Department for which the accounting officer who made the assessment is responsible:
Department for Business, Energy and Industrial Strategy
Automotive Transformation Fund Programme
Main scheme project stage:
Full Business Case approved by BEIS Portfolio and Investment Committee in March 2020 and by HMT in November 2020.
It is normal practice for Accounting Officers to scrutinise significant policy proposals or plans to start or vary major projects, and then assess whether they measure up to the standards set out in Managing Public Money. From April 2017, the Government has committed to make a summary of the key points from these assessments available to Parliament when an Accounting Officer has agreed an assessment of projects within the Government’s Major Projects Portfolio.
This Accounting Officer Assessment was made of the Automotive Transformation Fund programme, following its Full Business Case. I have made the assessment as the Accounting Officer for the Department for Business, Energy and Industrial Strategy (BEIS).
Background and context
The transition to electric vehicles (EVs) continues to gather pace. There is a growing demand for EV components and while the UK remains an attractive investment location, global competition is fierce. Growing a domestic EV supply chain is essential to safeguard trade. It is likely that high levels of localised content will be required if manufacturers are to meet Rules of Origin requirements in future free trade agreements.
The Government is committed to putting the UK at the forefront of the design and manufacture of zero emission vehicles, accelerating a UK-made transition to Net Zero. As part of this, it announced that new diesel and petrol cars and vans will no longer be sold from 2030, and that all new cars and vans must be fully zero emission at the tailpipe from 2035. At the same time Government continues to implement ambitious innovation programmes in partnership with the Advanced Propulsion Centre, to unlock private initiative in the transition to EVs.
The Automotive Transformation Fund (ATF), a key pillar of the Government’s strategy, aims to support the creation of an internationally competitive EV supply chain here in the UK. It supports late-stage R&D and capital investments across strategically important parts of the EV supply chain and is expected to create and safeguard jobs, secure private investment and support the UK’s role in tackling climate change by reducing global emissions from the automotive sector. A secure and resilient supply chain in the UK will also help electric vehicle manufacturers meet Rules of Origin requirements.
Assessment against the Accounting Officer standards
The ATF is financed from within BEIS’ agreed spending budgets and all spend will be consistent with the Department’s ambit. Capital funding is delivered under the Industrial Development Act 1982, the use of which requires that the views of the Industrial Development Advisory Board (IDAB) and HM Treasury (HMT) consent be sought. The R&D funding is delivered under the Higher Education and Research Act 2017, with grants being administered by Innovate UK, and subject to BEIS and HMT approvals. At full business case stage, the focus has been on compliance with public law, subsidy control and procurement regulations with individual awards under the ATF undergoing individual due diligence.
Overall assessment: My assessment is that the regularity test is satisfied.
At its inception, the proposal was novel and as such Managing Public Money required that HMT approval was secured for the principle to spend (as well as for the budget cover to do so). Accounting Officer, Ministerial, No.10 and HMT approval were secured before the ATF was announced in September 2019 and the ATF’s Full Business Case was subsequently approved by the BEIS Project Investment Committee and HMT. Regular assurance and governance activity ensures that the fund is dispensed in a manner that best meets the aims and objectives in the business case. A full monitoring and evaluation plan will be agreed and implemented; enabling the fund’s impact to be assessed at important intervals over the next 5-8 years.
Overall assessment: My assessment is that the propriety test is satisfied.
Value for money
The ATF seeks to maintain a successful UK automotive sector by unlocking investment in the EV supply chain. The fund addresses structural weaknesses in the UK supply chain, by bridging market failures and funding gaps associated with investing in late-stage R&D and capital investments. Market failures addressed include high barriers to entry and externality effects.
To address these issues, different options of capital funds (based on different amounts of grant and the target of intervention) were considered. In appraising the value for money of these options, monetised benefits considered include the direct employment generated in the automotive and electrical equipment (i.e. batteries) sectors, indirect employment in their respective supply chains, and R&D spillover benefits to UK industry. There are also wider benefits, such as global CO2 emissions, UK industrial capability and broader employment benefits that are not monetised within benefit cost-ratios. Data for this analysis included commercial vehicle production forecasts and ONS data, with the analysis taking into account risk and the additionality of the investments made via the ATF.
Our assessment estimated that the preferred option for the ATF would have a net present value of £0.5 billion, with a benefit-cost ratio of 2 and broader non-monetised strategic benefits, (£2 of benefits to the UK economy for every £1 of HMG cost). The assessment showed that, overall, the scheme is expected to represent value for money to the taxpayer.
This assessment used established economic appraisal techniques consistent with HMT’s Green Book.
The ATF takes a portfolio approach, and it is recognised that some projects will present a higher level of risk given the stage of market development/commercialisation of the technology, but this will be balanced by those that are lower risk. Each grant application will undergo robust assessment by BEIS and advice will be sought from IDAB for all grant awards over £5 million. If successful at the first stage of the competition, an Offer in Principle letter is sent to the company which includes conditions for the Due Diligence work. This begins the process by which a third party is engaged to verify the benefits, minimum grant required and other project specific conditions. The case assessment (including economic appraisal) is repeated based off the new information and IDAB revisited if necessary. HMT approval is required for all grant awards. Grant conditions will include claw-back provisions and appropriate trigger points, with conditions drafted in accordance with the level of project risk.
Rigorous assessment encompassing on-going monitoring and ex-post evaluation is essential to inform investment decisions. BEIS has a team which already delivers highly regarded monitoring processes which will be applied to the ATF Capital grant recipients. In addition, the Sector Analysis team will commission a scoping study early in the programme to ensure that monitoring is in place to enable a robust evaluation of the impacts of the programme.
Overall assessment: My assessment is that the value for money test is satisfied.
The ATF is delivered by a multi-disciplinary team within BEIS and through an external delivery partner. These resources are in place and fully funded. The programme has undergone a Project Assessment Review in February 2020 and a Gateway 4 review in August 2020. These reviews recommended that the programme governance structures be strengthened and that efforts should be made to increase the programme management resource in the team.
Engagement work began in earnest in 2020 to better understand car manufacturers’ sourcing plans and thus to build on and refine the indicative investment pipeline included in the business case and encourage companies in the key technology areas of the supply chain to submit expression of interest applications to the ATF.
The programme is on track to deliver against the benefits set out in its business case, although not spending to budget has the potential to impact on the timeframe for benefits’ realisation.
Overall assessment: My assessment is that the feasibility test is satisfied.
As the BEIS Accounting Officer, I have considered this assessment of the Automotive Transformation Fund programme and approved it on 30 November 2020.
I have prepared this summary to set out the important points which informed my decision. If any of these factors change materially during the lifetime of this project, I undertake to prepare a revised summary, setting out my assessment of them.
This summary will be published on the government’s website (GOV.UK). Copies will be deposited in the Library of the House of Commons and sent to the Comptroller and Auditor General and Treasury Officer of Accounts.
Permanent Secretary, BEIS
30 November 2020