Business, Energy and Industrial Strategy Committee
Oral evidence: Leaving the EU: implications for UK business, HC 384
Tuesday 4 December 2018
Ordered by the House of Commons to be published on 4 December 2018.
Members present: Rachel Reeves (Chair); Vernon Coaker; Stephen Kerr; Peter Kyle; Sir Patrick McLoughlin; Albert Owen; Mark Pawsey; Antoinette Sandbach; Anna Turley.
Questions 256 - 355
Witnesses
I: Tony Walker, Deputy Managing Director, Toyota Motor Europe; Sydney Nash, Senior Policy Manager, SMMT; and Dermot Sterne, Chief Executive, Applied Component .
Witnesses: Tony Walker, Sydney Nash and Dermot Sterne.
Chair: Thank you very much to Tony Walker, Dermot Sterne and Sydney Nash for coming to give evidence to our Select Committee today. As you know, we are looking at the impact of the withdrawal agreement on UK business and today we are focusing on the automotive sector after three very helpful and useful sessions over the last couple of weeks looking at other parts of the economy. We will start this morning with questions from Mark Pawsey.
Q256 Mark Pawsey: Good morning and thank you very much for coming along to give evidence to us. My first question is specifically to the SMMT. We had an evidence session about a year ago when the SMMT told us that in terms of investment and development “people were sitting on their hands and waiting for more clarity”. What effect has the uncertainty, perhaps since the referendum date, had? We are now getting closer to clarity; we have the withdrawal agreement. What is your view about moving forward? What has happened in the last year or two, particularly since you last gave evidence, and how do you see the future?
Sydney Nash: Since we last gave evidence the trend has been very much the same, so we continue to see investors sitting on hands. Year on year we have seen investment in UK automotive drop by about 50%. That is based on the June figure. We recently surveyed our members who have given a similar indicator that they have seen business loss as a result of the uncertainty, so that trend has continued since we last gave evidence.
Looking forward, we now have the withdrawal agreement on the table, the political declaration. The focus for all of us now is making sure that we have a deal so that we can have certainty coming in March or April next year and avoiding the cliff edge. I would not say that what has come back from Brussels in the last few weeks has necessarily changed the mood at this point, because as we all know we need to get through the ratification first.
Q257 Mark Pawsey: The uncertainty that you have seen over the recent year is not all Brexit, is it, because there is uncertainty about the future role of diesel, for example? How would you split out the two? Which has been more significant?
Sydney Nash: What we hear from our members is that it is Brexit uncertainty that is driving the unwillingness to invest in manufacturing, the decision to take a pause and wait and see. In the market we are seeing slightly different forces at play. You are right to raise issues such as diesel. There is a certain amount of confusion among consumers as to what to do next, so I think that is definitely seeing a resultant shrinking in the market. When it comes to manufacturing, it is largely driven by Brexit uncertainty.
Q258 Mark Pawsey: We know that diesel uncertainty is affecting the consumer and sales. In your view, has Brexit uncertainty affected sales?
Sydney Nash: It is a little bit harder to say, in our assessment. What seems to be clear is that there is slightly diminishing consumer confidence at the moment, in part because of Brexit. There may well be other factors in play. Undoubtedly, buying a vehicle is a significant outlay. When there is a drop in consumer confidence it is the bigger purchase items that get hit first and, of course, buying a car is one of those.
Q259 Mark Pawsey: Mr Walker, what is Toyota’s assessment of what has happened in the year or so since you gave evidence to us?
Tony Walker: I don’t think much has changed. Are you talking about investment uncertainty?
Q260 Mark Pawsey: You spoke to us a year ago. What has happened in the last 12 months?
Tony Walker: The Prime Minister has negotiated a deal, which is in front of us.
Q261 Mark Pawsey: What is Toyota’s response to what is happening?
Tony Walker: We have not had any major investment decisions to take in the last 12 months. We made a decision some time before that and we are proceeding with the investment. That means we will start production of a new car very shortly, which is very good news. We have felt continued uncertainty and continued anxiety about the basis upon which we can trade. We have been trying to take what countermeasures we can to be competitive, so trying, as we always do, to reduce costs, to improve quality, to improve productivity. It has basically been business as usual with added urgency potentially to overcome the increased costs.
Q262 Mark Pawsey: May I put the question to you that we have put to witnesses in our other inquiries? Are there any investment decisions that have been delayed, postponed or are not taking place that might otherwise have happened?
Tony Walker: In our case, the cycle of our products meant we did not have an investment decision come up in the last 12 months.
Q263 Mark Pawsey: Mr Sterne, what is your assessment of what has happened over the last year or so?
Dermot Sterne: I represent a very small company, a tier 2 supplier with just 60 employees, but also I am vice-chair of the component section of the SMMT, so we survey mostly SMEs. There is a range of things. Very small companies have been waiting and seeing, waiting for some clarity before taking any actions. Some others, however, have already started to build stock, for example, and invest considerably in that. Some of our members have up to £1 million cash flow now just to keep stocks of some components in case of a no deal.
Q264 Mark Pawsey: There is a contingency that people are making for the possibility of leaving with no deal. Is that what you are saying?
Dermot Sterne: A contingency for a bad outcome, yes.
Q265 Mark Pawsey: What sort of investments have taken place? Are they in warehousing, in holding inventory?
Dermot Sterne: Yes, holding inventory and on some occasions the warehousing in which to hold that inventory.
Q266 Mark Pawsey: Is your company holding more stock now than you would have been a year or two ago?
Dermot Sterne: No. We would fall into the group of very small companies that have been waiting and seeing and not wanting to tie up cash flow unnecessarily, hoping that we will have a good outcome.
Q267 Mark Pawsey: Mr Nash, do you know of members who made contingency plans for leaving with no deal and what have they done?
Sydney Nash: We did a survey of our full membership and what we see across the full membership is reflective of what Dermot said. At least 50% are triggering their contingency plans in advance of our departure from the European Union. I think 12.4% of those who were surveyed have relocated some elements of their business to the EU27 as a result. We are seeing those plans going forward.
Q268 Mark Pawsey: Can you give us an example of somebody who has relocated a part of their business to the EU? Who might have done that and how significant would it be?
Sydney Nash: I can’t give the name of a specific company, because all those results were given confidentially, but of those who responded 12.4% have already moved part of their business to the EU27.
Q269 Mark Pawsey: Is that assembly or component sourcing? Tell us a little bit more about that.
Sydney Nash: The survey did not go into quite the granular level of detail as to precisely what part of the business it was, but it would certainly cover manufacturing and may well be the elements you suggested.
Q270 Mark Pawsey: There is activity taking place in the EU right now that in the absence of a decision to leave would have been taking place in the UK?
Sydney Nash: That is right.
Q271 Vernon Coaker: Good morning, everyone. To build on some of the things that Mark Pawsey has been asking, could each of you briefly give your assessment of the withdrawal agreement? Is it where you had expected us to be? Does it provide you with the certainty?
