A £380m subsidy for a Tata-linked battery firm may have stopped Jaguar Land Rover shifting vehicle production out of Britain, government officials warned in December. State aid papers prepared for the Competition and Markets Authority say Agratas, the Tata-owned battery business, could have built its European plant in Spain and made it cheaper to assemble JLR cars there. The planned investment in the Somerset gigafactory has been revised to £5.2bn from £4bn when first announced in 2023. The documents show ministers weighed that risk when extending the grant to Agratas.

Officials at the Department for Business and Trade told civil servants that, without the grant, Jaguar Land Rover might have considered moving vehicle production away from the UK. The warning appears in state aid papers compiled for the Competition and Markets Authority as part of its review of the subsidy.

JLR is owned by Tata Sons. Tata also controls Tata Steel, which got a separate £500m package to upgrade Port Talbot.

What the documents say

The papers set out a counterfactual scenario. They argue that Agratas could have chosen Spain for a European factory if the UK had not offered financial support. Over time, the documents say, that would have created a ‘‘systemic disadvantage’’ for UK car manufacturing.

The consequence, officials warned, was that JLR could relocate vehicle assembly closer to the battery plant to reduce costs. That would have hit jobs at JLR and across its supply chain.

The government increased its estimated total investment in the Somerset site to £5.2bn. That figure replaces the £4bn total given when the project was first unveiled in 2023.

Under UK law, any public body proposing awards above £25m must consult the CMA’s subsidy advice unit. The regulator examined the government's evidence and pushed back in places.

The CMA said the assessment should set out more reasoning and evidence to support the claim that JLR relocating could lead to a majority of UK automotive production leaving the country. The regulator noted uncertainty about whether the chain of events described in the papers was realistic.

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Industry reaction and political stakes

JLR employs roughly 33,000 people in the UK and makes Range Rover models at Solihull in the West Midlands.

It also builds the Discovery Sport at Halewood in Merseyside and other models at sites across Britain.

A JLR spokesperson said the company remained committed to manufacturing in the UK and denied it had suggested moving vehicle production to Spain in the discussions about the gigafactory location. The company didn't name an individual to speak on its behalf.

Des Quinn, national officer for Unite, welcomed the intervention. "It's good to see that the government were on the right side to support the UK car industry," he said.

The Somerset plant is intended to supply batteries to JLR and other carmakers. The site has been described in government material as a strategic project for the transition to electric vehicles.

Ministers have faced a tricky test. They want to keep manufacturing jobs in Britain while avoiding state aid decisions that the CMA might judge unlawful. The documents show officials tried to tie the grant to a wider industrial policy aim: keeping batteries and vehicle assembly in the same economic area.

That aim reflects a simple economic logic. Electric vehicles are heavy on batteries.

Logistical costs and lead times make nearby battery supply attractive. If a battery plant sits overseas, manufacturers can lower costs by making cars closer to that plant.

But the CMA pushed officials to explain how likely that chain reaction really was. The regulator asked for firmer evidence that a Spanish battery plant would make relocation of most UK car output the most probable outcome.

The state aid papers treat the Spain scenario as a counterfactual.

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The government's assessment now counts the Somerset gigafactory as a £5.2bn project, up from £4bn when it was first announced in 2023.

This article was created with AI assistance.