More impact from Biden's IRA - hitting Europe too

VW prioritises US battery plant over Europe as it seeks €10bn from Biden administration 

Europe’s largest carmaker is ‘waiting’ for an EU response to American subsidies 

 VW said no decisions had been made on the locations of its plants in North America or Europe and it was committed to its plan to build more cell factories in Europe 

 Richard Milne in Oslo, Patricia Nilsson in Frankfurt and Peter Campbell in London 

Volkswagen is putting on hold a planned battery plant in eastern Europe and prioritising a similar facility in North America after estimating it could receive €10bn in US incentives. The decision is the latest fallout from Joe Biden’s $369bn package of subsidies and tax incentives for green technology that is luring European companies to the US. 

 Europe’s largest carmaker told EU officials last week that it expected to reap €9bn-€10bn in subsidies and loans from the US president’s Inflation Reduction Act and other US schemes over the lifetime of the factory, according to people at the meeting. VW was “waiting” to see how the EU would respond to Washington’s incentives before pressing ahead with a plan to build a plant in eastern Europe, said one person with direct knowledge of the decision making at VW. “Plans in North America have moved forward faster than expected and overtaken decision making in Europe,” the person said. 

 The IRA has sparked panic among European policymakers as high-tech industries such as batteries, which they have spent years nurturing, look across the Atlantic as competition from China intensifies. The European Commission, which will next week publish a Net Zero Industry Act as part of its response to the US green scheme, is looking to loosen rules on state aid and is reassessing whether to deploy EU-level subsidies. 

But an early draft outlined last week has fallen short, according to industry executives. A senior executive at another European battery maker present at last week’s meeting, which took place in Brussels and that competition commissioner Margrethe Vestager attended, said: “It looks pretty bad. There was an absence of concrete measures.” Another executive said: “We’ve been contacted by many US states and they all highlight the IRA. When we put the figures together, the conditions they offer are much more interesting than the conditions they offer in Europe.” 

 VW said no decisions had been made on the locations of its plants in North America or Europe and it was committed to its plan to build more cell factories in Europe. “But for this we need the right framework conditions. That is why we wait and see what the so-called EU Green Deal will bring,” the company said. 

 Battery maker Northvolt, which also attended the meeting, suggested it could choose the US over Germany when deciding the location of its next gigafactory unless Brussels gave more concrete support, according to people with knowledge of the discussions. Northvolt estimated it would be able to receive more than €8bn in US subsidies for one factory, they said. Northvolt declined to comment. 

  VW is making “much faster progress” with battery factory plans in North America compared with Europe, Thomas Schmall, head of VW’s components unit, wrote on LinkedIn after attending the meeting in Brussels. Europe was at risk of losing out on “billions of investments that will be decided in the coming months and years”, he added, calling for a European public state aid programme and lower prices for green energy. 

 Lobby group Transport & Environment warned this week that more than two-thirds of European battery projects were at risk of being cancelled, delayed or cut back. 

 VW, which has gone beyond most other carmakers to secure increasingly volatile supply chains by announcing plans to not only assemble batteries but also manufacture cells, said two years ago that it would build six gigafactories. Arno Antlitz, VW’s chief financial officer, last week said the carmaker “would have done [a North American battery plant] anyway”, but that the new subsidies accelerated its plans. 

 “The IRA gives us a tailwind in terms of speed and consequence, so we have the possibility to enlarge our global footprint even faster in the US with the IRA.”

A bit of red tape (easy to use in essays)

 

Matthew Lynn

City columnist

PRIGOZHIN: TICKS ALL THE BOXES

Sweep away this bureaucratic racket

Money-laundering rules are absurd and restrict competition. It’s time for some common sense

Weall know the drill. Every time you need to open a new bank account, or hire a solicitor, or change your insurance policy, you run into a wall of money-laundering checks. You have to find a couple of utility bills, less than three months old of course, even though no one gets them in the post any more, and if they ask for them to be sent, the postal workers are on strike anyway. You might well need a certified copy of your passport as well. And perhaps of your driving licence. You might well have to record a video of yourself and send that across as well. It has turned into a nightmare. A simple transaction that should take a few minutes, and a couple of swipes on your phone, turns into days of hassle. Not very surprisingly many of us just give up and decide it is not worth the bother. 