Sydney Nash: We have welcomed the withdrawal agreement, not least because it delivers the transition that we have been asking for as a sector and it takes us a step away from the cliff edge and the risk of no deal. We have been very clear as a sector that no deal would be catastrophic for us and we have to avoid that and we have to have a deal to avoid that. From that perspective, the withdrawal agreement is definitely a positive. It delivers transition and a transition that could be extended. I think we will need as much time as possible to have as ambitious a deal as possible, so from our perspective that is certainly to be welcomed.
Dermot Sterne: Very similarly, we welcomed the withdrawal agreement because it avoided the cliff edge that was approaching at great speed. We welcome that. The fact that it is a transition and what happens after that still has some questions to be answered, but on the whole it was a welcome respite. Some of the decisions we have just talked about in answer to Mark’s questions potentially can be thought about a little bit more.
Tony Walker: We, too, absolutely welcome the withdrawal agreement. It allows us to continue trading on the same terms as we have today. For us, it would have been unimaginable that we could implement overnight full import-export customs arrangements in line with WTO third country. We run integrated just-in-time European supply chains. We have 50 trucks a day coming through the tunnel—we use the tunnel—and we carry just four hours of parts at our plant. We collect the parts in sequence to the build and we build the cars one by one to customer order. There is no batch build, so we have to have not just the 50 trucks a day but we have to have them in sequence. It will be no good if we have 49 and truck 17, for example, is missing. We will then stop.
Without the withdrawal agreement and withdrawing with a no deal, in our understanding we would have stop-start production for weeks, possibly months. It would be very difficult for us to cope with. It is also difficult because the supply chain across Europe is integrated. It is also collecting parts for other plants in Europe, so it is a very difficult situation for us. The value of the cars we make is £10 million a day. It would be very challenging for us if we lost that sort of value.
Q272 Vernon Coaker: Thank you for that. What the three of you are saying is that you almost envisage business as usual during the transition period as a result of the withdrawal agreement. Isn’t it the case that essentially we stay, for all intents and purposes, members of the EU during that period? We have to accept all the various arrangements, the single market regulatory framework and so on. What if I said to you that we are simply delaying the difficult decisions for another year or two, until the end of 2020? Essentially the withdrawal agreement says we will stay a part of everything while we sort it out, so isn’t it just delaying it?
Tony Walker: We are practical people and we need to solve problems one by one and that is what we do every day. What is in front of us now is the only thing we can solve. We would like to solve what is in front of us now and we need to use the period after we have withdrawn to clarify, as quickly as possible, the key things that we need as a motor industry and as Toyota. We think there are indicators in the political declaration towards the things that are very critical for us. That is zero tariffs and we have to have rules of origin that enable us to apply the zero tariffs, which means usually at least 50% has to be classed as local.
It is a shame that we do not have free and frictionless trade indicated. We haven’t, but what we do have is the desire to have some sort of good arrangement for the future, automated type of clearance, some of it.
Q273 Vernon Coaker: A lot of it is aspirational, isn’t it, Dermot? Do you think it will be able to be done by the end of 2020?
Dermot Sterne: It is a pretty short time compared to other trade agreements but, as Tony said, we have to roll up our sleeves and get on with it.
Q274 Vernon Coaker: I don’t disagree, but it is aspirational, isn’t it? It is, “We hope that this will be”. Essentially, we stay a part and get ourselves some more time to try to sort it out?
Dermot Sterne: Yes, correct, but I think we need that time so that is why we are broadly welcoming of it.
Q275 Vernon Coaker: I understand that, because a no deal would be disastrous. I get that. I understand that is what everybody has said. Sydney, if it did not work out, we can extend it for a year or two years, I think—two years is the maximum, isn’t it—to the end of 2020. Do you think that may be necessary?
Sydney Nash: As I indicated earlier, we need the most ambitious outcome from the next stage of the negotiation, because as Tony rightly said, this is part of a process. Ambition tends to take time, to do something really well tends to take time. We would certainly be minded to say that if the extension of the transition needs to be used, it should be used. It should not be shied away from and we should use as much time as is necessary to get a deal where the end point is free and frictionless trade, because that is absolutely what we need as a sector.
Q276 Vernon Coaker: But it is time limited. It is a year or two years rather than for as long as it takes. Do you think that is what it should have said? That is politically undeliverable, isn’t it?
Tony Walker: I think we have to be even quicker because what we can’t have is that three or four months before the end of the transition period, whether it is one ending at 2020 or even two years later, we are facing another cliff edge. We will need time to implement the systems and implementing any system—customs system, government system or private company system—will take time. We need to know where we are going as soon as possible.
Q277 Vernon Coaker: Is membership of the single market more important to you or membership of a customs union?
Tony Walker: I didn’t know that membership of the single market was even on the table. It is worth to say practically that we are in a customs union with Turkey. Toyota imports 7% of our parts direct from Turkey, by sea from a Turkish port to Felixstowe, and we never have any problems. Everything is cleared in advance; manifests are declared in advance; there is no check at Felixstowe. The parts just come straight in and 60% of the production from our Deeside engine plant is exported straight by sea to Turkey. We have experience of trading in a customs union arrangement and we do not have any problem with that.
Q278 Stephen Kerr: We have mentioned frictionless. Let’s talk about type approvals. What plans do you have for type approvals in the transition? Then we will come on to in a no-deal situation.
Tony Walker: As it happens, Toyota is using the UK to do all its European type approvals. You may be very familiar with it but maybe I can say a couple a bit wider. There are basically 39 sets of regulations around the world but 26 of those are United Nations anyway, so two-thirds of the technical regulations come from the United Nations. I believe those will be continuous whatever happens. Then we have 13 for the EU and we have discussed, particularly with the EU authorities—and in our case it is Belgium—and there are two or three issues. One is those vehicles that were type approved by the UK still being saleable in Belgium and in the event of a hard Brexit we do have in place arrangements that the Belgian authority would take those over, including stock vehicles. There is another issue that vehicles that we made but have not reached the customer yet would be taken over. We have made that sort of preparation.
Q279 Stephen Kerr: That is in a no-deal scenario, but during a transition what do you plan to do? Are you going to continue to use the VCA or are you going to make plans—
Tony Walker: We will start making the new Corolla at Burnaston. We have had that type approved in Belgium as a precautionary measure. I am sorry about that.
Vernon Coaker: Okay, that is very clear.
Q280 Chair: What does that mean in terms of jobs, Tony Walker?
Tony Walker: Probably it does not mean so much in terms of jobs. The number of people we have employed at MIRA is about 10. If we are authorised as a testing centre, we can still test. It is not big. Most of the 10 are involved in testing. If we can have that recognised by the EU, that would be okay.
Q281 Chair: Do you have any certainty that you will be able to?
Tony Walker: No, we don’t know that but there is no real reason why not. We are not quite there yet.
Q282 Chair: Are you in discussions with Government or with—
Tony Walker: We are, yes, both in the EU countries and in UK.
Q283 Stephen Kerr: In the technical notices, the Government have intimated that should you have an EU27 type approval that would be an administrative action on the part of the VCA.
