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UK car prices could rise by £1,500 after Brexit

A worker puts wheels on the iconic Jaguar E Type at the company’s Browns Lane factory. Jaguar Land Rover has warned about implications of Brexit. Photograph: Getty

A hard Brexit could force up the price of cars by £1,500 and restrict choice to consumers, it has been warned in the wake of the latest analysis by Jaguar Land Rover about the impact of the UK crashing out of the EU.

Jaguar Land Rover, the UK’s biggest car maker, has warned that a “bad” Brexit would hit its profits by £1.2bn a year and put £80bn of investment planned for the next five years in the UK at risk.

In a warning to Theresa May ahead of her crucial summit with ministers this weekend, the chief executive of JLR said the Indian-owned company had already spent more than £50bn in the UK over the last five years. Ralf Speth said: “If the UK automotive industry is to remain globally competitive and protect 300,000 jobs in Jaguar Land Rover and our supply chain, we must retain tariff and customs-free access to trade and talent with no change to current EU regulations.”

Speth’s remarks follow calculations by the Society of Motor Manufacturers and Traders (SMMT) that extra tariffs on importing cars would force up list prices by £1,500. The average price of a car is £15,000 so this would push-up the price to £16,500, the Business Energy and Industrial Strategy (BEIS) committee of MPs has warned.

“The cost of cars will go up and it will mean less choice,” David Bailey, professor of industry at Aston Business School, told Yahoo Finance.

It is not only the extra tariffs that would have implications for the industry. Any hold-ups in customs of car parts would be an issue as the industry would have to start warehousing parts rather than operate on a “just-in-time basis, while one in ten workers in the industry are from other parts of the EU.

The industry is very interwoven with the EU, the BEIS committee report found. The UK is the third highest producer of passenger cars in the EU behind Spain and Germany and the industry accounts for nearly 10% all the UK’s manufacturing output. Some 80% of cars made in the UK are exported but 86% of the cars sold in the UK are imported, the BEIS committee found.

The BEIS committee said that falling back on World Trade Organisation rules would impose a 10% tariff on cars and 4.5% on vehicle components. The SMMT calculates that this 10% tariff on imports would cost the industry £2.7bn and exports £1.8bn.

The SMMT estimates that the industry employs 186,000 directly in the UK, a figure which reaches 856,000 if the supply chain is taken into account.

JLR’s warning comes after BMW said there was risk of closures in the UK because of the delays of importing components. Plane manufacturer Airbus last month warned it could pull out of the UK.

Data from the SMMT published just hours after the JLR warning, showed that new car sales were down 6.3% year-on-year over the first half of 2018. Diesel sales were down 28% although sales of plug-ins and hybrids were up 45% and petrol cars up 12.3%.

“Car sales still are showing no signs of recovering and remain about 8% below their 2016 average,” said Samuel Tombs, chief UK economist, at Pantheon Macroeconomics.