It is about to get worse. The Economic Crime and Corporate Transparency Bill will add another whole layer of checks and regulations that we will all have to comply with. Every time there is any kind of financial scandal there are demands for more and more money-laundering controls. It is easy for governments to agree to that. It doesn’t cost them anything and it makes ministers look tough. At the current rate we soon won’t be able to hop into an Uber or buy a drink at a bar without showing our passports and a couple of utility bills. 

A SIMPLE QUESTION 

Surely we should stop to ask a very simple question. Does any of it actually achieve anything? The case of Yevgeny Prigozhin might tell us something important. Prigozhin is probably about as dodgy a character as it is possible to imagine right now. The head of Russia’s brutal Wagner Group, a private military corporation, he is one of Vladimir Putin’s key allies, and responsible for some of the worst crimes committed during the invasion of Ukraine. And yet according to a report in the Financial Times he was able to pass the UK’s money-laundering checks by simply offering a gas bill in the name of his 81-year-old mother. He was even sanctioned by the British and American governments at the time. None of that mattered. He ticked a few boxes and so it was all fine. 

It is not the first time something like this has happened. In 2021 NatWest received a hefty fine for failing to detect money laundering in a case where it accepted £700,000 in cash brought into a branch in black bin liners. But, hey, it was fine as they had a recent council-tax bill. And yet we never seem to hear of any criminals or terrorists actually getting caught. No one ever calls the police because a utility bill wasn’t presented, nor does it ever seem to lead to any arrests. In truth, there is no evidence that any of the money-laundering checks ever catch any real criminals. 

ARE YOU A RUSSIAN WARLORD?

No one wants to go back to the days when you could simply walk into a bank with a suitcase full of cash and open an anonymous account, no questions asked. But our ineffective and meaningless money-laundering rules have become a vast bureaucratic racket. And it is one that imposes huge costs on the economy. The rules restrict competition by making it harder for us to switch from one company to another, and for start-ups to break in to the market. Indeed, one of the main reasons the banking market remains dominated by the big four clearing banks, despite plenty of web-based start-ups with far better service, is that money-laundering rules make it too much hassle for many of us to switch accounts. The same is true of other financial services. The rules are meant to protect us, but what they really do is allow inefficient monopolies to lumber on despite high prices and poor customer service. 

Here’s a simple suggestion. We should sweep them all away. Beyond simple ID, no one should have to answer any questions to open a bank account or buy a house. Instead, we should just let companies apply a little common sense – such as asking if someone happens to be a Russian warlord before taking them on as a client. That would be cheaper, less bother for the rest of us, and more effective as well.

Economically inactive going back to work?

 

Economy

The exodus of office workers during the pandemic may be reversing

VICTORIA JONES/PA

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The number of older workers returning to the workforce rose sharply at the end of last year, a study by a leading think tank suggests.

The results may indicate that the exodus of hundreds of thousands of workers during the pandemic is reversing, according to the analysis by the Institute for Fiscal Studies of data published by the Office for National Statistics.

The rise in participation among workers aged between 50 and 64 was particularly pronounced among those who had left work since the start of the pandemic to become inactive, analysts said. Workers are considered economically inactive if they are neither working nor available to work.

Workers who had left their jobs after the start of the pandemic accounted for 57 per cent of the 197,000 workers aged 50 to 64 who left inactivity to return to work between October and December last year.

