The owner of Vauxhall has announced that it plans to close its van factory at Luton, in a decision that will put 1,100 jobs at risk of being cut or moving location despite the UK government preparing to relax rules on electric cars.

Stellantis said it would shift van production from Luton, Bedfordshire, to another factory at Ellesmere Port, Cheshire, blaming the UK’s economic conditions and the government’s zero-emission vehicle (ZEV) mandate.

The news was announced on the same day that the government said it would consult on changes to the mandate as it tried to head off carmakers’ complaints that its electric car sales targets were too difficult amid slumping demand.

Stellantis’s decision is a bitter blow to the UK car industry, as carmakers around the world struggle with slower demand and intense competition, while also investing in switching from petrol and diesel production to electric. Ford last week said it would cut 4,000 jobs in Europe, including 800 in the UK, while Volkswagen is preparing to close three factories in Germany, the first time it has closed plants in the country.

The Luton Stellantis factory employs 1,100 people. Stellantis said several hundred Luton workers could be moved to Ellesmere Port, which will receive a £50m investment.

Workers at Luton were informed of the decision on Tuesday. Less than a year ago, Stellantis said the Luton site would produce medium-sized Vivaro electric vans for the Vauxhall, Citroën, Peugeot and Fiat Professional brands. Ellesmere Port produces smaller electric vans after a £100m investment announced in 2021.

The closure will spell the end of vehicle manufacturing in Luton after nearly 120 years. The Unite union, which represents many of the workers, called for the government to oppose the closure.

A spokesperson for Unite said it was “a complete slap in the face for our members in Luton”. They added: “Whatever the positive benefits this plan may have for Ellesmere Port, that is not acceptable.”

Stellantis has repeatedly warned of possible UK factory closures. Last year, it said it would come under threat if tariffs were imposed on UK-EU trade, while in June it said factory closures were a possibility if the UK government did not step in to help the industry with the ZEV mandate.

However, industry insiders questioned whether the closure was directly linked to the ZEV mandate, pointing instead to Stellantis’s unused factory capacity across Europe. Stellantis also owns brands ranging from Fiat and Chrysler to Jeep and Citroën.

The move will nevertheless be a blow to the UK government. The business secretary, Jonathan Reynolds, is due to address industry executives at a dinner on Tuesday evening hosted by the Society of Motor Manufacturers and Traders (SMMT).

On Tuesday, Keir Starmer’s spokesperson announced that the government would bring forward a consultation on the mandate that will look at changes to rules that impose fines of up to £15,000 for each petrol or diesel vehicle sold above a quota.

The government is likely to stick firmly to its goal of phasing out new petrol and diesel car sales from 2030, and all hybrids by 2035, according to a person with knowledge of internal discussions.

They said the government was also very likely to stick to headline targets mandating that sales of electric cars must account for 22% of new sales in 2024 for each manufacturer, rising to 28% next year and 80% by 2030, despite reports they could change. There are separate targets for vans. However, the government will consider changes to “flexibilities” that in effect allow carmakers to reduce the number of electric cars they need to sell.

Those loopholes include the ability to “overcomply” in later years to make up for a slow start in the coming two or three years, and lowering the average emissions of the fossil fuel cars they sell.

The “fast track” consultation is expected to launch before Christmas, before reporting in the first few months in 2025 – faster than most policy consultations of that type. It is also expected to include details of which hybrid cars can continue to be sold after 2030.

A UK government spokesperson said: “While it’s encouraging to see Stellantis investing in the future of its Ellesmere Port plant, we know this will be a concerning time for the families of employees at Luton who may be affected.