Business and Trade Committee statement on Batteries for Electric Vehicle Manufacturing - Nov 23

Mr Philip Hollobone (in the Chair)

We begin with the Select Committee statement. Liam Byrne will speak on the publication of the first report of the Business and Trade Committee, “Batteries for electric vehicle manufacturing”, HC 196, for up to 10 minutes, during which no interventions may be taken. At the conclusion of the statement, I will call Members to put questions on the subject of the statement, and call Liam Byrne to respond to these in turn. Questions should be brief, and Members may only ask one question each. I call the Chair of the Business and Trade Committee, Liam Byrne.

Liam Byrne (Birmingham, Hodge Hill) (Lab)

It is a pleasure to serve under your chairmanship, Mr Hollobone. I am grateful to the Liaison Committee for making time available for this statement today. I understand that the Backbench Business Committee was reinstituted last night, so Select Committees and their Chairs will now have the opportunity to make applications to it, but I am grateful for the time granted by the Liaison Committee today.

When the great steam engine tycoon Matthew Boulton, who was from my neck of the woods, in Birmingham, welcomed people to the Soho manufactory—the first great steam engine factory in the world—he used to say, “I make here, Sir, what all the world desires—power,” and he was right. Just as power was at the heart of the industrial revolution all those centuries ago, so power will be at the heart of the green industrial revolution in the years to come. Our nation has to move fast now to transform the battery industry, to create jobs, and to safeguard the 165,000 workers in the automotive industry and the other 800,000 in the supply chain.

Batteries are big and heavy, and they are expensive to move around. We have to wake up to the risk that, if we do not build the gigafactories that make those batteries here in this country, our great automotive factories will up sticks and move to where the gigafactories are being built—perhaps in the United States or Europe. If we do not do that, we risk becoming dependent on imports from China, where, as we know, there are questions about the integrity of the supply chain and the labour that is used.

The challenge the Committee wants to flag is that we are now falling behind our competitors and need to take steps urgently to create a better environment for electric vehicle battery production. We have a huge gigafactory gap; the estimates are quite widely developed in the industry and academia, but even under the Minister’s own estimates, we are going to need about 100 GW of manufacturing capacity just to supply the automotive industry for us by 2030. But the demands will be much greater than that, because there will be all sorts of other applications too. Right now, we have online just 2 GW of capacity and deals in place that cover barely half the capacity we will need.

We conclude in our report that the Government have done well to reinforce this country’s strengths in battery research and development—we are, after all, the nation of Faraday. We also conclude that the lack of a stable, long-term industrial strategy has hampered our ability to secure long-term investment. As a country, we have real competitive advantages. We could harness the UK’s low-carbon energy sources to ensure that we become a global frontrunner in making sustainable and ethical batteries.

I am conscious that tomorrow is a big day for the Minister—she has just arrived back from Kazakhstan, and I am grateful she could join us today. We know that an advanced manufacturing plan and a UK battery strategy are coming. These things—or some of them—may arrive tomorrow but we do not know yet. We as a Committee wanted to set out the seven things we would like to see in those strategies, so that we could mark the autumn statement, and the House would have a way of judging whether the Minister’s strategy is what the country needs.

First, we cannot escape the fact that public subsidies will be needed. American cash for battery firms could total $150 billion over the next 10 years, which is an enormous amount of subsidy, while European subsidies are at around three times what we are currently providing. By contrast, the UK’s automotive transformation fund has just £850 million, and some of that has been burgled for other purposes. We think the Chancellor will need to put in more money for subsidies, and we call for an international study to benchmark what subsidies others are providing, so that we can ensure that our financial offer is internationally competitive.

Yesterday, the Chancellor announced £2 billion for zero-emission vehicles, batteries and associated supply chains over five years, but those five years begin in 2025. That was part of a £4.5 billion fund for advanced manufacturing. We do not yet know, but we assume, that the £2 billion extra is in addition to the £850 million already in the automotive transformation fund. Presumably, that fund will be the mechanism through which new funding is invested. There have been problems in the way the fund has been administered, and there are crucial questions about the timing of the funding, because the Government have only a very short window to get the advanced manufacturing money moving.

The autumn statement also said the Government are

“unlocking new sources of finance for advanced manufacturing.”

There was not a lot of detail about that, apart from a side reference to the UK Infrastructure Bank. I know that the Government’s priorities for the bank include investing in the critical mineral supply chain, on which the Minister has been working, but it is not yet clear what plans the Government have in place to unlock that new finance.