About half a million workers left their jobs during the pandemic with no plans to return to work. Some of the rise was caused by the ageing of the population, which meant a greater share of workers reaching retirement age, but the trend was driven mainly by older workers aged between 50 and 64 who retired early or were forced to resign because of long-term sickness.

The trend has contributed to a shortage of labour supply that central bankers have warned would weigh on economic growth.

“A number of these people say they are unlikely to come back into the labour market,” Andrew Bailey, the governor of the Bank of England, said after the central bank’s decision to raise interest rates in February. “This significant and lingering fall in the labour supply weighs on the UK economy’s potential.”

Unemployment is close to historic lows, but it is not because more people are in work, according to ONS figures. Employment remains below pre-pandemic levels, while the number of people who are “inactive” is at historically high levels.

The flow of workers back into the jobs market led to a slight drop in the total inactivity rate among 50 to 64-year-olds from a post-Covid peak of 27.7 per cent last summer to 27.1 per cent by the end of last year, the IFS said.

The lack of participation is a concern for the government, which is looking at measures to encourage workers to return to the labour market.

Bailey said the fall in participation “will take time to unwind . . . so we have revised down our estimates of the trend in participation with persistent effects from Covid adding to population ageing”.

The figures show signs of the beginnings of a reversal, but more data is needed to establish a change in trend, according to the IFS. The share of inactive older workers who said they would “probably” or “definitely” not work again has fallen for two consecutive quarters, while the share who said they would like to work has risen.

Xiaowei Xu, a senior research economist at the think tank, said: “We may be seeing a rise in older people returning to the workforce. If ‘unretirements’ continue, this could ease pressures on the labour market, but if the return is triggered by the cost of living crisis it is no cause for wider celebration. It is a response to people becoming poorer.”

Recruitment gets harder

Businesses faced renewed difficulties with hiring staff last month as wage and cost pressures remained high, a Bank of England survey shows (Arthi Nachiappan writes). Forty-five per cent of businesses said they were finding it “much harder” than usual to recruit, up from 35 per cent in January, according to the bank’s survey of about 2,500 chief financial officers between February 3 and 17.

The findings are likely to push up wages as companies compete for workers. Annual wage growth rose to 6.6 per cent in February, up from 6.3 per cent. Respondents expect wage growth to average 5.7 per cent in the next year.

Short article that highlights how hard it is to allocate scarce resources effectively

 So long as shipping is the easiest way to move large items around the world, control of the seas will be vital to our national interest

TOM SHARPE24 February 2023 • 10:59am

After a year of fighting, tanks and trenches dominate the press coverage of Russia’s invasion of Ukraine. Less noticed is the quieter but equally essential maritime war being waged for the survival of Ukraine’s economy – one that should send shivers down the spines of Britain’s defence officials.

The war in the Black Sea and Sea of Azov doesn’t look anything like the battle of Jutland, with titanic warships locked in combat. Much of it doesn’t have anything to do with direct maritime combat at all, instead focusing on denying the use of sea lanes. 

In oceanic terms, this is a small area. But it is flanked by both combatants, and from a Ukrainian perspective it’s the point of transit for 90% of the country’s exports, from wheat and corn through to steel and fertilisers. Russia’s maritime blockade is having a crippling impact on the Ukrainian economy, and starving the countries which depended on its exports of grain. 

Meanwhile, in the Baltic Sea, public debate is still focusing on who was responsible for the sabotage of the Nord Stream pipeline. Regardless of responsibility, the action shows the range of options someone with mastery of the maritime environment has at its disposal – and the threat posed to the UK’s national interests by Moscow, now and in the future. 

Control of the seas will always be critical to both Britain and Ukraine’s national security so long as shipping is the easiest way to move large items around the world. For the UK, there are also critical fixed assets from the data cables running under the North Atlantic – monitored by the Russian navy for decades – to power infrastructure from oil and gas extraction to wind and tidal generation requiring our protection. 

