Rishi Sunak has been warned by a leading expert group against entering a “subsidy race” with the US and the EU in a bid to defend the British auto industry.

The UK is currently locked in a subsidies battle with Spain as the prime minister tries to persuade Indian conglomerate Tata to build a new gigafactory in Britain to supply batteries for its Jaguar Land Rover range.

But the Policy Exchange, a think tank set up by senior Conservatives including Escalation Secretary Michael Gove, argued in a report published on Friday that ministers should improve the business climate in the UK rather than try to protect the industry. automobile with subsidies.

Sir Geoffrey Owen, author of the report and former editor of the Financial Times, said: “The UK should not be involved in a race for subsidies with the EU and the US.”

Owen said strategic planning was crucial as well as addressing the specific problems facing the auto industry: “Where there are obstacles that discourage investment, such as high energy costs, the government must try to remove or mitigate them.”

Owen lamented the “erratic conduct of UK industrial policy over the past two years”, arguing that the scrapping of former Prime Minister Theresa May’s industrial strategy in 2021 had been confusing for business and bad for investment.

The report said a greater degree of stability in government policy was needed and that any support for the auto industry should be realistic and based on how the UK can best compete in the global marketplace.

He argued that the scale of the EU market gives the 27-member bloc an advantage in attracting investment from Asian companies now that Britain has left the single market and customs union.

Tata is expected to choose in the near future between building a new battery gigafactory in Spain or at a site near Bridgwater in Somerset, with UK ministers confident the project will find its way to Britain.

A subsidy package of at least £500m is expected to be put on the table, along with an open commitment to reduce power bills for the factory and other energy-intensive users.

Separately, Britain has raised concerns about the operation of US President Joe Biden’s Cut Inflation Act, a $369 billion subsidy package intended to boost green energy projects in the US.

Kemi Badenoch, business and commerce secretary, has called on Washington to ensure that companies based in Britain and other Western allies can benefit from subsidies without moving their operations to the United States.

Sunak is due to meet Biden in Washington next week, but allies of the British prime minister said they did not expect the so-called IRA operation to be “high on the agenda.”

The prime minister has recently focused on the opportunities and risks presented by artificial intelligence and will discuss those issues with Biden.

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