Nissan in Sunderland

Lord Henley Excerpts

Tuesday 5th February 2019 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, with the leave of the House I shall now repeat a Statement made by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy yesterday. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement about Nissan. The House should know the background to the decision the company announced yesterday. In July 2016, the allocation decision for the next model of the Nissan Qashqai was about to be made and it was set to be awarded to a European plant other than Sunderland. Nissan had located in Sunderland in 1986, having been persuaded by Mrs Thatcher that the combination of British engineering excellence and tariff-free access to the European Union made Britain an ideal location. So it proved, and the Sunderland plant grew to be the largest car plant in the history of Britain. The firm invested nearly £3.7 billion into it and currently employs over 7,000 people, with approximately another 35,000 in the supply chain.

The prospect of losing easy access to the EU market was the principal concern of the company at that time. It was clear that if Sunderland lost the Qashqai, which accounted for over half of its production, mostly for export, the medium and long-term prospects for a plant losing scale would be bleak. Determined not to see the 30-year success of this plant come to an end, we set out over the coming months a strong case for backing Sunderland. This centred on four areas, all of which were about highlighting the success of, and our strategy for, the British motor industry.

First, we would continue our successful and long-standing support for the competitiveness of the automotive sector, which has been available to all firms, for skills, training the local workforce and innovation. The regional growth fund has supported over 3,000 companies, large, medium and small, since 2010, with £2.6 billion of public support. Some £335 million has been invested in the automotive sector via the regional growth fund since 2010. All proposals are independently assessed by the Industrial Development Advisory Board and subject to UK and EU rules.

In 2016, Nissan initially considered applying for a total of up to £80 million in support over nine years for skills training, research and development and environmental improvements, and it was eventually awarded £61 million—around £7 million a year over nine years.

The second commitment was that we would work with the automotive sector to ensure that more of the supply chain could locate in the UK in close proximity to manufacturing sites. Since 2016, as many noble Lords know, our automotive sector deal established, with the industry, an ambitious programme to do that.

The third was that we would make a strong commitment to research and development, particularly to the development of new battery technology and its deployment, and in connected and autonomous vehicles. Our joint industry-government £1 billion advanced propulsion centre R&D programme, along with our £250 million Faraday challenge, is putting Britain at the leading edge of battery technology and manufacturing, and we have introduced test beds for autonomous vehicles across the country. Indeed, the longest autonomous car journey in the UK will take place in November this year from the Nissan site at Cranfield to its site in Sunderland, covering more than 200 miles on public roads.

Our fourth commitment was that in our negotiations to leave the EU we would always emphasise the strong common ground that exists between the UK and other EU member states and pursue a deal that could ensure free trade unencumbered by tariffs or other impediments.

These commitments proved persuasive, as they have subsequently for investments by Toyota at Burnaston, BMW Mini at Oxford and PSA at Luton. Indeed, every competitive allocation decision since 2016 in this industry has gone to Britain. Although discussions had been around the Qashqai, Nissan proposed towards the end of the discussions to add a further model, currently produced only in Japan—the X-Trail—to Sunderland. On 27 October 2016, Nissan announced that both the Qashqai and the X-Trail would be built in Sunderland, securing the plant’s future and adding 741 new jobs.

Last Friday I was informed by Nissan that following a global review of its capital investment, future capital was needed to accelerate the shift in Europe from conventional to lower-emission vehicles. The Qashqai and the Juke will in future have petrol and plug-in hybrid variants made in Sunderland, and as a result, more capital will be invested in Sunderland than was originally planned in 2016. However, this was accompanied by a decision to maintain Japan as the sole production location for the X-Trail model, rather than to establish a new production line in Europe. The consequence of this is that the existing jobs in Sunderland will be maintained by the increased investment, but the 741 additional jobs that would have been created in Sunderland will not now be available. Nissan confirmed that production of the new Qashqai, Juke and Leaf will continue at Sunderland, and that the decision has no implications for the existing jobs at the plant.

