A leading expert in automotive economics is calling for a comprehensive overhaul of UK policy, including incentives, infrastructure development and a clear industrial strategy to address domestic production woes and accelerate the EV transition.
Speaking at the Vehicle Remarketing Association’s annual seminar, David Bailey, professor of business economics at Birmingham Business School, delivered a pointed critique of the UK’s electric vehicle (EV) strategy, contrasting its struggles with China’s commanding lead in electrification.
In the wake of looming job cuts at both Valuxhall and Ford, UK business secretary Jonathan Reynolds has already confirmed that a fast-track consultation is to be launched on the Zero Emission Vehicle (ZEV) mandate.
Reynolds said the Government remains committed to the 2030 phase-out date for petrol and diesel vehicles, but has conceded that there is a clear need for more support around the fines system that could see manufacturers fined £15,000 for each vehicle sold outside the target – at a time of low EV adoption and fierce competition from new Chinese EV brands.
China’s Production Cost Advantages
Bailey highlighted the overwhelming cost advantage that such manufacturers enjoy, noting that their battery electric vehicles (BEVs) are already cheaper than internal combustion engine (ICE) cars.
“China can make battery electric vehicles at a 40% lower cost advantage than Europe,” he remarked. While BEV prices in the UK and Europe are coming down, Bailey projected that parity with ICE vehicles will not be reached until 2027, underscoring a critical vulnerability for European manufacturers trying to compete with Chinese imports.
The EU’s recent introduction of tariffs as high as 35% on Chinese EVs was described by Bailey as potentially insufficient. “Even with a 35% tariff, may well sell into Europe and make a profit,” he said.
Similarly, the UK faces a crucial decision on whether to impose tariffs on Chinese imports. Meanwhile, the US and Canada have already taken a harder line, with tariffs exceeding 100%. “The scale of financial support Chinese firms receive from their government is a game-changer,” Bailey added.
UK’s Struggling EV Transition
Bailey, critiquing domestic policy, branded the UK’s ZEV mandate, requiring car makers to sell a specific percentage of BEVs, as “a dog’s breakfast of a policy.”
He explained that the mandate penalises domestic producers who fall short while allowing them to purchase credits from companies meeting the target, such as Chinese brands like BYD. “We’ve come up with a system that penalises domestic producers and subsidises Chinese firms,” Bailey observed.
The lack of incentives to spur consumer adoption is another issue. “The government acted too soon in cutting subsidies to buy ,” Bailey noted, pointing out that private EV sales have largely stalled because of high upfront costs, compounded by inadequate charging infrastructure.
“At the moment, policy is all sticks and no carrots,” Bailey said, who added that the need for incentives to lower financial barriers for consumers was now critical.
Infrastructure and Structural Hurdles
Charging infrastructure is another major obstacle to the UK’s EV ambitions. Bailey, a long-time EV user, lamented the slow pace of development: “I’ve been driving electric cars for about 11 years… It used to be easy to find a charging point, but now I’m competing with lots of other people.”
For households without driveways, the issue is compounded by high costs at public charging points. “I can charge at home at seven pence a kilowatt hour overnight, dirt cheap. If I go to a public charging point, it’s going to be 10 times that.”
The decline in domestic car production is also a pressing concern. Bailey highlighted the sharp drop from 1.7 million vehicles produced in 2017. “Back then, the investment was in place to grow to 2.2 million, but output has drastically turned down,” he noted.
A Four-Point Plan for Recovery
Bailey outlined four urgent steps for the UK government to take if it hopes to revitalise its domestic car manufacuring sector. First, he called for greater flexibility in the ZEV mandate to ease the burden on domestic manufacturers. Second, he urged the reinstatement of EV incentives, saying, “The upfront cost is still too high for many consumers.”
Third, he stressed the need for faster expansion of charging infrastructure to support growing adoption. Finally, he advocated for a cohesive industrial strategy that addresses skills shortages, supply chain vulnerabilities, and technological innovation.
“What the government needs is a clear direction of travel that underpins confidence and investment,” Bailey said.
“If 2030 is back on, then we need much more than a mandate to get there,” he concluded, urging policymakers to prioritise a balanced strategy that combines both incentives and infrastructure investment.
Also addressing the VRA seminar was Graeme Chaplin, agent for the West Midlands and Oxfordshire, Bank of England, who offered the latest economic outlook based on three key components of domestic demand: consumer spending, business investment, and government spending.
Consumer Spending There are encouraging signs in consumer spending, driven by positive real income growth. Household incomes, adjusted for inflation, are now rising year-on-year as wage growth outpaces inflation. This trend should support modest growth in consumer spending in the near term.
Additionally, the household saving rate, which surged during recent years of uncertainty and cost pressures, is expected to decline. As uncertainty eases and real incomes improve, households are likely to save less and spend more. However, the anticipated growth in consumer spending is expected to remain below trend over the next two to three years.
Business Investment Business investment shows a similar mixed picture. On one hand, firms are becoming more optimistic about resuming capital investment plans that were delayed due to elevated interest rates and uncertainty. As borrowing costs gradually decrease, businesses may find investments more viable.
On the other hand, lingering uncertainty about the economic environment continues to dampen confidence. As a result, while some investment growth is anticipated, it will likely remain subdued and below pre-pandemic trends over the coming years.
Government Spending Government spending provides a more direct boost to the domestic economy. The latest budget indicates increased spending on both current expenditures (such as wages) and capital projects (like infrastructure). This should contribute positively to economic output.
However, this expansion is not without costs. Higher spending will outpace revenue generated from planned tax increases, leading to slightly higher borrowing levels in the short term. That said, borrowing is projected to decrease gradually over time, so this is not a major fiscal expansion.
Overall Growth and Inflation Outlook The combination of weak demand growth and modest supply-side adjustments suggests a subdued GDP growth trajectory. While not indicative of a recession, growth is unlikely to be robust.
From a supply perspective, the labour market remains a key variable. The ratio of vacancies to unemployment has normalised from its pandemic peak but remains tight compared to historical norms. Wage inflation is softening slightly, with forecasts for settlements in the 3-4% range for the coming years. This trend suggests cooling pressures, but wage growth remains relatively strong, particularly in lower-wage sectors.
Inflation is expected to ease gradually, supported by monetary policy adjustments. The Bank of England’s cautious approach to lowering interest rates reflects concerns about persistent inflationary pressures and thst its policymakers are navigating between three scenarios:
- Hot scenario: Inflation falls sharply, and interest rates are reduced too quickly, risking overheating.
- ‘Goldilocks’ scenario (central forecast): Gradual easing of inflation with steady interest rate adjustments to maintain balance.
- Cold scenario: Structural changes in the economy, like a permanently tighter labour market, require prolonged higher interest rates to manage inflation.
The Bank of England’s base case aligns with the “just right” Goldilocks scenario, but risks on either side remain significant.
In summary, Chaplin concluded that the domestic economy is expected to experience weak but stable demand growth, driven by modest gains in consumer spending, subdued business investment, and measured government spending.
Inflationary pressures are easing, though labour market dynamics and persistent wage inflation require careful monitoring. While the outlook is not recessionary, it is marked by modest expectations and a gradual path toward stabilisation.