Britain’s nuclear deterrent is in use every single day, without ever being deployed. In much the same way, the Navy keeps us safe everywhere, every day. And yet successive governments have cut and cut this vital national security asset, just as they have squeezed resources for the Army and RAF.

What was meant to be 12 destroyers became eight, and then six. They are now having their well-publicised mechanical defects repaired over a period of several years. Of our two aircraft carriers, only one is functional, and we only have 30 F35B’s capable of flying from them. Our frigates are venerable workhorses but beginning to show their age, and too many are not fully equipped. 

And once again, numbers are being cut; we are moving from 13 frigates to eight without ship-launched torpedo capacity, plus five “general purpose” frigates not capable of fully matching their role. Our mine-hunting capability, world-leading for decades, is being traded for new technologies which have yet to prove themselves at scale and in conflict. 

Below these surface problems are mounting concerns over critical enabling capabilities. Ammunition stocks are grabbing the headlines, but we also don’t have enough helicopters, long range air surveillance aircraft, people, or accommodation to put them in. The list is as long as it is depressing.

The Treasury’s response to requests for more money from each service always centres on the objection that they can’t be trusted not to waste it. This is a line that works better for regulating a child’s pocket money than for the defence of the realm, and it isn’t one that they’ve ever applied to the monumental waste in the NHS. Waste must be fixed, but can't be used as an excuse.

The shipbuilding pipeline is more promising. Nuclear attack and missile submarines, specialist anti-submarine and general purpose frigates and large support values are all in train. If they arrive on time and fully armed – and that is a big “if” – then by the back end of this decade we may scrape through in numerical terms. 

In the meantime, even with a war on our doorstep, an increasingly aggressive superpower on the other side of the world, and a demonstrably less stable global commons, the Treasury and its political masters appear to believe there aren't enough votes in defence to justify spending more in general, let alone on the Royal Navy. We will need to think hard about how to do more with less.

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Tom Sharpe OBE is partner at Special Project Partners. He previously spent 20 years in the Royal Navy during which time he commanded four warships

Must-read on how government could really help industry

 

Britain’s semiconductor champions could conquer the world, if Sunak grasps the nettle

The UK should stick to its strengths, not chase the chimaera of ‘semiconductor sovereignty’

AMBROSE EVANS-PRITCHARD24 February 2023 • 9:00am

Paragraf is the sort of gold dust company that Britain vitally needs if it is to sustain an advanced semiconductor industry, and if it is to avoid getting crushed in the arms race for global chip ascendancy.

A spinoff from the Materials Science Department at Cambridge, Paragraf is the world’s first and only manufacturer of 2D graphene chips for sensors. These chips are one-atom thick. They are a thousand times faster than silicon wafers used today, and they use 10,000 times less energy to do the job.

The Chinese are spending $80 billion trying to crack this technology – so far to no avail – aware that the first country to make these next-generation chips at scale will dominate clean-tech, bio-tech, and artificial intelligence for decades. It will gain the edge in precision weapons.  

Paragraf has a plant in Huntingdon. Demand is so intense that it is now searching for a much bigger site with the infrastructure and skills pool for the big league. Speed is of the essence. “Right now I’m afraid we’re going to have to go elsewhere,” said Simon Thomas, the company’s chief executive.

It is the same story from Newport-based IQE, the world’s leading producer of compound epitaxy wafers for photonics. Chief executive Americo Lemos has threatened to decamp altogether unless the Government comes up with a viable semiconductor plan in short order.

Dr Thomas described the British political class as technologically primitive, with scant understanding of how semiconductors underpin the 21st Century economy or what it takes to nurture the ecosystem behind it. One official suggested that he outsource the work to Malaysia.

It took six months for Paragraf to obtain a work visa for a German specialist, and nine months for an Indian. “You want to cry: these are highly-skilled people. There are never enough visas, and it is expensive for us, and expensive for them. The Government is throttling how quickly we can grow.” he said.

