Friday, 28 October 2016

Nissan's investment in Sunderland

I concluded my recent post on the meeting between the Prime Minister and the CEO of Nissan by saying that we would should now watch for Nissan’s investment decision on its Sunderland plant. This has now been made and it is to invest in the production of two new models, following, according to Nissan, written assurances received from the British government.

What those assurances are remains unclear. There are really only three possibilities. One is that when push comes to shove the UK will remain in the single market or, at the very least, the customs union. It seems highly unlikely that the government would put this in writing: certainly they have refused to say any such thing publicly, and it would cause a major rift within the government if it is true. The second is that the government has assured Nissan that they will strike a deal on single market access for the motor industry. But that could not be assured by the government as it would have to be negotiated with the EU. It seems unlikely that Nissan would have been persuaded to invest on such a basis.

The third possibility – and by far the most likely – is that the government have promised to cover any losses Nissan might incur as a result of Brexit. Such a ‘sweetheart deal’ is being widely rumoured in the press, although it has been denied by the government, albeit in terms which have some ambiguity (they are insisting that no ‘cheques have been written’, but that leaves open the possibility of a promise to write such a cheque). Reuters carried an intriguing report yesterday, stating:

“Britain has given Nissan a written commitment of extra support in the event that Brexit reduces the competitiveness of its Sunderland plant, in return for new production investments by the Japanese carmaker, a source with knowledge of the matter told Reuters. In addition to unconditional investment aid, Britain pledged in a letter to offer further relief if the terms of Britain's European Union exit ended up harming the plant's performance, the source said.”

If correct, this amounts to an open-ended underwriting not just of any future tariff costs but of any other costs to Nissan of Brexit. This is a very high potential price to pay, but the political consequences of Nissan not having made the investment, especially at this particular point in time, would have been enormous. It is not difficult, then, to imagine that this is what has happened. It is possible that the letter to Nissan will be revealed, either by a leak or a freedom of information request, and then we will know for sure.

Inevitably the Nissan decision is being touted by Brexiters as proof that Brexit will not harm inward investment, but the (apparent) reality is that this has only been achieved by indemnifying Nissan against the costs of Brexit – hardly a ringing endorsement of its economic wisdom. It also opens up the possibility of further ‘assurances’ being given to other car companies and perhaps other sectors of the economy. Whether payments against these promised need to be made – and if they do, they will run into billions of pounds – will depend entirely on the deal struck with the EU, the terms of which will depend in large part on the EU. So much for taking back control.

It is of course not unusual for foreign investors to be offered inducements by governments to invest. In fact, this has been true of the Nissan investment in Sunderland since its inception. The difference this time is that what has had to be offered is an inducement as a specific insurance against the consequences of Brexit. Thus far from being the triumph claimed, it is best regarded as the latest of the ongoing, rising, costs of the referendum vote.

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