Nissan also pointed out, as it has done consistently since 2016, that the risk of a no-deal Brexit was a source of damaging uncertainty. While I am pleased that the decision taken in 2016 to build the Qashqai and secure the Sunderland plant is unchanged, it is deeply disappointing to me and to the workforce to find that the extra jobs that would have come from the X-Trail will no longer be created. I told the House that I would publish the correspondence with Nissan at the time of its original decision, as soon as the company advised that it was no longer commercially sensitive. I have previously shared it with the then chair of the Business, Energy and Industrial Strategy Committee, but I have now agreed with Nissan that it is reasonable to publish it in full today. Colleagues will see that it sets out exactly what I told the House in October 2016.

Grant support for training and development and for environmental improvements were applied for and approved by the Industrial Development Advisory Board on the basis that both the Qashqai and the X-Trail models would be built in Sunderland. Given yesterday’s announcement, if the company seeks to participate in those industry funding schemes—as I hope and expect it will—it will submit new applications in the standard way and undergo a process of independent assessment.

I am disappointed that the new jobs associated with the X-Trail will not now come to Sunderland, but I am pleased that the plant will benefit from substantial new investment in the existing models and that the decision to continue with the vital investment in the Qashqai, Leaf and Juke, and the jobs associated with them, is unaffected. These decisions were made on broader business grounds, but Nissan has commented on the need for us to come together to resolve the question about our future trading relationship with the EU. I believe that its advice should be listened to and acted on so that our automotive industry, which will undergo more change through innovation in the decade ahead than it has for most of the past century in areas such as battery technology and artificial intelligence, can seize the opportunities for Britain to be a world leader in state-of-the-art car making, providing great jobs and careers for hundreds of thousands of people during the years ahead. I commend the Statement to the House”.

My Lords, that concludes the Statement.

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[Lord Fox (LD)]

My Lords, I too thank the Minister for repeating the Statement. Just over a year ago Secretary of State Greg Clark launched the automotive sector deal. Things were a bit different then: in a confident, upbeat foreword, he said that,

“the government is investing in a new industry-led programme to raise the competitiveness of UK suppliers to match the best in Europe”.

Today’s Statement underlines how much things have changed. How can the Government claim to be raising competitiveness when uncertainty and delay make it impossible for businesses to plan and invest? Nissan’s comments underline its struggle to plan ahead. Manufacturers do not even know what tariffs they will face at the end of next month, never mind the supply chain friction that will confront them. They are having to plan shutdowns in April to take stock of the situation. That is hardly raising competitiveness, and it is a key reason why confidence in the automotive industry is plummeting and, as the noble Lord on my right said, investment is halving.

One of the foundations of the Government’s industrial strategy was to create the best place to grow a business. It is clear that the abject confusion over Brexit and the surrounding discussions is weakening communities and the strategy. As the Minister said, we had confirmation yesterday that Nissan has decided not to build the X-Trail in the UK. However the Minister and the Secretary of State seek to dress this up, that is not a vote of confidence in the Government’s strategy. As the Secretary of State acknowledged, it injects uncertainty into an industry that is very important for the north-east—uncertainty over 7,000 direct-employment jobs and approximately 35,000 in the supply chain.

In the Statement, the Secretary of State was clear that Nissan had located in the north-east,

“having been persuaded by Mrs Thatcher that the combination of British engineering excellence and tariff-free access to the European Union made Britain an ideal location”.

So, when the chill winds blew in the year before last, the Minister acted fast and secretly to seek to insulate Nissan. In 2016, in order to reassure the company, the Government made a deal, which included public investment of around £60 million, as we heard, and was sealed in a letter that the Government moved heaven and earth not to publish. They cited commercial sensitivity as the reason—until this week, when publishing suddenly suited the Government. I have a number of questions about that letter.

First, what was commercially sensitive before that is not so now, particularly when the Secretary of State goes out of his way to explain that the funding surrounds the Juke and Qashqai ranges but not the X-Trail? That range will continue, so any commercial sensitivity should surely continue, too. Secondly, and perhaps more importantly, did the Government notify the EU competition authorities about their deal with Nissan? If not, why not? I note that in 2001 some £40 million of support for the production of the Nissan Micra was cleared through the EU. What was different about this support?

