AS a young lad growing up in the North East of England in the 80s, I was painfully aware of the economic hardship that areas such as Sunderland, Middlesborough, South Shields and Gateshead, to name a few, were experiencing.
Mass unemployment and deindustrialisation had the North East on its knees. Although protected from this emerging post-industrial nightmare living in the wealthy market town of Hexham, my cousins lived in Sunderland and so we made regular trips there and for a few years I even became a Sunderland FC fan. A keen Thai boxer, I travelled to Consett regularly to train and spar and I watched that town destroyed by the closure of the steelworks in 1980.
The North East of England was on its knees and then Nissan came to Sunderland and transformed the region. Every night on Look North (The news where we were) the lead story was Nissan this and Nissan that. Progress on the build was reported in detail and lines of young apprentices, who once had no future, stood proud in their orange overalls telling journalists how this opportunity would change their lives – and it did.
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Its hard to explain but Nissan gave hope to the North East of England at its lowest ebb, it helped the region recover it’s prosperity and self-esteem. Now employing over 7,000 and creating supply chain jobs for as many as 35,000, the plant makes more than half a million vehicles a year and sells them all over the world.
Then Sunderland shocked me when it voted for Brexit – how could they, when Sunderland still needs Nissan and Nissan needs access to the single market? Then Nissan shocked me when the UK chief saved the UK Government’s blushes by committing to produce the new model Qashqai and X-Trail in Sunderland after Brexit. A commitment made simply on the strength of promises that the UK would seek tariff-free trade for cars and cars parts during the Brexit negotiations? That made a lot of people suspicious as it didn’t really make sense, as no guarantees could be given, and supposedly no detailed offer of compensation was agreed.
However, it’s worth noting that Nissan have received over £100m in grants in the last few decades on top of the set-up, training and inward investment assistance in the 80s, and that Nissan’s boss Carlos Ghosn recently backtracked on his post-Brexit promise saying Nissan will “have to re-evaluate the situation, and ask, okay, is the competitiveness of your plant preserved or not?”.
That was the set-up, and then earlier this week came the sucker punch – Colin Lawther, (Nissan’s senior vice president of manufacturing) said in his evidence to Westminster’s International Trade Committee that Nissan would “review constantly” business conditions after Brexit to assess “if anything materially changes,” And that post-Brexit the UK Government should set up a £100m fund to support the UK car industry supply chain, or else Nissan could be hit by increased tariffs on imported car parts that it relies upon.
I HAVE pointed out before that the consistently strong pound over the last few decades has favoured importers meaning components are bought cheaply from abroad, thus destroying local supply chains and costing jobs.
So our newly weakened pound may be good news for Scotch whisky and Scottish food industry exports, as ingredients are sourced in Scotland, but for Nissan as much as 60 per cent of the components of their cars are imported, thus increasing costs, which offset the currency effect on export prices and post-Brexit tariffs on components. Ten per cent tariffs on car exports (assuming hard Brexit) in my estimation would cost Nissan UK over £350m a year and here the plot thickens: Nissan’s UK division earnings have increased 22 per cent to £117m, on sales of £5.2 billion – a surprisingly low margin (and three times its average profits over the last five years). This sounded alarm bells.
Certainly, £117m profit doesn’t actually generate much corporation tax, so how does Nissan mange to declare such a low profit? And if tariffs would result in significant losses, why are they so happy to play along with the UK Government on Brexit?
Here is the kicker: Nissan UK sell no cars to the EU. All of Nissan UK’s output (500,000 cars) are sold to their Swiss Division as an intra-company transfer and then their Swiss division sells the cars into the EU, which they can do as Switzerland has single-market access as opposed to full EU membership.
Just to be clear the cars don’t actually go to Switzerland they just become Swiss-owned and are physically exported direct from the UK to the county they are sold to. Nissan will deny the motivation but Swiss authorities offer tax rates of 10 per cent or below on profits transferred in this way from overseas subsidiaries and this means that Nissan has avoided hundreds of millions of pounds in UK taxes at a time when ordinary citizens suffer from the fall-out of austerity from bailing out other big corporates.
This raises a lot of questions: will the UK Government compensate Nissan for tariffs in the event of a hard Brexit when Nissan is transferring profits out of the UK and avoiding hundreds of millions in tax? Will the UK Government invest £100m of taxpayers’ money in the supply chain to help Nissan (and other car companies), while still turning a blind eye to blatant tax-reducing policies? And finally, why would the UK Government offer a special deal to Nissan but not to other important sectors that pay their taxes, or to a nation such as Scotland whose prosperity is far more closely linked through exports and rural economy grants to the EU and single market access than the rest of the UK?
I am not suggesting some conspiracy theory where the UK Government turns a blind eye to big corporate tax evasion, while telling voters it is doing the opposite, in return for political support for its policies. Or that it invests hundreds of millions to make sure that big companies don’t suffer from policy decisions while redoubling austerity on the public and developing a plan to use Brexit to force down wages growth, and reduce workers rights to create a low-wage, low-tax, low-social services economy.
It is not a conspiracy theory, it is the clear economic and industrial policy of the Tory Westminster Government. Theresa May’s economic nirvana is Scotland’s economic dystopian nightmare.
Gordon MacIntyre-Kemp, is the chief executive of Business for Scotland.