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Is the UK finally getting serious about industrial strategy?

Is the UK finally getting serious about industrial strategy?

Britain’s government under Prime Minister Theresa May has brought with it a welcome change of tone on industrial strategy. We have now heard more about what the government actually intends to do. A proposal has set out ways the government can provide support to businesses, including an effort to address regulatory barriers, to agree trade deals and help to establish institutions that encourage innovation and skills development.

It is a genuine change of tone. The previous Business Secretary Sajid Javid couldn’t even bring himself to utter the words “industrial strategy”. May has emphasised its role and identified new sectors – in addition to automotive and others – that could receive government support: life sciences, low carbon vehicles, industrial digitalisation, creative industries and nuclear.

This accompanies government plans to boost STEM (science, technology, engineering and maths) skills, digital skills and numeracy, including extending specialist maths schools, with £170m to be invested in creating new “institutes of technology”. So far, so good. But does it go far enough?

Manufacturing weakness

The coalition government under David Cameron had a patchy record on industrial strategy. The then-Chancellor George Osborne made promising noises about rebalancing the economy and a “march of the makers”, but much was empty rhetoric. Some support was made available to rebuilding the UK’s fractured supply chains and to encouraging rebalancing, but the sums on offer were small and failed to match the scale of Osborne’s hot air.

Osborne’s legacy: many hard hats, fewer hard policies. British High Commission, New Delhi/Flickr, CC BY-NC-ND

Indeed, the manufacturing recovery since the financial crisis has been weak, characterised by concerns over low levels of investment spending, the impact of high energy costs across the sector, and issues of skills and access to finance down the supply chain.

The last government fumbled regional development strategy and offered meagre funding. And it also made no attempt to address the UK’s lax takeover rules, which unlike in other countries do very little to protect strategically important businesses from foreign predators.

On the positive side, we did get a series of so-called “Catapults”, where businesses, engineers and scientists work together on late-stage research and development. These retain much political support, but they need to be better funded, with a long-term commitment from government. Equally encouraging has been the work of the Automotive Council, which started under Labour and which developed under Vince Cable into an effective body in fostering public–private cooperation.

Piece by piece, building a strategy. I am dabe/Flickr, CC BY-NC-ND

Modern industrial policy in other countries is often seen as a process of knowledge discovery, and the Automotive Council shows that the UK can operate in this way, too. It sets out clear priorities for technologies that need to be developed, securing government support which has underpinned business confidence and investment. The Council had been backed up by modest government interventions to boost skills, rebuild supply chains, and encourage investment in the industry, all of which were scrapped under Javid’s tenure.

Choppy waters

Now comes a chance to start righting the ship. May’s industrial strategy brings with it a new “place-based” focus which could be crucial in making a national sectoral or technology policy work effectively by enabling it to be better tailored to the needs of regions and places.

A strategy also needs an institutional anchor. Let’s hope that the government looks again at the local enterprise partnerships (LEPs) and returns to development bodies that can intervene more widely and strategically in ways that make sense at a regional level.

Combined Authorities – such as in the West Midlands – may be one way to do that. It is an area where the new business secretary Greg Clark has much expertise. Beefing up the local growth hubs to fill the vacuum left by the abolition of the Manufacturing Advisory Service could be part of a new “Combined Authority Plus” model. A complete devolution of skills funding to the regional level would also help.

Under scrutiny: Business secretary Greg Clark. EPA/ANDY RAIN

There is also much more that the government could be doing if it really wants to “rebalance” the economy. We should be stimulating investment in manufacturing through enhanced capital allowances, by resurrecting something like the Advanced Manufacturing Supply Chain Initiative (preferably on a much wider scale), and by plugging funding gaps for small firms in the supply chain.

It will be crucial, too, to do something about UK takeover rules to put the country on a level playing field with many of its main competitors. More broadly, there is a strong case for UK industrial strategy to be afforded an institutional status similar to both UK monetary and fiscal policies. At the very least, it should be the subject of regular strategic long-term reviews. By giving it that sort of priority, the new government would send out the kind of powerful message that British industry badly needs to hear.

Despite some frequent missteps, from New Labour to post-crisis austerity, there has remained a modest element of continuity in industrial policy. Quite how far the new strategy will go in building on this will be a key question. On a positive note, the new business secretary is perhaps unique in government in bringing with him a welcome devolving instinct that offers the possibility to join up sectoral policy at the national level with that “place-based” policy at the regional level.

Let’s hope the new government really is more serious about the need to rebalance the economy than the last one. More rhetoric about the “march of the makers” won’t be enough, especially in a post-Brexit economy.