Britishvolt collapse prompts calls for shake-up of UK subsidy policies

When Britishvolt collapsed into administration, Jeff Pratt lost his most important customer.

As head of the Coventry-based UK Battery Industrialisation Centre, he runs a facility that is intended to help businesses with promising technology make the leap from development to manufacturing.

Now, much of the centre’s brand new micron-level precision machinery, capable of producing cutting-edge lithium-ion batteries for electric cars and energy storage, stands idle.

“It’s not good news, without a doubt,” he told the Financial Times during a visit this week.

The ripples from the battery start-up’s failure have spread out across the country’s nascent industry, raising questions over the future role of the £130mn UKBIC site in Warwick and also the effectiveness of subsidies intended to convince international investors to set up business in the UK.

As bidders circle the remains of the company, industry and politicians have called for a shake-up of UK policies on attracting overseas investment.

They argue that Britain struggles to compete with generous subsidy packages offered in the US and the EU.

“We can’t just accept a laissez-faire approach” from the UK compared to others, says Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, which represents the UK auto industry. “It’s not a level playing field.”

The US in particular has attracted a slew of investments because of measures in the Inflation Reduction Act that require manufacturers to buy batteries locally in order to qualify for generous consumer subsidies.

Around 70 specialist battery companies have been formed in the US since the new rules came into force. In that time, UK talks with potential investors have largely fizzled out.

In the case of Britishvolt, ministers offered a £100mn grant towards a prospective £3.8bn gigafactory in Blyth, which could be drawn down if strict conditions, including fundraising and construction work, were met.

Britishvolt never met the conditions, something multiple people close to the business say contributed to its failure.

Although this is only one part of the reason the business collapsed, those close to the process believe cash from the government would have given the company more time to find a cornerstone investor, or bank orders from carmakers.

“The outcome now might have been different, because those [investors] would have seen a big chunk of money coming in from the government,” said one person who has been involved with the business over several years.

Orral Nadjari, the Britishvolt founder who was also the largest shareholder when the business collapsed, said the company was subjected to a due diligence exercise that lasted for 18 months and that it therefore “missed the window” to close a crucial fundraising round before the summer, when UK markets collapsed and the country entered a period of political turmoil.

Another person close to the Britishvolt situation said: “The UK is not driving a strategy at the moment. Britishvolt should have been part of a tapestry of UK energy plans.”

The business department said the government offered “significant support to Britishvolt . . . on the condition that key milestones — including private sector investment commitments — were met” and was “disappointed” the company could not meet the requirements.

The UK’s approach to investment incentives, with a meticulous process that eventually leads to the offer of financial support, contrasts sharply with European practices of offering large sums up front that are often whittled down at a later date.

“Neither approach is ideal . . . but the UK’s is not a winning strategy,” said one industry figure.

“By doing the right things too slowly, we’ve cut our chances of success,” said David Bott, chief innovation officer at the Society of Chemical Industry, which represents the chemical groups that would supply battery companies.

Start-ups also face an ingrained political aversion to backing uncertain businesses.

While the process of allocating subsidies is reasonably straightforward for established carmakers, ministers are “very risk averse” when dealing with “unknown” entities, according to one person who has worked on several such deals.

“We should take more risk where we see potential to create a UK champion,” the person said.

“For the public purse it’s absolutely the right way, but for ease of accessing it’s incredibly complicated,” said Hawes, who has dealt with grant applications while working at Bentley.

Opposition Labour MPs, particularly shadow business secretary Jonathan Reynolds, have privately expressed frustration with the system, and are expected to revamp it if the party wins power after the next election.

But the industry says it cannot wait for a prospective Labour government in 2024.

“This is a once in a generation [energy] transition, and those investments are taking place now,” said Hawes. “That window is open, and in four to five years’ time, it may be too late.”

David Greenwood, professor of Advanced Propulsion Systems at WMG in the University of Warwick, a government-funded battery research unit, said that the next six to nine months would be “absolutely critical” for the UK attracting overseas investments in building battery factories.

Greenwood argued that the subsidy mechanism is fit for purpose but more urgency and ambition is needed.

“All of the elements are in place — it’s a matter of making them work quickly and at a greater financial scale than they do today,” he said.

But he added that new subsidy rules post-Brexit mean that the UK will struggle to narrow the gap with European countries, which typically cover 15-25 per cent of project costs through packages that include government tax breaks or investment in land and infrastructure, in addition to cash incentives.

At UKBIC, Britishvolt’s failure has soured the mood but Pratt remains hopeful that the state will intervene to capitalise on the scientific groundwork.

“Just making this site cost neutral is an absolute waste of time,” said Pratt. “You’ve got to spend £130mn and go for growing a battery industry in the UK.”