Tony Walker: They should be taken over, that is right. In our case, the Lexus brand is not type approved in the UK. As we understand, we would still be able to import because that would be taken over, just the same as Mercedes or anything else that is type approved in the EU27.
Q284 Stephen Kerr: What more could the Government do in assurances for type approvals through the transition?
Tony Walker: I think we have very good communication with the VCA and we are very satisfied with that, both formally and informally. The SMMT has a technical committee—Sydney will tell you its proper title—and we are very engaged with that. I think on that side there is no real conflict. We are all trying practically to work it through.
Q285 Stephen Kerr: Is this approach that Toyota is taking representative of the industry’s approach?
Sydney Nash: On the broader position, you are absolutely right, the type approval transition is a status quo situation, so we can continue to—
Q286 Stephen Kerr: But Toyota will be making plans.
Sydney Nash: Yes, and we have seen other manufacturers take similar contingency measures. The primary focus for manufacturers is making sure that they have an approval that is valid in the UK market and an approval that is valid within the remaining EU27 as well. The no-deal scenario, which of course we want to avoid, requires manufacturers that have a UK approval to transfer that to another EU27 authority. The EU has its own legislative proposal going through at the moment to allow for that to happen and vice versa, as Tony has just indicated, have an EU27 approval transferred through the DfT’s administrative process.
Q287 Stephen Kerr: In a no deal, the EU will not accept a UK-type approval?
Sydney Nash: Not under a no-deal scenario.
Q288 Stephen Kerr: In the situation as it is currently, what you are saying is that during the transition Toyota is representative of what is going to happen. These type approvals are going to start off in the UK and be administered through the UK.
Sydney Nash: If we enter the transition period as set out in the withdrawal agreement, we have status quo for the market conditions and approvals. A VCA-issued approval remains valid in the EU and an EU approval remains valid in the UK in transition. The preparation that DfT has been doing and, on the other side, the European Commission has been doing, is for a no-deal scenario. Under that, you are absolutely right, the EU would not recognise a VCA approval, so a company would have to transfer over.
Q289 Stephen Kerr: Yes, as covered in the technical notices. Dermot, do you want to add anything to this?
Dermot Sterne: Only to say that my suppliers are interested in type approval but they don’t really affect us, they affect our customers. The most important thing for suppliers above everything else is our customers continue to make the same or more volume of vehicles in the UK. We keep a close eye on that, so we are pleased there was status quo in the withdrawal agreement, recognising work to be done, because it is not covered in the political declaration to any certainty.
Q290 Chair: Following on from what Dermot said then about your priority is that the same vehicles are made in the same numbers, if not more, what has happened in car production in the UK since we voted to leave the European Union?
Sydney Nash: We have seen a drop in production during the course of this year. The outlook for next year suggests that there will be a further drop in production.
Q291 Chair: What was the car production in 2016?
Sydney Nash: I don’t have that figure to hand, I am afraid. I can certainly provide that to the Committee after this.
Q292 Chair: Okay, but you say it has fallen in the last couple of years.
Sydney Nash: It has fallen during the course of this year and our expectation is for a further fall in production of about 115,000 vehicles next year[1].
Q293 Chair: You said earlier that 12.4% of businesses have moved investment in the last year.
Sydney Nash: Operations.
Chair: Is that fall in car production because of the movement in those operations because of the Brexit vote or other—
Sydney Nash: I think it is a bit more symbiotic. Some of it is undoubtedly about risk mitigation in the event of no deal, so moving operations to the EU27, and some of it might be the result of falling production. The survey did not go into quite that level of detail but I suspect it is a combination of those factors.
Q294 Albert Owen: Good morning. Moving on to the political declaration, you have mentioned frictionless trade in earlier responses. In the absence of a commitment to frictionless trade in the declaration, do you believe the future trading arrangements with the EU will involve some additional cost or delays? Mr Walker, you said it was a shame, so what did you mean by that?
Tony Walker: We have been very clear, we have always asked—Toyota has asked, the motor industry has always asked—for free and frictionless trade and common technical standards. We do appreciate how Government have listened and the automotive industry is often quoted as an example of what is needed for future trade arrangements. We do appreciate how we have been listened to and we had hoped from those discussions we might see those words, but they are not there. But what is there is comprehensive arrangements “to create a free trade area, combining deep regulatory and customs co-operation” and for import-export “no tariffs, fees, charges or quantitative restrictions across all sectors, with ambitious customs arrangements—which obviates the need for checks”. To us, it is back to being practical people. We can’t imagine to have made all the steps to resolve all of that at once. We have to keep working on these things that are there.
Q295 Albert Owen: Why do you think there was a change of emphasis from the Chequers agreement that said “frictionless trade”? I am sure the Prime Minister tried to get it from the EU, I am not putting the blame at her door, but why do you think it was not in the political declaration, because it is so important?
Tony Walker: Obviously I don’t actually know.
Q296 Albert Owen: I know you don’t, but I am asking you the question because you made the issue to us before about how important this was, how important the additional costs you have mentioned will be. You can’t foresee the fact that there might be no delays and you said four-hour delay could cost you a lot of money.
Tony Walker: Yes. My understanding is that this is a negotiation. I have been involved in many negotiations—in my case it is with trade unions—and it is a compromise and we don’t always end up with what we want on both sides. We end up with something that hopefully we can both live with.
Q297 Albert Owen: Okay, but it does not give you the certainty that you want going beyond that that there would be no customs stoppage in the tunnel. France might have a beef with us in two years’ time and all of a sudden say, “We are going to delay stuff coming through the tunnel”.
Tony Walker: I do believe it ought to be possible. We import parts from Japan. About 10% of our parts come from Japan, about 7% come from Turkey, and in both of those arrangements, using import-export agencies, of course, we are able to declare all the goods in advance, manifest by manifest, and they are cleared electronically in advance. We have no delay either at Southampton or Felixstowe. The goods just come straight off the ship and come straight up to us in Burnaston or Deeside. With planning, we would like—of course we don’t know, but that is why I am thinking what I am thinking, if that makes sense.
Q298 Albert Owen: It does. I am clear on your view. It is a shame, though, as you mentioned earlier on. Dermot, are you as reassured as Tony is with regards to the customs arrangements and are the suppliers costing into the different scenarios that there may be delays?
Dermot Sterne: They are certainly analysing the costs and doing a lot of work to be prepared for that. You will not be surprised to hear that we would have preferred frictionless to be more guaranteed but we are ready to work with Government to try to make sure that that is achieved, because it is absolutely essential. When this analysis does occur, people quite quickly see the additional costs involved. Sydney was talking about businesses. In the SME world several companies already have put logistics hubs and some manufacturing in the EU just to try to be closer to some customers as a contingency activity. It would have been much preferable to have had it more—
Q299 Albert Owen: Do you understand the concerns that some of us have, that we are voting next week, that these guarantees are not there and we would be signing some sort of blind Brexit cheque?
Dermot Sterne: I don’t know if I would use that wording.
Albert Owen: That is my wording.
