This immodest industrial strategy needs a dose of Brexit reality
In the 1960s and 70s the UK pursued industrial strategies with a notable lack of success, merging loss-making companies into tottering towers. Margaret Thatcher then proclaimed that markets should decide, not government, but this approach also had many problems. So I am delighted that the government now acknowledges that a sound industrial strategy is vital not just for obvious economic reasons, but for social ones. It would be good to see the brave policy of Greg Clark, the business secretary, succeed – but he clearly does not have the backing of some of his die-hard Thatcherite colleagues.
Among the “five foundations” that the strategy rests on are the immodest objectives of turning the UK into the world’s most innovative economy, with technical education that rivals the best in the world. The government might have done better to acknowledge the true state of current problems and set more realistic goals, and the funding promised seems modest relative to the vaulting ambitions. But crucially, it has not resolved the difficult issue of geographical rebalancing, with the vital task of sharing prosperity outside the south-east being left for the future. Moreover, “sector deals” might signal a return to the old approach of trying to pick winning opportunities, which was notably unsuccessful.
The white paper also spells out an ambition to put the UK at the forefront of artificial intelligence and data, to become a world leader in the movement of people and goods, to maximise the advantages from the shift to clean energy, and to harness innovation to meet the needs of an ageing society. Again, one has to ask how realistic some of these objectives are, given where we are right now.
To me, “industry” means manufacturing, and I had expected an industrial strategy to be aimed at rebalancing the economy towards this. In the event, the strategy does embrace construction and some service industries. But one wonders to what extent there are detailed and actionable plans behind the extensive presentational spin? At least Clark is reported to be establishing a watchdog on the lines of the Office for Budget Responsibility, to monitor progress on implementation, which is most welcome.
While the review is extraordinarily wide, there are many pragmatic steps that could have been beneficially included, for example a scheme similar to the German Kurzarbeit system, which protects companies from shedding skilled staff in economic downturns, by progressively lowering national insurance (a tax on jobs), and encouraging corporate investment through 100% capital allowances – providing an immediate tax shelter on investments. Theresa May’s talk of tougher reviews on overseas takeovers was sadly lacking in the case of ARM, the star UK tech company sold to a heavily indebted Japanese group last year.
Although the white paper rightly seeks to increase access to “patient capital”, it does not address the short-termism to which all our quoted companies are exposed, and is the most significant deterrent to much-needed industrial invest-
ment and productivity enhancement. The Kay report on shorttermism was commissioned by the coalition government, but has been mouldering on the shelf for over five years, and the government is trying to avoid an EU financial transactions tax – one of the easiest ways to reduce speculative trading. Another positive step would be legislation along the lines of the French Florange law, which gives more votes to long-term shareholders, but this whole area has been ignored.
However, by far the biggest issue looming over this white paper is Brexit, and while the paper purports to prepare the UK for life after the EU, the future of much industry is totally overshadowed by Brexit. This is a far more significant issue than the whole industrial strategy, as a “no deal” outcome will decimate our remaining manufacturing industry.
Worryingly, the paper calls for “free trade with the whole world” post-Brexit; in the EU we compete with comparable economies, but it is delusional to think we can compete with countries that have much cheaper costs, facilitated by low pay and poor standards of worker and environmental protection. Many businesses won’t really be interested in Clark’s strategy until Brexit is satisfactorily resolved or – better still – avoided.
• Tom Brown is the author of Tragedy amp; Challenge: An Inside View of UK Engineering’s Decline, and the Challenge of the Brexit Economy