He has had to build an electricity sub-station because the public infrastructure is inadequate. Don’t get him started on the stone-age planning system.  

“I am passionate about trying to grow the business in the UK. If we invested in the next generation of graphene, silicon carbide, and diamond technologies, we could own the world market in fifteen years. We have the IP, and nobody else in the world has it. But we can’t expand without the necessary support,” he said.

Paragraf is the world’s first and only manufacturer of 2D graphene chips for sensors CREDIT: Jason Bye

Paragraf is eyeing America, where Joe Biden’s $52bn Chips Act is raining money, and full-service tech-parks are rolling out the red carpet. They even scout talent for you.

Tech-leaders penned a cri de coeur to the Prime Minister last month, warning that “Britain’s status as a leading tech ecosystem is at risk” with every month that the paralysis drags on.

This has a familiar ring. The silicon chip was invented in Manchester in the 1950s, yet America and Japan ran away with the prize, before Taiwan Semiconductor Manufacturing Company (TSMC) outflanked them all. The UK then pioneered the first compound chips in the 1980s but let much of the manufacturing slip away to Asia. “We missed the boat again,” said Dr Thomas

So what should we hope for when the Sunak strategy finally emerges in March? The UK certainly should not chase the chimaera of ‘semiconductor sovereignty’.

It should eschew the EU’s ruinous attempt to match Asia in advanced silicon chips. It is 40pc cheaper to produce these wafers in Taiwan due to lower labour and power costs, and TSMC is light-years ahead on miniaturisation. Nor should the UK copy the EU in trying to induce Intel to build production ‘fabs’ in Europe at €20bn a shot – half in subsidy.

The EU made a mess of its farm and fisheries policies, its energy policy, its digital policy, and its currency.  We can be sure that it will make a mess of its French-driven bid to turn Europe into a semiconductor fortress, purportedly doubling its global chip share to 20pc by 2030.

The Commission has unveiled a €43 billion plan, of which just €3.3bn of actually comes from EU funds, and that is mostly from cannibalising Horizon Europe (science) and Digital Europe. It is a drop in the bucket. “We calculate that they would need €500bn,” said Kurt Sievers, head of the Dutch chip-maker NXP.

The EU is spreading itself too thin and risks a subsidy haemorrhage on yesterday’s technology. It is akin to the Chirac-Kohl bet on HD television in the 1990s, the last gasp of the analogue age.

The UK has two crown jewels: advanced compound wafers and chip design. Over 95pc of the processors in the world’s smartphones are designed by ARM in Cambridge. This is where the country has critical mass and the greatest hope of world-beating clusters.

The US, the EU, China, and Japan are all pursuing superconductor sovereignty to varying degrees. It is nigh inevitable that this will lead to a cyclical glut in the end, with much wasted money along the way. Britain should leave this impetuous scramble to others.

“We can’t do everything. We should stick to what we are fundamentally good at and where we have a global competitive advantage,” said Andy Sellars from CSA Catapult, which researches compound chips in Newport.

Joe Biden’s $52bn Chips Act aims to revolutionise America's chipmaking industry CREDIT: Chip Somodevilla/Getty Images

Generally, I oppose picking winners and losers, but semiconductors are sui generis. It is a reasonable bet that modest sums of taxpayer money deployed quickly and with panache could turn the UK into a pocket superpower in the fastest growing segment of the chip market.  

The Government should not be shy about taking equity stakes. The Taiwanese state co-funded the launch of TSMC in 1987 and turned the venture into a national endeavour, backed by an heroic push for STEM education (Science, Technology, Engineering, Maths). Today TSMC makes 86pc of the world’s advanced silicon chips.

“The Government could easily copy what Taiwan did," said Dr Thomas from Paragraf. IQE's Mr Lemos made the same argument in testimony to Parliament.

The Centre for Policy Studies says Westminster should get the foundations right, offering R&D tax credits and ‘full expensing’ for plant and machinery, backed by a strategic investment fund for emerging technologies.

