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UK government in tricky position over post-Brexit auto rules

Stellantis, the world’s fourth-largest automobile manufacturer, has submitted evidence to the UK parliament showing that it will be forced to close its UK operations unless the UK-EU trading relationship is liberalised significantly. Stellantis is the first automobile manufacturer to call on the UK government to renegotiate the UK’s post-Brexit trading terms with the EU. The intervention is the most significant intervention by business around Brexit’s impact on EU trading rules since the UK left the EU. However, the trend towards business interventions on the issue is increasing, putting the government in an awkward position.

Informal political talks between the UK government and EU trade negotiators have already taken place around this issue; once the politics are aligned, the technical talks, and following agreement, should follow. The political salience of Brexit is much diminished, and with the economy slowing and possibly contracting, the government will probably prefer to address the issue quietly rather than risking in-fighting within the party. However, many members of parliament (MPs) do not want to reopen the Brexit issue, which currently divides the Conservative Party between its pro-business and pro-Brexit, pro-sovereignty factions. The most likely rebels are Conservatives in marginal pro-Brexit seats, worried about losing their majority in the next election, and ideologically committed pro-Brexit MPs. If either group rebels, the government is less likely to pass legislation, providing a disincentive for Rishi Sunak, the prime minister, to push through changes before the election. 

If the Conservative Party, or a post-election Labour government, does intervene, Stellantis is likely to claim it as their victory, prompting other companies and sectors to call for further subsidies and more favourable trading terms for their industries to insulate themselves from a weak economy. A long list of demands from UK negotiators, from a wider spectrum of businesses whose interests may not be aligned with their EU-based competitors, is likely to protract any formal discussion with the EU and prompt criticism of the UK government from backbench Conservative MP rebels, hurting the party in the next election.

What next?

The UK government is likely to delay action on this issue until after the next election, to avoid dividing the Conservative Party. However, we believe some degree of liberalisation will be required for the UK to maintain competitiveness. We expect UK-EU trade relations to gradually re-liberalise in the coming years, but proceed in a disorganised and haphazard manner.