Dermot Sterne: I think people voting will recognise that the word “frictionless” is not nearly as strong as it was in the Chequers agreement, so that is something we would not welcome.
Sydney Nash: My reflection on the political declaration is that there is a clear call for ambition in the declaration and both sides saying they will use their best endeavours to deliver on that and deliver on it quickly. We have spoken about how long might be needed. I look at that and I take encouragement from it. Absolutely, an explicit statement saying that we will have frictionless trade would have been welcome but it is not ruled out. The Government have been very clear to us as an industry that that remains their ambition, that frictionless trade is the end point they want to deliver and that is the end point that we want to see as well. As Dermot said, I think the onus is on all of us now to work together to deliver on that at the end of the next phase of these negotiations.
Q300 Albert Owen: The three of you have made similar responses. At this juncture we understand that you only go by what is there but going forward you will be lobbying the Government and the EU to come to a further arrangement to have fully frictionless trading with the EU. You will be continuing that?
Tony Walker: Yes.
Q301 Albert Owen: Yes. It is quite straightforward. You will be maintaining the different scenarios and analysing them going forward?
Tony Walker: Yes.
Q302 Antoinette Sandbach: The political declaration states that, “The United Kingdom will consider aligning with Union rules in relevant areas”. Sydney, have the Government given you an assurance that the automotive sector is one of them?
Sydney Nash: We have been told previously that in automotive the Government see no benefit in divergence rules between the UK and the EU. The Chequers agreement, the White Paper called for a common rulebook on goods covering automotive as well. I think the Government’s position on what they want to achieve is fairly clear. For us as a sector we need harmonisation and that regulatory alignment. Vernon asked a question earlier about what is more important, a customs union or single market, but what is most important is frictionless trade and to get that we need both the customs union side and the regulatory alignment.
Q303 Antoinette Sandbach: Do you agree with that, Tony?
Tony Walker: What we have got is these words that you know well, “combining deep regulatory and customs co-operation” and “regulatory approaches that are transparent, efficient”. If we go out of line with the EU in the future—and some areas would not be so expensive but some areas would be very expensive, if we were to have emissions regulations the cost would be huge—that cost would be passed on to the market, which means that the UK consumer would pay for the R and D cost of those additional or more stringent regulations. Of course, if they were slacker it would be different but that is hardly the direction I think anybody would want to go on emissions.
We need to be clear that being different would result in increased cost to the British consumer, and we have that situation already. We have markets in the world that have special regulations. The R and D we have to do for that we pass on to the market and those costs get passed on to the consumer in those markets. It is the only way we can do things.
Q304 Antoinette Sandbach: Regardless of what is discussed or agreed with the future relationship, the reality is that provided we do not diverge from European rules expressly, you are likely to manufacture to European standards regardless of what decisions are made here?
Tony Walker: We will manufacture to be saleable in every country and we would not want to give up selling cars in the UK, far from it. We would rather sell more. What I was saying is that if there were specific technical requirements for the UK market and they were on significant items that were expensive—I don’t think it is very expensive if it is just a small change of body shape to do with crash or something—it could result in significant cost to the British consumer.
Q305 Antoinette Sandbach: Are there concerns that the panel have about it becoming rule takers, as we have heard people described or us described in the media?
Tony Walker: It is a very political expression, so I don’t think we would use that expression but we have had no difficulty in Toyota, or I think in the wider car industry, in being innovative or being compliant with EU regulation in the past and there is no reason to think we would have difficulty in the future either. I have heard discussion saying does EU regulation stifle innovation. I really don’t think so. Look at the German car industry. There is hardly a more innovative car industry. We have no evidence for that view.
Q306 Antoinette Sandbach: I see you nodding, Dermot. Do you agree?
Dermot Sterne: We want the same rules as Europe. There is a more non-evidential but emotional thing that we are a very proud industry and Britain has a very successful car industry. We would like to be influencing those rules very much. That is the angle I would come at it from.
Sydney Nash: The only thing I would add is that when one looks at how rules and regulations are set for the automotive sector, we have a level above the EU, the UNECE, where the UK will still play a role, will still be able to shape those discussions and will continue to do that undoubtedly. Of course the EU remains a regulatory powerhouse. As Tony has already indicated, we will have to build to those standards. It is our biggest market so we need to sell in that market, so we have to build to that standard.
We believe that as an industry in the UK we have unique insight and expertise that we can bring to discussions in Brussels. We would want to still be able to shape those regulations at a technical level. It is notable that in the text of the withdrawal agreement for the terms of transition there is the option for the UK to be invited into technical discussions to still be part of those, even when we have left the club. I think it is very important that we take advantage of that and create a relationship that sees us shaping these rules at the EU level as well as at the international level.
Q307 Antoinette Sandbach: On transition, how soon is real clarity required on what we are transitioning to? If the negotiations carried on until 2022, for example, is that going to be an issue for the automotive sector?
Tony Walker: Yes, because, particularly for things like customs clearance and so on, we are sure we will need some sort of mechanised, automated system. It will take time to develop that and for us to implement that. We would strongly ask that the transition period does not become the negotiation period and we would strongly ask that we do not end up at three or four months to go, a bit like we are this time, with another cliff edge giving us a very short time to implement.
Q308 Anna Turley: Good morning, and thanks very much for coming in. I would like to talk about skills in the workforce. Skills shortages have been a challenge in the sector for a while and there is about 5,000 vacancies in the industry, so ensuring that gaps and skills shortages are filled is really important as part of this process. How satisfied are you with the proposals about the access to skills, particularly some of the issues of non-discrimination between EU nationals and others, temporary stays for business purposes in defined areas, the classification of some workers as unskilled? What further clarity would you like to see from the Government? I will start with Toyota and work along.
Tony Walker: In our plants the issues related to skills are not in any way particularly related to the EU. I think you are talking about immigration and the EU central European and southern European people coming to the UK. Our workforce is very stable and very long service and those sorts of things, but in the supply base—and Dermot is from the supply base—when you get down to some first tier, and even second and third tier, they have very high ratios of EU migrant labour and that does turn over. The most extreme case I am aware of is a supplier to Toyota that has 80% migrant labour. That is because of the town they are in and where they are in the country, and I think it varies by region. Of course I don’t know the detail, but my understanding is that it is not proposed to stop the arrival of migrant labour but it is proposed to control it against jobs.
It is back to the previous point about transition; if that system can be clarified in sufficient time and we can understand how to work it, why can’t we make it workable? We ought to be able to make it workable. We as a car industry ought to work within that sort of political or social imperative. I would say let’s understand the system as soon as possible. I think in the supply chain they are starting to find labour shortages. Dermot and Sydney can talk more about that. My understanding is that as people are going back to their home countries—and I know with certain suppliers this is the case—the replacements are not coming as they used to in the past. We have seen that change in the last 12 months or so.
Q309 Anna Turley: Dermot, are you seeing those changes?
