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So Luton is to stop all vehicle production after the owner of Vauxhall announced the closure of its van factory. Why?
It is easy to throw around the blame. The owner of Vauxhall is now Stellantis, which was formed by Chrysler, Fiat and Peugeot-Citroen getting together in 2019. So the company could be accused of wanting to shut plants in Britain rather than in France, Italy or the US.
Or you could blame this Government’s drive to stop companies selling petrol and diesel cars and vans in the UK in five years’ time. That was “a significant part” of the reason behind the decision, the company said.
It has certainly had a reaction. The Business Secretary, Jonathan Reynolds, told the Society of Motor Manufacturers and Traders’ dinner on Tuesday that the Government was launching a consultation about reforming the rules about the pace at which manufacturers will be forced to switch to electric vehicles.
Wider retreat from manufacturing
Or you could simply say this is part of the much wider retreat from manufacturing that the UK has experienced over the past half-century – though it is worth noting that the same pattern is being repeated across the rest of the developed world.
But rather than trying apportion to blame, it is surely more helpful – and actually more hopeful – to set what is happening into its longer-term context.
So let’s step back a bit, starting with a sad note, for this ends 120 years of tradition. It was in March 1905 that the Vauxhall company moved to Luton, making beautifully-engineered luxury cars that vied with Rolls-Royce, Mercedes and Hispano-Suiza at the top end of the pre-First World War market. The success didn’t last. The cars were too expensive, profits turned to losses and in 1925 Vauxhall was taken over by General Motors, anxious to match Ford’s incursion into the UK market.
American flash
Purists may disagree – GM’s Vauxhalls were mass-market products, not “real” ones for the wealthy – but American expertise in mass production turned Luton into a manufacturing powerhouse. Bedford lorries and vans were a huge success, with a reputation for reliability around the world. The factory built the Churchill tank in the Second World War, and from the 1950s onwards brought a bit of American flash into the drab British car market.
Along with most of the rest of the UK’s car manufacturers, GM was plagued by quality and labour problems, and eventually stopped making cars at Luton in 2002, though it carried on building vans in association with Renault. Car production was switched to the newer plant at Ellesmere Port – where apparently Stellantis will now focus all its UK business. The company has promised an extra £50m of investment there.
We will see. But looking back at the history, it isn’t fair to blame foreign ownership as such for the demise of Luton. After all, it was GM that rescued Vauxhall, and turned a small specialist car firm into a global business. More broadly, Nissan in Sunderland has been a huge success and it was the foreign ownership of Tata at Jaguar Land-Rover that turned round the fortunes there.
Push customers towards China
So what about the Government’s policy on pushing the industry towards a faster switch towards electric cars? There are two points here. One is that elected governments will have environmental and social policies that carry economic costs, and the important thing is that those costs should be made clear. But they make mistakes. If it is true, as Stellantis says, that the Government’s electric vehicle mandate was an important reason behind the closure, then this is a cost.
Jonathan Reynolds should be commended for his candour in acknowledging that the mandate “isn’t working as intended”. Nissan says that EV rules are undermining the case for making cars in Britain, and given its importance it should certainly be listened to.
The other point is that, Tesla apart, electric car production is dominated by China. Last year it made 58 per cent of the world’s pure electric and plug-in electric cars. It will probably be higher still this year. So forcing people in Britain to buy electric is, in effect, to push them towards China.
Golden years
The question then, aside from whether this is really a wise policy, is how to persuade Chinese manufacturers to develop more of their business here. More design work? An assembly plant for MGs and other Chinese-owned companies? This isn’t just about the loss of jobs in Luton. It is about the wider strategic implications of our policy towards the motor industry.
All this is dispiriting. The UK does have an excellent high-tech manufacturing sector, though it is proportionately slightly smaller than that of most developed countries, at around 9 per cent of GDP. But it has a much wider impact on the economy as a whole, and a recent paper by Oxford Analytics argued that if you take into account its UK-based supply chains it accounted for nearly a quarter of GDP. It also invests heavily in new technologies, with nearly half of the country’s research and development. There is lots of anecdotal evidence that craft manufacturing is booming too.
So de-industrialisation may be coming to an end, and the challenge is to exploit the UK’s top-end competitive advantage – just as Vauxhall did in its golden years before the First World War.
Need to know
Where is there growth for Luton? Getting out of motor production has been a long and painful process, because the growth of Vauxhall in effect crowded out other potential businesses. It has also suffered from the decline of the hat business, the problem there being that people don’t seem now to wear hats as they did even half a century ago – or at least not crafted ones.
However on one simple measure, Luton is still a success story: population growth. Its physical location near London has proved a huge magnet, and Luton’s population climbed over the decade to 2021, rising by 11 per cent to 225,000; it is currently estimated at 230,000. That is faster growth than that of England as a whole. One of the principal drivers has been the airport, now planning to increase passenger numbers to 19 million a year. There is a plan to push numbers up much further, to 32 million by the 2040s.
That would make it UK’s number three airport after Heathrow and Gatwick, passing Stansted and Manchester. The rationale is that it is better located than Stansted, with a much larger catchment area both for workers and passengers. But there is, as always, opposition, so we will see.
The really interesting question is whether Luton is already in the early stages of a wider renaissance. Population growth is one measure, because people go to places where there are jobs. But being an affordable commuter town for Londoners seeking a bit more space is probably a bigger driver. The challenge there is to use its commuter town status to benefit the local economy too.
Luton is in the southern flank of the Oxford/Cambridge arc that the previous government described in a consultation document. There are various elements to the plan, including at last a direct rail link between the two university cities. But from Luton’s point of view, the exciting prospect is sharing a role in the creative, technical and educational opportunities in this region – to be an integral part of an area of extraordinary prosperity, rather than a former industrial town trying to replace the lost jobs.
The point is this. Towns cannot change their location – but they can play to their strengths, and in the case of any town near the M25, location is a positive. Luton has a large and vigorous immigrant population. For them, stitching in to the arc of prosperity between Oxford and Cambridge is a huge opportunity.
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
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