

Nissan technicians work on a Qashqai car on the production line at the company’s plant in Sunderland, Britain
London - Arab Today

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 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.
Reuters examined the accounts of eight of the biggest car exporters, including Jaguar Land Rover, Toyota, Bentley, Mini, Rolls-Royce, Aston Martin and Honda, 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 totalled 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 subsidise 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.
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.
Nissan’s main UK operating unit employed 7,240 workers last year. If the government did subsidise 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.

Source: Arab News

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