Dermot Sterne: Yes. Suppliers typically have at least 15% and as high at 80%, as we have heard, of EU workers. Some of them have skills that are very hard to replace because they are in short supply in general in the UK. When I read details in the proposal about a salary of £30,000, many of those roles would sadly be under £30,000, so I don’t think that is an answer, if I can be blunt. It should be based on skills not salary.
Tony Walker: I should have said that. It is a very important point.
Q310 Anna Turley: I sort of hinted at that in my question about the classification of unskilled. I thought that was really important. Sydney, does that reflect your perception as well? Are you seeing any steps within the sector to try to upskill and train people within the UK labour market already?
Sydney Nash: I think what Tony and Dermot have said does reflect the view of the broader sector. We are fully committed to deepening and improving skill sets here in the UK. We are committed to apprenticeships, always have been and will continue to be so. We want to have the skills locally and develop the skills locally. In some ways we are victims of our success because we have grown as an industry and that puts a demand on employment and, as has been said, one has to look elsewhere. Sometimes there are skills that we can’t find in the UK and we look elsewhere for those.
Looking forward, you initially asked about certainty and it seems to me at least that that will come from the Government. They will set our new immigration frameworks. We await the White Paper to get a clearer sense of what that framework might look like. But as has already been indicated, we are a European industry or a European workforce to boot and in the same way that we need to move goods freely, we do need to move our people freely as well, whether it is to deal with emergencies on the line, where you need to get the right engineer in overnight to fix it, or to launch a new product, which means an international team coming in to do that. We need to have that flexibility if we are going to continue to be competitive, and that is ultimately what it is about. It is about the competitiveness of the sector here in the UK.
Q311 Anna Turley: Your message to Government ahead of the White Paper would be flexibility and not classifying people under £30,000 as unskilled. What else? You have a chance here to help shape that White Paper coming forward. Is there anything else you would like to pressure Government on or ask Government to make sure is a priority when it comes to immigration in your workforce?
Sydney Nash: I think those two points are critical.
Dermot Sterne: We have provided, through the SMMT, evidence to the Migration Advisory Committee and that in the main covers those points.
Q312 Sir Patrick McLoughlin: The SMMT has said that, “No deal would undermine the industry’s ability to operate and cannot be an option”. Is that still the position of the SMMT and what do you mean by that?
Sydney Nash: The critical issue is about what happens at the border under a no-deal scenario. I don’t think we have seen anything to suggest that under a no deal, so absolutely nothing is agreed, we can avoid friction on the border. Tony has already indicated from a Toyota point of view how critical it is to get the goods just in time and that applies to the whole sector. We have 1,100 trucks on average every day delivering to automotive plants and engine plants in the UK from the EU, delivering just in time and just in sequence. It is only a minimal amount of delay at the border that starts to disrupt that and starts to impact on the ability to produce vehicles and ultimately impacts on jobs. That is the risk that we face in the event of no deal. You get grit and friction at the border that is not quickly resolved and that will have a serious and negative impact on production in the UK.
Q313 Sir Patrick McLoughlin: You are saying across the whole industry. Tony used a figure a little while ago of 50 trucks to the Burnaston factory. You are saying 1,100 trucks.
Sydney Nash: Across the whole industry, yes.
Sir Patrick McLoughlin: What happened in 2015 when there were significant delays at the tunnel? How did that affect you then?
Sydney Nash: Quite negatively. It was slightly before my time in automotive but we have seen before what happens when you get delays. Inevitably people try to find other routes in but everybody is doing the same thing, so the problem gets shifted about but not ultimately resolved. It does result in either slowing or possibly stopping production. You don’t want to do it for long but any stop in production is incredibly costly and impacts negatively.
Q314 Sir Patrick McLoughlin: It was quite significant in 2015. Tony, you were in post in 2015. Can you recall what happened then?
Tony Walker: I can. We had considerable trouble. We did not want to make a huge noise about it but we had to stop production several times. We had huge difficulty because of the sequence issue and it took us about two months to get back to where we should have been when we had the major disruption because of trucks out of sequence. We had a huge build-up of parts. We have no warehouse, everything sits on trailers. We had parts in trailers in the yard, we had parts in trailers in somebody else’s yard because we could not bring the truck forward that we needed. We had huge disruption, and we accidentally imported 48 refugees in the back of our trucks, by the way. They jumped in.
Q315 Sir Patrick McLoughlin: Can you give me a bit of a picture of where the cars from Burnaston go to as far as how many go to Europe and how many go outside the European Union?
Tony Walker: We export 90%; 82% or 83% is going to the EU and the rest is going to EFTA countries and Turkey, basically.
Q316 Sir Patrick McLoughlin: As far as goods coming in for use, you talked to us earlier on about goods coming from Turkey. What about other countries outside the European Union, or would you say it is the European Union, Turkey and Japan?
Tony Walker: That is right, yes, basically.
Q317 Sir Patrick McLoughlin: What about the SMMT for talking more broadly across the whole industry?
Sydney Nash: The majority of components are coming in from the EU and, like Tony said, from Turkey where we have a particular trading relationship. The vast majority, if it is not sourced locally here in the UK, is coming from the EU and, depending from manufacturer to manufacturer, third countries will top up the rest but where it is coming from slightly depends on the manufacturer.
Q318 Sir Patrick McLoughlin: Likewise, with exports?
Sydney Nash: Our exports primarily go to the European Union, for finished vehicles absolutely.
Q319 Sir Patrick McLoughlin: I am wondering what the position is outside the European Union, for the cars that you export outside the European Union. What happens there as far as tariffs are concerned?
Sydney Nash: Under what scenario?
Sir Patrick McLoughlin: On our exporting to other countries that we—
Sydney Nash: As is currently the case?
Sir Patrick McLoughlin: Yes.
Sydney Nash: For other countries, third-country markets, the tariff scenario varies broadly depending on whether or not we have a free trade agreement with the market in question, an EU free trade agreement under which we currently participate as the UK, with South Korea for example, where we are heading towards zero tariffs there and a number of those agreements that matter to us. It largely depends on what is already in place at the moment. Of our export markets, 54% of what we export goes to the European Union. It is by far our biggest market. The second biggest is the United States, which is about 15%, so I think that gives an indication of how important the EU market is for us.
Q320 Sir Patrick McLoughlin: You said earlier on that according to a survey that you conducted—correct me if I have got this wrong—you thought that we had lost investment to the region of about 12.5% to other European countries.
Sydney Nash: 12.4% of respondents said they had relocated operations already to other European countries.
Q321 Sir Patrick McLoughlin: But you were not able to give us details of the companies that have done this.
Sydney Nash: No.
Q322 Sir Patrick McLoughlin: Presumably we ought to be able to find that out quite easily because these would be public companies making public announcements as to why they have done that?
Sydney Nash: Not all of them, I think. Some of them would be in the supply chain and I don’t think they would all necessarily be publicly-listed companies.
Dermot Sterne: I would say most of the SME supply chain companies would not be publicly listed.
