British ministers have recently unveiled a package of various incentives, including new motorway junctions and training facilities to secure a £1 billion deal for a manufacturing plant by US truckmaker Rivian.
Rivian, which specialises in electric trucks specifically, is a firm that the UK is competing for against other nations such as Serbia, as well as at least one European country, to benefit from foreign direct investment.
To boost the UK’s chances of securing the deal, ministers have included infrastructure, such as the previously mentioned motorway junctions, as well as training facilities to decrease the costs and risks for Rivian of setting up in the UK.
This mirrors the strategy that the government took to try and secure investment from German green technology manufacturer Siemens, who is currently based in the Humber-Estuary and produce wind turbines for the UK’s green energy targets of reducing carbon emissions by 78% by 2035.
Government officials have held talks with Rividan executives to explain the benefits to Rivian of locating its factory on the 635-acre Gravity business park near Bristol in Somerset, which is being built by developer Salamanca Group, the FT reports.
With the UK already securing 975 instances of FDI throughout the past year, the deal would further boost Prime Ministers Boris Johnson’s targets of improving the UK’s performance on an international scale, thus boosting the PM’s credibility in winning inward investment for the UK. Furthermore, the construction of the plant will also be in line with Johnson’s levelling up agenda, as foreign direct investment in the electric vehicle market will provide high paying specialised jobs in engineering and other manufacturing roles.
These high paying opportunities will incentivise individuals to gain the skillsets necessary to transfer to these careers, yielding potential migration to the northern areas of the UK, which, will lead to higher levels of economic activity as the individuals employed in these positions go out to spend their newly earnt incomes/ Consequently, this will lead to an increase in consumption, which, is a component of aggregate demand, thus boosting aggregate demand as shown in the diagram.
This boost in aggregate demand will lead to an increase in growth in the short run as real GDP rises from Y to Y1, meanwhile, because consumers are spending more, the rate of inflation will rise from P to P1. Furthermore, once the plant is complete, the UK government will also see itself getting closer to its export target of boosting exports by £1 trillion as a fully operational plant will be able to sell excess production overseas, thus boosting exports, and, aggregate demand.
However, these rising price levels will pose a threat for those on fixed incomes, such as those on JSA or state pensions as these individuals have no way of increasing their purchasing power. Hence, a rise in the rate of inflation will erode their buying power, forcing them to switch from normal goods to inferior goods, or, even worse, no goods at all, which, is highly likely to occur as many already rely on charities such as the Trussel Trust, who, during the pandemic, have sent out a record 2.5 million food parcels.
However, this increase in the rate of inflation is only a short term issue as in the long run, the creation of new capital in the economy due to foreign direct investment will increase the productive capacity of the UK economy, thus reducing the rate of inflation.
The Financial Times also reported that the electric van maker is keen on the motorway expansion as it will allow the firm to benefit from greater connections to Amazon, a firm that they mainly supply.
Not only will this further incentivise the firm to come and set up in the UK, but, will also help the UK achieve its emissions targets of reducing emissions by 78% by 2035 as getting electric vans on the road will reduce carbon emissions from the highest polluting sector, transport.
Written by Hubert Kucharski