Fears that a major US subsidy scheme will damage the UK automotive sector should serve as a “wake-up” for Britain to increase its own state support, according to a leading UK car boss.

British car industry leaders believe the UK could lose out on investment as businesses chase subsidies offered by the US Inflation Reduction Act. Andy Palmer, the chair of battery company InoBat and the former chief executive of sportscar maker Aston Martin Lagonda, said the Inflation Reduction Act should be a “wake-up for the UK government that their incentives for investment have not been enough”.

The US president, Joe Biden, signed the act in August, with big subsidies for technologies that will be crucial to the transition away from fossil fuels, including electric cars, batteries, and renewable energy technologies such as solar panels and wind turbines. While the act is seen by many analysts as one of the most consequential pieces of climate legislation in history, many of the subsidies only apply to products made in the US.

The UK government has joined the EU in criticising the protectionist elements of the bill. Kemi Badenoch, the UK’s international trade secretary, has written to the Biden administration with concerns.

The subsidies would “harm multiple economies across the world and impact global supply chains in batteries, electric vehicles and wider renewables”, Badenoch wrote in a letter to US trade representative Katherine Tai. She also said UK businesses should qualify for the subsidies, “as the closest of US allies”. The letter was first reported by the Financial Times.

It is understood that Badenoch had already discussed concerns in private meetings during a trip last month to the US, where she met Tai and commerce secretary, Gina Raimondo, as well as members of Congress.

Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, a UK lobby group, said the industry was concerned because a fifth of its exports go to the US, its biggest customer other than the EU. Britain’s biggest carmaker, Jaguar Land Rover, sold about 91,000 cars in North America in its previous financial year, from a total of about 376,000.

Hawes said the tax credits on offer for US-made electric vehicles meant the US would likely be a “focus for those looking globally to invest”. If the EU responded with its own subsidies for green technology manufacturing that could further dent the prospects for the UK industry.

“There’s a danger that two big global markets may be favouring locally produced vehicles,” he said. “Hopefully it doesn’t come to that.”

Palmer’s Inobat has said it wanted to build a new gigafactory to produce electric car batteries in Europe, and that it was choosing between possible sites in the UK or in the EU. The scale of government support is likely to be an important factor in that decision.

Palmer said Badenoch had “undoubtedly legitimate concerns” over the implications the act had for UK, and echoed concerns that any EU response may not be matched by the UK.

“The UK is not competitive compared to Europe, and Europe is not competitive compared to the US and India,” he said.

Automotive companies have already acknowledged that the act could change investment decisions. Arrival, a startup trying to make electric vans, abruptly announced in October that it was abandoning a plan to start production in the UK in favour of a factory in the US, saying that the act’s tax credits were a major factor.

Arrival’s decision came in the context of a funding crunch and a brutal 97% share price sell-off over the past year that prompted the resignation of its founder as chief executive. Nevertheless, the reference to the Inflation Reduction Act reflects the concerns of other carmakers and suppliers looking to invest globally.

Sam Lowe, a partner at Flint Global, a UK trade consultancy, said: “We just don’t have the fiscal willingness to throw as much money as the US and EU. The subsidies arms race could see the UK losing out.”

Palmer said he feared the UK was missing out on “once-in-a-lifetime” investment decisions by carmakers and battery companies which will shape the industry for decades. “If you miss those you lose out forever,” he said.

In the EU, Swedish battery company Northvolt has said it may delay a factory in Germany in favour of building one in the US.

The UK government was approached for comment.