UK needs a dynamic industrial action plan to transform economy
When the Prime Minister stood on the steps of Downing Street two years ago and made her inaugural speech, she committed to delivering a modern industrial strategy that would finally help solve the UK’S longstanding productivity puzzle. This week marks six months on from the launch of such a strategy and the publication of a 250-page document last December.
Productivity and its growth is important. At the national level it contributes to boosting living standards by improving profitability to pay for higher wages, higher consumption levels and, with it, improved economic and social indicators right across all UK regions.
Industry has historically contributed significantly to improving the UK’S productivity and, in the run up to the financial crisis, was rapidly closing the gap with our international competitors at an annual growth rate of almost 5pc.
However, since then, manufacturing productivity has flatlined, with growth of barely 1pc a year. According to new research by EEF, our performance against Germany, France and Italy has deteriorated, while the performance of some of our most important sectors has diverged significantly. Even those sectors that did enjoy a competitive advantage, such as automotive, have begun to see this slip. This flatlining in industrial productivity since the financial crisis matters because manufacturing contributes significantly to the overall productive performance of the whole economy. So if you solve the puzzle for industry you solve it for the whole economy.
Currently we’re in an age of rapidly evolving fourth-industrial-revolution technologies, a changing workplace, an ageing population and facing the need to create a generation of employees with new skill sets built on software and digitisation. Throw in the need to bring increased prosperity to all UK regions, and a dynamic industrial strategy that addresses all these challenges in a post-brexit world becomes a matter of economic and national security.
But, six months on from the launch, what progress has been made and what specific steps must government take ahead of the summer recess to reassure manufacturers that it has the desire to deliver a workable and tangible industrial strategy?
Earlier this week we heard Theresa May give shape to the newest element of industrial strategy, the development of “grand challenges”. These grand challenges are issues that society will have to grapple with even in the absence of an industrial strategy, but placing a strategic framework around it, involving public and private collaboration, will help to deliver the maximum economic benefit for the UK. The missions beneath each challenge are bringing these challenges to life, enabling people, businesses and places across the UK to bring forward ideas on the appropriate response.
To build on this, government must establish the Industry Strategy Council, which was promised at the start of the year. This will play an important role in demonstrating that government policy decisions are consistent with the overall direction of travel on industrial strategy, while working behind the scenes across the whole of government. Sector deals represent an opportunity to address challenges and exploit economic opportunities at the sector level. A true test of success will be whether the deals that are agreed represent a broad cross-section of the economy rather than just the usual “winners”.
To achieve this aim will require a new approach and rigorous programme of management with clear milestones for sectors. So far this has been lacking.
In addition, there is a great importance on “place” as a strand of the industrial strategy, and businesses agree that there must be an overarching discussion about how local economies can improve their
‘We also need a plan for export support to aid companies on their journey into new markets’
productivity. Such a strategic discussion will need to take place at a level above local to be really effective. The Government is therefore right to task Mayoral Combined Authorities with developing local industrial strategies as they have the right footprint.
However, local areas without these structures must not miss out on the opportunity, and a devolution framework will therefore be essential in providing clarity on how such places can develop more robust governance.
The final step that must happen before the summer break has an international dimension. While we work through our future trading relationship with our EU partners and the UK’S broader role on the global stage, we also need a plan for export support to aid companies on their export journey into new markets. Growth in the global economy has been on our side, but challenges ranging from protectionism to currency swings mean government support needs to be clearer and more comprehensive than ever for UK companies to win global market share.
The industrial strategy set out a laudable long-term ambition to improve the UK’S productive performance for generations to come. Manufacturers, however, remain patient for progress in some key deliverables.
Government must now refocus and put in place an action plan with timescales and specific, and measurable outcomes. It can put Britain at the forefront of the fourth industrial revolution investing in digital technology, infrastructure and new innovation. We have a real opportunity to make a step change in the UK’S economic performance. Let us make sure we grasp it.
Stephen Phipson is the chief executive of EEF, the UK manufacturers’ trade body