Fears Nissan’s commitment to the UK will be costly

December 09, 2016

UK government commitments to Nissan about the future of its UK operations after the UK leaves the EU are increasingly being seen as a case of politics over economics. Criticism comes as the UK parliament voted overwhelmingly in favour of implementing the government's proposed Brexit timetable yesterday. 

While the guarantees the UK government made to Nissan are not known, they are thought to contain promises of tax breaks alongside general pledges of support for the industry.  

Such sweeteners set a risky precedent for taxpayers, telling them that by threatening to move resources out of the UK, they can achieve preferential treatment by the government, ultimately with cost implications for taxpayers.  

UK chancellor Philip Hammond said that ‘no new contingent liabilities have been created in respect of government reassurances provided to Nissan.’  

He added: ‘We expect any commitments incurring costs to be managed within existing overall departmental expenditure as part of the UK’s Department for Business, Energy & Industrial Strategy.  

However, such a statement is deliberately misleading. There is unquestionably a cost associated with the commitments to Nissan, and any others the UK government decides are politically necessary. The Nissan deal was considered to symbolise the potential success of a post-Brexit Britain. Nissan is the largest foreign investor in the UK car industry, employing 4,500 workers at its Sunderland factory and exporting four-fifths of the vehicles made to the EU. The government clearly thought that any uncertainty surrounding the plant would send a very bad message about the prospects of the UK post-Brexit, and acted to avoid this outcome. However, Nissan undoubtedly knew this too, and would have made the most of their leverage.  

The deal could have consequences for the UK’s Brexit negotiations with the EU. The incentives offered to Nissan may well be in breach of EU competition rules in that they provide state aid to private companies.  

The deal may also have been a cunning strategy by the government to distract businesses. By encouraging them to seek side-deals that support their own self-interest, they may shy away from forming a united front to push the government on industry-wide priorities.  

This may also deflect attention from the fact that the government appears to be gravitating towards a ‘hard’ Brexit that prioritises cutting immigration over optimal single market access. 

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