The Minister stated that the Government’s fourth commitment is to the,

“strong common ground that exists between the UK and other EU member states”.

I suspect that we would question that. He also said that Her Majesty’s Government would,

“pursue a deal that could ensure free trade unencumbered by tariffs or other impediments”.

There is no sign that the Prime Minister’s red lines will allow this to happen—and clearly Nissan no longer believes the Government either. The reduced sector investment tells the same story.

The prime phrase in all this is “damaging uncertainty”. Faith is falling, even in the Minister’s own department. His colleagues in the other place sound increasingly worried about what is going on and whether the right of his party will drive the country over a cliff. Mr Harrington has called no deal a “complete disaster”, while Mr Clark warned that a no-deal Brexit would be “ruinous” to the economy. Can the Minister tell us the adjective he would use to describe it?

[Lord Henley]

My Lords, before I answer any of the questions put to me by noble Lords, may I correct myself? I think I misread from my right honourable friend’s Statement, in that I suggested some 3,000 companies have been supported by the regional growth fund since 2010. In fact, the figure is 30,000. I apologise for that small error.

[Noble Lords]

Oh!

[Lord Henley]

It is a smallish error of 90%. I have at least corrected it.

I welcome the comments of the noble Lord, Lord McNicol. I agree that this is a blow to Sunderland. It would have liked those extra jobs, but we have to remember that there are still 7,000 jobs in Sunderland that have been there for some time, largely because of the work originally done by my former right honourable friend Lady Thatcher when she, as Prime Minister, encouraged Nissan to come here. There are some 35,000 more jobs in the supply chain. This is good for Nissan, Sunderland and the whole of the north-east.

The noble Lord accepted that Brexit was not the only factor and that there were other problems in the whole automotive industry. Yes, there are. If the noble Lord would care to look—I recommend that the noble Lord, Lord Fox, does so—there are problems in the automotive industry throughout Europe in a big way. This is nothing to do with Brexit; it is because of changes we are making to regulation, changes to diesel, changes to the Chinese market and so on. I could go on. It is not all related to Brexit.

We have a world-leading and highly productive automotive sector, generating a turnover of some £78 billion—£6.5 billion GVA—and directly employing 65,000 people. Over the past two years we have continued to see further investment decisions. Britain has won competitive decisions on allocation of new car models for Nissan, Toyota, BMW and PSA Vauxhall, creating jobs in Sunderland, Derbyshire, Oxford and Luton. We still have an industry that we can be proud of and that can continue to do well.

The motivations for Nissan’s decision must be a matter for Nissan. It has to make decisions relating to its workforce where its plants are throughout the world. We accept that Brexit will be one small part of that and, as Nissan said, that it is still waiting for clarity on what the future trading relationship between the UK and the EU will look like. We therefore repeat our request for UK and EU negotiators to work collaboratively towards an orderly, balanced Brexit that will continue to encourage mutually beneficial trade. That is what Her Majesty’s Government will continue to do, as my right honourable friend the Prime Minister has made clear. We do not want a no-deal exit. As my right honourable friend said, we will work towards the meaningful vote as soon as possible.

The noble Lord, Lord Fox, also asked about the commercially sensitive nature of that letter, which he rather cynically suggested my right honourable friend the Secretary of State had released only now because it suited him. My right honourable friend said at the time, back in 2016, that it was commercially sensitive as a result of discussions with Nissan. Nissan made it clear that supplier negotiations were under way. Those negotiations have now completed and it is therefore a matter that can be released. As my right honourable friend made clear, we are more than happy to do so.

Finally, I was asked whether the United Kingdom Government notified the EU of the £61 million support. I can give that assurance. It has been given on many occasions. The grant award was fully compliant with EU state aid rules. Details of the award were shared with the EU and published on its transparency website.