It should expand its ‘high potential’ visa scheme to all advanced STEM graduates from a wide range of universities in allied countries, and eliminate the needless friction of visa and health surcharge fees.

The CPS says the Government should use its power under the Levelling Up Bill to ride herd over the planning bureaucracy, giving laboratories and hi-tech sites supremacy in the order of priorities. Nobody should have to go through the deranged ordeal inflicted on the Wellcome Sanger Institute when it tried to put up a temporary genome sequencing lab at its Cambridge site during the white heat of Covid.  

Rishi Sunak is tech-savvy from his Stanford days. He has liberated semiconductors from their captivity in ‘digital, media, culture, and sport’, of all places, and put them under a new Science, Innovation, and Technology Department where they belong.

His chip strategy may prove a welcome surprise. If it is not, this country would be better off with a pro-business Labour government.

Info on a state-owned bank - supply-side:

 

SMALL-BUSINESS MINISTER KEVIN HOLLINRAKE (LEFT) VISITS RAMEN ELECTRA FOUNDER JAMES FRASER, WHO RECEIVED THE 100,000TH START UP LOAN

A state loan for start-ups

The British Business Bank offers competitive unsecured rates for founders

When the owners of St Albans-based noodle shop Ramen Electra decided it needed financing to fulfil its potential, they hadn’t expected a visit from a government minister. But as the recipient of award number 100,000 from the Start Up Loans scheme, the government-backed initiative aimed at new businesses, Ramen Electra got some helpful publicity when small-business minister Kevin Hollinrake turned up to mark the moment.

Ramen Electra started up during the pandemic lockdown, serving takeaways through the window of a local pub, The Beehive. Then, in the aftermath of the pandemic, founder and chef James Fraser decided to make a full-time go of the new venture and serve meals six days a week as the pub’s main food offering. Earlier this month, the business received £6,000 from the Start Up Loans Scheme to invest in new kitchen equipment, as well as marketing materials.

A DECADE OF SUPPORT

It’s the sort of story that has become commonplace since the launch of the scheme just over a decade ago, but many would-be entrepreneurs are unaware of what is available. The scheme, which is administered by the British Business Bank, offers personal loans to people looking to start a brand new business or to expand an existing business that has been trading for less than 36 months. The cash can be used for more or less any business purpose – from renting premises or buying stock to funding marketing materials.

“FOUNDERS CAN BORROW UP TO £25,000 EACH AT 6% INTEREST”

Business founders can borrow between £500 and £25,000 each – the average loan size is around £9,300 – with the money repayable over a term of between one and five years. There are no arrangement fees, but interest is charged at a rate of 6% a year – competitive compared to financing for start-up businesses provided by banks and other lenders.

However, importantly, the loans are unsecured, so you don’t need to put up any personal or business assets as collateral. You also don’t need a guarantor to access the scheme.

Applications aren’t guaranteed to succeed. The British Business Bank assesses borrowers on the basis of their credit histories and their ability to repay, since the loans are personal loans rather than lending to the business. It also makes an assessment of viability, so applicants are expected to provide a business plan and a cashflow forecast.

However, the scheme offers support for business founders who have never put together such documents before, including online templates that you can use to pull the information required together. It also offers a range of support and mentoring services once your loan has been approved and you’re running the business.

FURTHER FUNDING TO GROW

The scheme also offers additional loans – if you need further support to expand, for example, or to exploit a new opportunity. These also come with a 6% interest rate and your total outstanding balance to the scheme cannot exceed £25,000. So if, say, you borrowed £10,000 through your first loan and you have repaid £2,000, you could apply for new financing of up to £17,000.

Note also that each founder of a business is entitled to apply for their own loan. So, if you’re co-launching a business, you’ll have access to a larger amount of capital. The only caveat is that the Start Up Loans scheme won’t advance more than £100,000 to any one business.