Q323 Sir Patrick McLoughlin: Some people would argue that it is companies crying wolf too easily and actually the bigger reason for the trouble that the motor industry has at the moment is because of the VW diesel scandal and that has done more damage to the motor market than any of the uncertainty around Brexit. Would you say that was completely wrong?
Sydney Nash: I would say that is absolutely unfair.
Q324 Sir Patrick McLoughlin: I am not asking whether it is fair.
Sydney Nash: I would say that it is wrong as well. As I indicated earlier, there are multiple forces at play. When we look at the impact on manufacturing and investment, I think that is primarily down to Brexit uncertainty. That is absolutely what we have heard from our members and I think that has been clear since the referendum and continued. In the market there is a different mix of forces at play. It is not just about Brexit. There is a question about consumer confidence. I think it is for others to answer whether that is Brexit related or not but it does have an impact on automotive. There is a question around diesel as well and we have undoubtedly seen consumers being confused as to what their next choice would be and the market has suffered as a result. I wouldn’t say that is not a factor but on the manufacturing side and the investment side it is primarily about Brexit.
Q325 Sir Patrick McLoughlin: What are we seeing in the rest of Europe? We are seeing in the rest of Europe a downturn as far as the demand in the market is concerned. That is not really based on Brexit. I would suggest that is based on the uncertainty over diesel.
Sydney Nash: As I said, diesel is absolutely an issue; we have seen it here and we have seen it in Europe as well. I wouldn’t suggest that the contraction of the market in the UK is solely down to Brexit. The consumer choices that are being made is a different issue and, as you say, there is not Brexit uncertainty in continental Europe so that is not affecting the consumer choices. But when it comes to investment, that is where we are seeing the Brexit uncertainty have a genuine impact and that is having an impact here in the UK that is not felt in continental Europe.
Q326 Sir Patrick McLoughlin: Turning more to the future and once we get through this transitional deal, a lot of people think that we could have a no deal and just move to world trade terms and that will be fine. It will take a couple of months to reassert ourselves and establish ourselves. Would you say that was completely wrong?
Sydney Nash: I would strongly disagree with that.
Q327 Sir Patrick McLoughlin: Tell us what you think that scenario would lead to if that was to be followed.
Sydney Nash: If we had a no-deal scenario, I would anticipate that it probably comes later in the process because people will try their best to get a deal and then it does not happen. For us as an industry, it would most likely be catastrophic. I have already spoken about the impact on the border. But in terms of tariffs, from a WTO perspective it is a 10% tariff on a finished vehicle. We have calculated that would increase the cost of imports and exports for the UK by somewhere in the region of £4.5 billion. What we have not have calculated, because it was frankly too difficult, is how that cost would look once you calculated the cost of a tariff and components. The average passenger vehicle has about 40,000 components in it. WTO tariffs on components are between 2.5% and 4.5%, so you can see how that cost grows very quickly. That is not a cost that can be easily absorbed by the industry and it is not a cost that could easily allow us to remain competitive.
As we view it as a sector, no deal is not something that could be easily managed. It would have a serious impact on our productivity, our competitiveness and our jobs. How long that scenario would last for is hard to say. Our fear is that it would not be something that lasted for just a week or two weeks and everybody goes back to the negotiating table to solve the problem, because it could last for a very long time and each additional day is more cost and more damage to the industry. It is a very serious risk for us.
Q328 Sir Patrick McLoughlin: What do you think the impact would be on jobs overall in the UK and the attractiveness of the UK to invest in?
Sydney Nash: I can’t put a figure on it, but we have already had announcements in the past couple of weeks of automotive plants and the supply chain being closed and costing jobs. In reality, if we ended up in a no-deal situation where UK automotive has to deal with tariff, friction at the border, restrictions on the skills it can bring in to operate effectively, it becomes harder to make the case that the UK is the best place to invest and that would ultimately have an impact on jobs. This is why we are so clear that we have to avoid the no-deal scenario, that we have to have a deal, enter into that transition, which will be status quo in terms of market conditions. That is why that is so critical for us as a sector.
Dermot Sterne: The supply base has done quite a lot of modelling of this and with tariffs and with the weak sterling that affects the cost of raw material coming in profitability in many cases is wiped out completely. It would be really catastrophic. I can’t put a number on the jobs that would be lost but it would have a really significant effect. That is just at the technical level of trying to make a profit out of making some parts and maintaining employment in those factories. Of probably even more significance for our customers would be the long-term effect of building vehicles in this country. That is not something you would probably feel on day one after no deal but a few years later, when the next model could have been made in the UK but isn’t, is when you would. There are two aspects for us. There is the really catastrophic effect on the business itself and then what it might mean to our customers.
Q329 Sir Patrick McLoughlin: Tony, it is 30 years since Toyota announced it was coming to Derby and set up. I have certainly seen from my own constituency the tremendous impact the company has had overall in the area. But we have also seen a lot of other companies coming to supply Toyota, setting up in and around the area. Is there any movement on trying to improve the number of components that are domestically supplied and what do you see as the option of that? That was something that was very much in the early mission statements of Toyota, to try to build up companies in and around the area and to add jobs that way. Tell us a bit more about how that is going at the moment.
Tony Walker: Basically our stance is open and fair competition and we do not favour any one country where we have plants over any other country where we have plants. We have plants in France, Turkey, the Czech Republic, Russia, Poland and Portugal. We operate an open, free and fair competitive approach. In terms of where things are going, those parts that are bulky or difficult to ship we have always tended to have near the plant, wherever it is. For those parts that are common parts—the UK is not a low-cost country so we have to be very good at productivity, we have to be very slick in all our logistics, back to a previous point—typically the piece price difference roughly between the UK and Turkey or south-eastern Europe is between 20% and 25% and the logistics cost from those areas is about 5%. This is just a business reality and there is a whole load of stuff. We appreciate what BEIS, NMCL and the Industry Forum are doing but the issue is that we just have to have better productivity in the UK than in those countries to overcome the labour cost issue.
I can’t say to you that we want to be British, French or Turkish in our supply base and for common components—there are many components in the car, which are the same in all cars. Put simply, if it is a question between making the common component in Turkey and supplying the British part from Turkey or it is a question of making the part in the UK and supplying the Turkish part from the UK, we have quite a lot of economic challenges, honestly. I am not sure it is the right thing to say but—
Q330 Sir Patrick McLoughlin: What overall would you say is the British content of a vehicle coming out of Burnaston?
Tony Walker: That is a very complicated question. May I just have a few moments to give a little answer? First of all, by pickup location the parts content is 43%, and this is often quoted, but behind that, if we are talking rules of origin, many of the parts that are inside that final assembly operation are coming from outside the UK. In rules of origin logic, it is below 20%. This is a very commercially confidential figure but roughly speaking the cost of running the plant in terms of the cost of the final car is 10% to 20%, so that is UK content. The way it works is under EU rules, and hopefully in the future, a margin is retained in the plants as well—and that is a very commercially confidential thing to tell you—but it is not so huge, so there is a margin on top of that. Roughly speaking, if you talk totally UK content under rules of origin it is something under 20%. It is around 10% and maybe it is something like 5%, so maybe it is around 35% or something like that.