--- Later in debate ---

[Lord Forsyth of Drumlean]

Yes, it does. The EU was responsible. Under Gordon Brown’s Government we were encouraged to buy diesel cars and to put diesel fuel into them. The duty on the fuel was reduced. So to blame the manufacturers and Brexit for this problem is quite ridiculous. What are Jaguar Land Rover and Nissan, which have to plan in the long term for the production of their cars, to make of a regulatory regime that flips from being in favour of diesel one day to being against? Why are we surprised that Nissan no longer wishes to concentrate on producing diesel-operated vehicles in Europe and instead wishes to look to the future, to electric? Are the Government not to be congratulated on encouraging that investment in the north-east—an investment in the future, not in the past?

[Lord Henley]

I am very grateful to my noble friend for making those points and making them so well. I also declare an interest as an owner for the last 30 years of a whole series of diesel cars. Further, my wife—possibly inadvertently—bought a Volkswagen diesel at probably exactly the wrong moment, just before the scandal erupted in that field. I think we can say that changes to diesel regulations are a factor in decisions being made—decisions that the whole automotive industry has to make. It is also a factor for the Government to consider in deciding which new technologies we should support in future. I can give an assurance to my noble friend that the Government will continue, as he suggested, to support those new technologies.

[The Lord Bishop of Lincoln]

My Lords, I have been asked by my right reverend friend the Bishop of Durham, who is detained in his diocese, to ask the following question. While he recognises the promised protection of existing jobs, does the Minister recognise that Nissan’s X-Trail announcement will inevitably cause real worry for existing staff about the sustainability of their jobs, both at Nissan and in the supply chain? Will the Minister say how Her Majesty’s Government intend to allay such concerns at local level and what they might do to encourage Nissan to invest more in the development of electric cars and autonomous vehicles?

[Lord Henley]

I am grateful to the right reverend Prelate for asking that question and for underlining the obvious concerns of all people living in Sunderland, Durham and the wider north-east, including the 7,000 workers at Nissan and the 35,000 people supported in the supply chain. We will continue to talk to all concerned; we want to allay those fears. We are very grateful that Nissan continues to be committed to that site. It has made enormous investments there over the last 30-plus years. As the right reverend Prelate stressed, we will also continue to make investments in R&D and new technologies in other fields. The automotive industry is changing, and what we have all been saying about diesel holds true. There will be a decline in diesel sales, but we hope to see a greater take-up in others.

[Lord Hannay of Chiswick (CB)]

My Lords, does the Minister not recognise that the real story here is that the Government—perhaps understandably—in 2016 gave an undertaking to Nissan that there would be no deterioration in its access to the European market, which they have proved unable to deliver? That is the real story, is it not?

The Minister referred to Baroness Thatcher and the role she played in getting Nissan established. I fundamentally and absolutely agree with that. I was the British Permanent Representative at the time. We had a lot of trouble because the French Government wanted origin rules to be applied to the production in Sunderland, which would have destroyed the case for investment there. Thanks largely to the late Lord Cockfield, that attempt was defeated. How sure is the Minister that, if we leave the European Union, the issue of origin rules will not arise again and affect the capacity of foreign investors in this country to export cars to the European Union?

[Lord Henley]

I am grateful to the noble Lord, Lord Hannay, for paying tribute to the late Lady Thatcher and for reminding us of the work of the late Lord Cockfield, whom many of us remember. As regards what will happen to the rules for the future, that will depend very much on negotiations. Those negotiations will continue. I very much hope that we get a deal that is suitable to make sure that this company can continue to flourish. I am sure that it will continue to flourish, and will continue to flourish in Sunderland, irrespective of what happens.

[Baroness Quin (Lab)]

My Lords, I echo the concerns raised by the right reverend Prelate, but in its statement Nissan specifically mentioned the uncertainty created by Brexit. Another factor too is the recent conclusion of the EU-Japan trade agreement, which will make exporting from Japan to the EU and vice versa cheaper and simpler. Yet that is an agreement that we risk being excluded from after 29 March. Can Nissan and the people of Sunderland be assured that we will not have a no-deal Brexit that will make an already worrying situation even more serious?