The Government also announced a ministerial investment group that will

“increase resourcing for the Office for Investment, strengthening the UK’s world-class concierge service for investors.”
In our report, we recommended that the Department for Business and Trade establish an office within the Department to bring together the various bodies involved in getting gigafactory investments to happen faster and more efficiently, so I hope what the Government have announced will help to address that point.

Our second key point was on energy and long-term certainty for battery supply chains on accessing electricity at comparable rates. From what we could see, there was nothing in the autumn statement on that. That is a big concern across the battery supply chain.

Thirdly, we wanted to see strategically important sites designated. There is a tiny bit of progress on that, and I hope the investment zone announced for the west midlands and around Coventry airport will help ensure that there is progress in Coventry. However, we wanted to see a bigger plan than simply Coventry; we wanted to see the key sites that are needed across the country designated.

Fourthly, we wanted to see real action on addressing skills gaps across the battery supply chain and gigafactories specifically. There is a tongue-twister in yesterday’s autumn statement: the Government say that they are going to support

“plans to catalyse the growth sectors by committing £50 million to deliver a two-year apprenticeships pilot to explore ways to stimulate training in these sectors and address barriers to entry in high-value standards.”

If we can interpret and understand what that might mean, and ensure that the training funding is in the right places, we may make progress, but right now we are not clear. Our key point was that we want to see devolved funding to those areas where there are gigafactory sites, so that they have the funding for adult skills that they are going to need.

Our fifth conclusion was that we needed to secure tariff-free access to global markets for electric vehicles so that we could trade easily and well. We advised the Government to seek a three-year extension to the rules of origin agreement with the EU, because we certainly do not have the battery capacity we need to meet those new rules, and we are not sure that Europe does either, frankly, because of displacement of investment into America.

Our sixth recommendation was about de-risking access to the requisite critical minerals and supply chains. I know that the Minister was working hard on that up to her flight home last night. It is hugely important that we work closely with our partners, particularly in Africa, to help unlock the $1.9 trillion of investment that is needed in critical minerals, and to help build a processing industry in Africa so that we are not critically dependent on countries such as China.

Finally, we need to continue something that I know the Government believe in: putting research and development in battery technology on a long-term footing. Power was always at the heart of the industrial revolution, and it will be at the heart of the green industrial revolution. It was Michael Faraday, the pioneer of the electricity industry, who, when explaining this to Gladstone, was greeted by the question, “Well, man, what is the use of it?” to which Faraday answered, “Well, sir, there is every chance that you may one day be able to tax it.”

We see the battery industry as mission-critical to safeguarding and growing the huge numbers of jobs in the automotive industry and the wider supply chains. The truth is that, if we are to compete with Beijing, Bidenomics and Brussels, we will have to raise our game. The time to do that is now.
Mr Philip Hollobone (in the Chair)

I thank the right hon. Gentleman for his statement. Although it has been thrilling for all of us to hear it, I would not want him to be under the impression that he can make these statements only in Westminster Hall. He can apply for time in the main Chamber, and that may be something he wants to consider for the future.

Gareth Thomas (Harrow West) (Lab/Co-op)

I commend the Select Committee for its work, and my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne) for the way in which he introduced the Committee’s report.

One issue, I want to touch on, which the report rightly highlights, is the looming cliff edge in the trade and co-operation agreement, with much tighter rules of origin for electric vehicles from 1 January. As I understand it, Ministers have still not set up a key working group on automotive parts, which was agreed in the TCA. That group could have helped industry to get heard a lot earlier and in its understandable call, backed by the Committee, for a three-year extension to the current rules of origin. Ministers seem to have gone quiet on whether agreement will be reached on a three-year extension. Indeed, the Prime Minister appears to have taken little interest in what could be a significant drag on UK exports of electric vehicles in the coming months. Will the Chair of the Select Committee update the House on what he knows about the current state of negotiations and Ministers’ current efforts to win a three-year extension to the rules of origin?

Liam Byrne

I am grateful to my hon. Friend. As ever, he is on the money. The rules of origin framework was put in place with the best intentions, to try to incentivise people in Europe and the United Kingdom to get gigafactory investments in place, but that has not yet happened. We have a looming gigafactory gap in this country, and if we do not negotiate an extension to the rules of origin, we will have tariffs of up to 10% on some of our exports, which will have a really serious impact on hundreds of thousands of jobs. Given how much is at stake and how many jobs are in peril, we were surprised to see almost no news about where the renegotiation of the rules of origin had got to. That was one reason why we stated it so clearly as a requirement in our conclusions—so that the Government now have to go on the record to explain to the House, and indeed the country, precisely what they are doing.