Q331 Chair: Sorry, what was that last number?
Tony Walker: Around 35%.
Q332 Chair: 35% is what?
Tony Walker: UK content if you add up the UK content of the supply base plus our content in the plant plus the margin we can retain in the plant.
Q333 Chair: For the rules of origin, are you saying—
Tony Walker: We would be significantly below 50%.
Q334 Chair: So it would be about 35%?
Tony Walker: Yes, but please treat that with caution.
Chair: We won’t tell anybody inside BEIS.
Tony Walker: What I mean is, last time I looked.
Q335 Sir Patrick McLoughlin: It will stay a secret if you say it in the Department. Tony, could you perhaps give me a rough idea as to the total wage bill? How much is fed into the economy as a result of Burnaston? If you can’t, I fully accept that, but I think it is quite an important figure.
Tony Walker: This is very much last time I looked, and I haven’t had these figures for a while, but I think it is around £110 million, £120 million, something like that, just in our wage bill at Burnaston and Deeside, of that order.
Dermot Sterne: I want to add a little bit of colour to what Tony has just said. If Tony were to buy a part from me—which sadly he doesn’t but after his comments about Turkey I will be in full selling mode outside—of the price of that part, say, 65% would be material. Of that 65%, we would have had to have bought 35% from the EU because that material is not available in the UK. Hopefully that adds a bit to the picture Tony was painting.
Q336 Chair: That is helpful. Can I follow up very briefly on this rules of origin thing? How important, Tony Walker and for the SMMT, is it that future trade deals accommodate these rules of origin issues?
Tony Walker: Crucial.
Q337 Chair: Just explain that to me. You say crucial. What would a free trade deal—
Tony Walker: You can only get zero tariffs if you have a certain percentage of local content and there is no trade deal in the world that has less than 50%. Currently our local content, EU and UK aggregated, is probably about 70%, that sort of area, but if we then split it out, neither will achieve 50%. We have to aggregate it, or accumulate it, it is called.
Q338 Chair: Are you in conversations with Government?
Tony Walker: Absolutely, yes.
Q339 Chair: Do you get any indications of—
Tony Walker: No, no more than you. Our role is to input our facts and figures and to explain and to say that if we had 10% tariffs it would be a huge impact. It would be impact for the British consumer where the cost would go up. It would be impact for our EU sales where our selling price would have to go up, so our volume would go down because it would be in a market where the market had not moved. The UK market would move presumably because most cars sold here are imported. The EU market presumably would not move, so we would be hit twice.
Q340 Chair: This would matter both in terms of a free trade agreement with the European Union and free trade agreements with the rest of the world. Presumably if we were going to do a free trade agreement with the EU it would also have to reflect these issues.
Tony Walker: Yes, exactly. It is called a free trade area or something, isn’t it? I took it that the direction “obviating the need for checks on rules of origin” must mean that because we don’t have to check rules of origin we would treat it all as one origin, otherwise we would have to check it, so that must be the target. That is how I read it.
Q341 Chair: Thank you. Sydney Nash, do you want to add anything?
Sydney Nash: I agree with what Tony said. The key thing is about originating content and we need to be very precise in our language. The local content is slightly different; it is about originating content. If we look at what the Government are doing with existing third-country trade deals, replicating, allowing for this kind of grandfathering, if they only grandfather in terms of the text but we don’t have accumulation with the EU in terms of rules of origin then, as Tony said, we don’t get the preferential tariff rate. It is the key that unlocks the preferential rate, so it is absolutely critical for us as an industry.
Q342 Albert Owen: Tony, in an earlier reply to Sir Patrick you said about the breakdown of your exports to the EU and EFTA. Is the EFTA trade frictionless and what additional cost is there of exporting to them?
Tony Walker: It is basically frictionless, yes.
Q343 Albert Owen: Completely?
Tony Walker: As far as I know. I have never heard of any issue related to that at all.
Albert Owen: Thank you. That answers my question.
Tony Walker: Do you have some insight? I have never heard of any issue related to that.
Q344 Mark Pawsey: I want to ask a quick question of Tony. Sorry, Tony, you are on the spot and you are being very frank and very helpful with your replies. Sir Patrick’s question about Toyota setting up in Derbyshire 30 years ago leads me to ask: how important was the ability to access the European market in that decision at that time and by implication, therefore, how significant would be the loss of that access?
Tony Walker: Absolutely fundamental. It is very famous in Toyota, it is on the wall in the plant at Burnaston, that there was a meeting between Margaret Thatcher and the then head of Toyota, who was called Shoichiro Toyoda, and Margaret Thatcher said to him, “Come to the UK because this is the place you can build cars as part of the EU and export to the EU and you have got free and open arrangements”. I think it is very well known that maybe Japanese business leaders—I don’t know if it is specifically Toyota—felt very disappointed by the referendum result. I saw in today’s paper that Prime Minister Abe of Japan talked about the need for predictability and stability, and that is where we are. We want certainty over uncertainty, all those sorts of things.
Q345 Peter Kyle: Thank you all for you very candid comments. Do any of you believe that the deal that is on the table that has been put to Parliament this week offers a better future than the settlement we have now? No?
Tony Walker: The single market must be the best, where sending a car from Burnaston to Berlin is the same as sending it from Burnaston to Birmingham. Moving parts, the other way, is exactly the same and moving people is exactly the same. That is the single market.
Peter Kyle: No will be fine.
Tony Walker: Sorry, Peter.
Q346 Peter Kyle: It is fine. We just need to bottom out some of these things for clarity. There is going to be a temptation, because of the fear of no deal, in lots of different sectors to accept any old deal just because it provides some kind of certainty, even though that certainty might lead to disinvestment into the future. That is the worry that many of us have as we look into the long term.
Do you accept—and perhaps starting with you, Dermot—that whichever way we go forward from here there will be a period of uncertainty? If the deal passes through the House next week, we will enter a two-year period of negotiation followed by a potentially unending period of negotiation. Should we move into no deal, clearly there will be a period of tumultuous uncertainty. The third option is going back to the people for a vote, which some people point to as uncertainty but compared to the others I don’t see a greater degree of uncertainty. I know some of you are inclined towards accepting a deal. Do you accept at least the premise that there is no way forward that offers complete clarity into the long term?
Dermot Sterne: Yes.
Tony Walker: Yes. I could say why I say yes.
Sydney Nash: We understood the process and we understood that a full trade negotiation could not be done during the article 50 period. In that sense we are not surprised by what we are offered. The withdrawal agreement does give us certainty. It gives us certainty as to what would happen in March next year and, as we have already said, that is absolutely critical for us. In terms of where the end point is, you are absolutely right, we need to enter into a new negotiation. This is a process and it is only beginning now. We take hope in the ambitious elements of the political declaration and what we hear from the Government, and we hope to deliver on that as the end point. But you are right, we can’t know in March next year what the world will look like in 2021 or 2022. We still need to shape that world going forward.
Q347 Peter Kyle: It would be an investment period of two to three years, in other words, the deal with certainty? Okay.