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[Lord Henley]

My Lords, again, I understand why the noble Baroness talks about the uncertainty in Sunderland and the rest of the north-east—an area that I remind her voted heavily back in June 2016 to come out. I particularly remember the vote on that night. A great many of us, including the noble Lord, Lord Adonis, will remember the moment when the vote took place in Sunderland. Anyway, we will continue to work, as I said, for the north-east and my right honourable friend made that clear. She also drew attention to the EU-Japan trade agreement. That gives us a model for what we want to work for. That is what we will do to secure the future of the people of Sunderland and I hope the noble Baroness will assist us in that.

[Baroness Randerson (LD)]

My Lords, the Government recently removed and reduced some of the grants for those buying hybrid and electric cars. Since then, sales of those vehicles have been very sluggish. That is yet another problem for the automotive industry to deal with. So will the Government undertake to restore incentives to purchase the cleanest vehicles and, at the same time, assist our automotive industry?

[Lord Henley]

My Lords, I will not discuss specific grants for any specific type of vehicle. I have made it quite clear that we are committed to supporting research and suchlike in new technologies for new vehicles because things of this sort are changing. Getting any grant structure right is obviously very difficult. One wants to avoid perverse incentives that push people down the wrong route—one thinks possibly of incentives made in terms of the pricing of diesel. The fact is that we no longer support diesel in the way that previous Governments did, and that has had a big effect on the market. But we are committed to seeing new technologies emerge in this area.

[Lord Hamilton of Epsom (Con)]

My Lords—

[Lord Hamilton of Epsom]

No, it is not the turn of the Cross-Benches. We have just heard the noble Lord, Lord Hannay.

Does my noble friend accept that Nissan would have been absolutely mad to have gone ahead with the programme for the X-Trail when the whole of the market for diesel vehicles has collapsed? Does he accept that this is largely to do with the overreaction of European Governments, including our own, to the diesel emissions scandal, which was started by Volkswagen in Germany?

[Lord Henley]

My Lords, I am not going to allocate blame, particularly because, as I mentioned earlier, my wife was one of those who made the mistake of buying a VW just before the diesel scandal erupted. The fact is that there has been a concerted attempt to reduce the number of diesel cars, for whatever reason. For that reason, Nissan has to make hard-headed decisions about what cars it invests in and in which plants it should be investing.

[Lord Birt (CB)]

Like many of your Lordships, I have substantial and continuing experience of the real economy. The important story here is that Nissan is not unique but typical. Routinely, I experience decision-makers in business and in the international investor community building Brexit into their day-to-day calculations. The result, as we have seen, is a massive loss in the value of our currency and the UK experiencing the lowest growth rate among the G7. Does the Minister agree with his Business Secretary that a no-deal Brexit would be ruinous?

[Lord Henley]

My Lords, I accept that a no-deal exit would be difficult. The point we are making is that we do not want no deal; that is why we are looking for a deal. Other than that, I have to say to the noble Lord that he paints a unduly gloomy picture. Things might be difficult for the automotive industry but, as I made clear, he will have seen that over the past few years—that is, since the vote in 2016—competitive decisions have been made in the automotive industry that have brought new car models to Nissan, Toyota, BMW, PSA Vauxhall in the UK, and that has created jobs in all parts of the country.

[Lord Lennie (Lab)]

My Lords, other car makers in this country—Honda, Toyota and BMW—have pulled out from bringing models to this country. That demonstrates a lack of confidence in the future of manufacturing here, due in part to Brexit uncertainty. Nissan clearly does not feel that it can rely on the assurances given by the Secretary of State in his recently published letter that there will be free, frictionless trade between here and Europe. Why not?

[Lord Henley]

Things have changed. It is not solely to do with that. As other noble Lords have said, the whole car industry is going through a rather turbulent time. We only have to look at what has been happening in, for example, sales of diesels. For that reason, Nissan has to make difficult decisions. It has decided that it will go ahead with the X-Trail but will build it in Japan, no doubt for markets over there. Nissan is still committed to Sunderland. There are still 7,000 jobs there. There are still 35,000 more jobs in the supply chain. Things are not as bad as the noble Lord is trying to suggest.