Jim Shannon (Strangford) (DUP)

I thank the Chair of the Select Committee for his statement. I have a specific question, which I spoke to him about beforehand. As I understand it, EV batteries used in the UK are likely to be sourced from Europe and elsewhere, so we very much welcome talk about British production of batteries. In my constituency of Strangford—the Chair of the Committee has referred to regionalisation, to which my question relates—there is much interest in electric and hybrid vehicles, and many engineering companies there are willing to get involved in the production of batteries. I have asked about this in oral questions in the main Chamber, but today I ask the Chair of the Committee the same question: does he agree that there is an opportunity for Northern Ireland and my constituency of Strangford to get involved in the production of EV batteries, and that any legislation that comes forward in this place must take on board, and extend to, the devolved institutions as well?
Liam Byrne

I am grateful for that question. Although I do not have the specific details of the opportunities in the constituency of the hon. Member for Strangford (Jim Shannon), the spirit of the Committee’s report is that we need to be using industrial policy to do three things: to de-risk supply chains, to decarbonise, and to decentralise the sources of economic growth. That is why we are so clear about the need for the Government to designate strategically critical sites for gigafactories in the future. As to quite how many we need, the Minister and I may have different views, but we know how much capacity we need, and that can perhaps be delivered by between five and eight gigafactories, depending on how much each factory can produce. But the broad point is that we cannot be producing batteries simply for the automotive industry; we need a wide range of applications for them in the future.

Once we have designated the sites, we need to think about how industrial policy helps to unlock the wide range of policy levers that any place will need. That includes access to low-cost electricity, skills, and incentives and subsidies to get factories built in the first place. Of course, we then need the trading arrangements, so that people can export and we can ensure that the export of EV batteries is a real growth sector for our economy. The point the hon. Member for Strangford made is therefore absolutely the right one, and we have sought to provide the checklist of things he needs to be asking of Ministers.

Matt Western (Warwick and Leamington) (Lab)

I thank the Chair and the Select Committee for putting together such a comprehensive and valuable report. As the chair of the all-party parliamentary group on electric vehicles and the all-party parliamentary motor group, I agree with him: my frustration is that we find ourselves behind our major competitors—China, the US, Japan, Germany, France and many others—in our capacity to manufacture battery units for electric vehicles and other uses.

That is frustrating because, from what I sense from the report and more widely, we have an energy advantage in the UK—indeed, we should have a huge energy advantage over other nations. In my constituency, National Grid reminds me of what we can do by bringing green energy to this country through the interconnectors. We also have organisations such as Warwick Manufacturing Group, which is at the forefront of the development of new battery units. We have two great advantages, but because of what the Chair of the Select Committee describes as a lack of industrial strategy, we are way off the pace.

I have a couple of points on skills—not just on the manufacturing side, but in terms of what we will need up and down the country in our franchise dealer network and other vehicle marketing sites. In terms of what we need to do on infrastructure for the consumer—

Mr Philip Hollobone (in the Chair)

Order. The hon. Gentleman is meant to be asking a question, not making a second statement. We are running out of time, so if he could put a question to Liam Byrne, Liam Byrne might answer him.

Matt Western

I apologise, Mr Hollobone. My question is about infrastructure for consumers. Also, I hear that Europe will perhaps grant us a three-year extension on the issue of rules of origin, which would be advantageous. Does my right hon. Friend know any more about that? And what is his estimation of how long it will take the UK to catch up with our major competitors, such as Germany and France?

Liam Byrne

I commend my hon. Friend’s work; his leadership of the all-party parliamentary group on electric vehicles and the all-party parliamentary motor group has been so important in ensuring that we in Parliament can benefit from informed debate.

We are two to three years behind our European competition, and we therefore have to move quickly to catch up. The lack of certainty has damaged confidence—moving the goalposts on phasing out petrol engines, for example, has hurt confidence. Ultimately, despite the public investment that needs to go into building things such as gigafactories, the investment overwhelmingly comes from the private sector, and when we damage confidence, we damage the speed of that private investment. I am afraid that the Committee came to the conclusion that the lack of an industrial policy has hampered our ability to secure the needed investment.

It is not too late to catch up. There is a real risk that we cannot win a subsidy race with the United States, or indeed Europe, so we will need a smart policy framework—the seven things I set out. They include devolved funding on skills and guarantees around infrastructure and low-cost energy access. My hon. Friend is absolutely right that there is a niche—in the global market, it is a huge niche—for the UK to provide, build and sell batteries built with low-carbon energy and with the highest levels of integrity right through the supply chain. That is a big opportunity for the UK, which we should be seizing with both hands.

Mr Philip Hollobone (in the Chair)

I thank the Chairman of the Select Committee for his statement.