Tony Walker: I don’t think it is quite that. It is that we are practical people and we know we have to progress things step by step. It is very unusual that we can take three or four steps at once. In our lives we are used to taking one step at a time. One step at a time is the withdrawal agreement and the outline for the future and then we progress and work hard on the next step. I think it is a little different nuance to the way you put it back to us.
Q348 Peter Kyle: Expand on that then. Are you saying that even though you are enabled to take one step forward even though it is going in a direction that is detrimental to your business, that is preferable to having a period of uncertainty?
Tony Walker: The single market is off the table. There was a referendum. This is not our job, and it is a very difficult job. This is the politicians’ job. Our job is to work within the framework that society and politics provides, so that is what we are doing. We have always been clear that we would have liked to have had the referendum result the other way. There is no secret about that, but it did not go that way. Where we are now is we have to deal with the reality, and the reality is that no deal would be disastrous. We get the ability to trade on current conditions until the end of 2020 and we get that time period, hopefully as little of it as possible, and as soon as possible we get more certainty.
For us anyway we have certainty for the period to the end of 2020, and that is much better than further uncertainty, and we have a direction of travel for the future. That is much better than the confusion we have had. I don’t think I am alone in business in saying that and I think most of the country would say that. At least some direction is better than the continuous confusion. The direction is not perfect but to say because it is not perfect we should go back to square one is not understandable to us as business people at all.
Q349 Peter Kyle: But, Tony, what I am saying to you is you just said that the single market is not an option. If this deal is struck down by Parliament next week, everything is an option.
Tony Walker: We would rather have certainty than the continuous uncertainty.
Q350 Peter Kyle: You would rather have certainty with the single market off the table than a three-month period of going back to the people to consult them as to whether they want this deal, which could end in a remain and being in the single market?
Tony Walker: There is an awful lot of “coulds”, a lot of “ifs”, and we have been very clear. We think the right thing to do now—but it is up to the politicians and we respect that but we think we have the right to say our opinion and you kindly invited us here—is the deal should be ratified.
Q351 Peter Kyle: You have been remarkably candid for the time I have been here this morning and it has been very much appreciated, so let me be candid with you. The difference between your position and mine corporately is that I am here in Britain. Your business can go at any point.
Tony Walker: We have no desire to do that.
Q352 Peter Kyle: Exactly, but if Britain becomes an undesirable place or a difficult place to trade and other countries within the EU become more desirable, you can leave and I am fighting for the long-term future of our economy where we will be the best economy, the most stable economy and the one with the most access to our biggest market. The difference between you and me is that my proposition as a politician is not transportable; yours as a business is, particularly as a foreign-owned business. Do you accept that?
Tony Walker: Not really, no. All the people we employ are British. I have worked for 41 years in the British car industry, which is far too long really, and all that time we have tried to make a successful business. We came back from the brink. I was in another car company in the 1970s and we used to have wildcat strikes most days and we have made a huge recovery. Car plants are not transportable. You just close one and it becomes a supermarket or something and then you have to build a new one from scratch. It is a huge investment cost. Nobody is thinking that is a good idea. We are not making trainers or footballs or something. We are not moveable like that, as you suggest easily moveable. No, I don’t agree.
Q353 Peter Kyle: It is another generation, because we saw it in the 1970s.
Tony Walker: But we stopped producing in the 1970s.
Sydney Nash: We share the objectives you set out that it is about the UK, it is about UK plc, business, jobs, growth here in the UK. That is all we are in the market for and we want it done here in the UK, we want the manufacturing here, the R and D here, the jobs here. That is absolutely what we are about and that is why we have been so very clear about the ambitious outcome we want from the negotiation.
Tony said that single market is off the table. I think sometimes we need to be careful with simple terms like that. That has been ruled out by the Prime Minister, but what one has to look at is what single market delivers. We spoke about regulatory harmonisation earlier and that has not been ruled out. Aligning those rules, having regulatory harmonisation has not been ruled out. Having a common approach to customs has not been ruled out. This is what we now need to aim for, so when I read “ambition” in the political declaration, that is how I interpret it. Our ambition is frictionless trade and that is what we need to be working to now. Do we have that guarantee here today? Of course, no. Would we have it guaranteed in July next year? No, we have to negotiate this, but I think the end point that we want is the same as yours, as ambitious as we need because that is going to be the best for the UK automotive and the best for jobs here in this country.
Q354 Peter Kyle: Let’s just talk through the progression here. For the first year of the negotiations the promises—and I don’t use the word lightly—made to Parliament from the despatch box, from the Prime Minister and the Brexit Secretary, were that we would have frictionless trade. After the first year of negotiations we moved to the phrase “as frictionless as possible”. Now in this declaration we have the promise of “a trading relationship on goods that is as close as possible”. Could you talk me through? Most people out there see the nuance in language but it does not mean anything profound to them. To your industry, what is the difference between frictionless trade and as close a trading relationship as possible, which is what is being put before Parliament now?
Sydney Nash: Those are not legal terms with a legal meaning and nor is the political declaration a legal document. What we have to look for is the ambition that is being set by both sides, as I should add, and delivering on that ambition. As I said earlier, no frictionless trade is quoted in the political declaration. We would much rather there is an explicit commitment to frictionless trade. It is not there but nor is it ruled out and the Government have been clear to us that their ambition is still for frictionless trade, so we can only take them by their word and hope that they deliver on that. We will work with them and with the EU to deliver on that.
Q355 Peter Kyle: Hope, the future of your industry is based on hope from words of a Prime Minister who will not be in office, from a declaration signed with an EU Administration that will not be in office next summer after the European elections? Is that good for you? Is that the height of your ambition? You cannot aspire to greater than that?
Sydney Nash: I can’t comment on what happens next either in politics here or in Brussels, but what we can deal with is what we see on the paper and what we have been told. As I said, we are still at the beginning of a process here. We always knew that the future relationship would not be negotiated until the UK had left the club. There is still a lot of work that needs to be done, doors are still open, avenues are still possible, and we aim for the most ambitious outcome. Yes, I do hope for the most ambitious outcome because otherwise I would not get up in the morning.
Chair: Thank you very much. I think everybody around this table, either on this side or on the business side, are absolutely determined that we keep the high quality, high skilled, high productivity jobs in this country. There is a huge amount of uncertainty ahead of us but similarly I think we all share that ambition and the hopes that we do secure the frictionless trade that ensures that those jobs and those skills stay in this country. There are big decisions to be made by both politicians and businesses about that future investment and Sydney Nash has given us some examples today of business investment that has already gone overseas. I think we all want to end that uncertainty but also secure an agreement that means that when businesses—whether that is Toyota, the supply chain and all the members of the SMMT—make business decisions in the future they will see Britain as the very best place to invest because we have access to those markets and the certainty that we have that. There are big decisions to be made and people have different views about how to get there but I think you can be assured that we all have the same ambition and goals and hope.
Thank you very much. We have really appreciated you coming to give evidence to our Select Committee this morning.