[Baroness Kramer (LD)]

My Lords, as a Minister in the coalition, I had the privilege of visiting the Nissan plant in Sunderland, and I also visited most of the major Japanese car companies’ headquarters in Tokyo. As a consequence, I am very aware that British plants won the right to produce cars for these various companies by only the tiniest hair’s breadth, as a competition is run across the globe, and certainly across Europe, for each new piece of investment and for each new major production line. Does the Minister recognise that if he cannot give an assurance that there will be absolutely no increase in friction and non-tariff barriers, by definition those plants have no possibility of winning such competitions in future?

[Lord Henley]

My Lords, decisions on where to invest are very difficult. The noble Baroness is quite right to say they are made by a hair’s breadth. One of the reasons companies come to the UK is because they know that we have the right people in the right places. That is why they go to Sunderland and why we got that investment in the right place. We should be proud of that. We will continue to seek other companies to come to invest in this country, like the companies I mentioned earlier have done. The noble Lord opposite suggested that BMW and Honda made competitive decisions that went against the UK. I am advised that that is not the case and no competitive decisions have gone against the UK in recent years.

[Lord Tugendhat (Con)]

My Lords, does my noble friend agree that, in an uncertain situation, one thing is certain—that if we go out of the EU without a deal, cars manufactured in Japan will be able to enter the EU on more favourable terms than cars manufactured in the UK?

[Lord Henley]

My noble friend is absolutely right about the recent trade deal agreed between the EU and Japan, and that is why we in the UK should seek to emulate deals of that sort. We are not seeking no deal; we are trying to get a deal. Let us all come together and try to get that.

[Lord Lea of Crondall (Lab)]

Can the Minister confirm that he is saying that the rules of origin question does not arise in the deal currently proposed by the Government?

[Lord Henley]

I am not sure that I quite followed the noble Lord.

[Lord Lea of Crondall]

Can the noble Lord confirm that the origin rules problem does not arise in the present deal proposed by the Prime Minister?

[Lord Henley]

The origin rules problem is very detailed and complicated in terms of the percentage of any car that is manufactured on any particular site. If the noble Lord would like me to do so, I shall write to him in greater detail on that subject.

[Baroness Ludford (LD)]

My Lords, can the Minister inform us how many Brexiteer parliamentarians have been CEOs of major manufacturing companies, such that they purport to know better than the CEOs of, say, Honda or Airbus what the problems of Brexit are?

[Lord Henley]

I am not sure that that question really deserves a response.

[Noble Lords]

Oh!

[Lord Sterling of Plaistow (Con)]

My Lords, in April last year the percentage of people buying diesel cars was 70.2%; it is now precisely 31%. That answers most of the questions today. Nissan is a very fine company. We have wonderful engineers in this country but if I were the chairman of Nissan today, I would have made exactly the same decision, which is most sensible. We will catch up when we have agreements in the future with countries such as Japan.

[Lord Henley]

I am very grateful to my noble friend for underlining what has happened to diesel sales, which is obviously a major factor in the decisions in this matter.

[Lord Wigley (PC)]

My Lords, the Minister in the other House made it clear that he was reinviting Nissan to submit an application for assistance on possibly different terms in order to overcome the difficulties that might now be facing the company. Can the noble Lord confirm that such an offer will be equally open to companies such as Ford, which is facing similar difficulties in Bridgend?

[Lord Henley]

My Lords, it is open to any company to apply for any funds that are available, as my right honourable friend made clear in the Statement, and that will be reviewed in the proper way, independently of my right honourable friend. I can tell the noble Lord that, of that £61 million, about two-point-something million pounds has been spent. It will be up to Nissan to make an application for the rest of it, although obviously it will not be needing it at the moment.

[Lord Scriven (LD)]

My Lords, as more decisions about where to make new models arise, is not the fear that car makers will look less favourably on a Britain that is outside the security of a large trade bloc, whatever the terms of an exit?

[Lord Henley]

I think that car makers will continue to look at the investments that they have already made and at the very great skills that are available in the United Kingdom. They will also continue to look at the R&D that we support for an industry which, as all noble Lords have been pointing out, is changing very fast with the decline in the demand for diesel but which is seeing growth in a great many other sectors.