The expression “Where do we go from here?” is usually reserved for poets and country crooners. However, the British government must be asking itself this question when it comes to having an Industrial Strategy. Successive governments have shunned the idea for decades, and instead issued reports that end up in the recycling bin; does anyone remember the “ambitious industrial strategy” launched by an unnamed BEIS Secretary in 2017? Probably not…
To make matters even more challenging, the US’s Inflation Reduction Act (now called the unfortunate acronym “IRA”) is starting to suck vast amounts of corporate airtime and investment from the UK and Europe toward the US.
Business leaders and politicians are now behind the US’s first major Industrial Strategy in years. In fact, it has even generated alignment between big business and environmentalists.
The EU has recently announced that it will redirect billions from its COVID recovery funds toward its own new, green-focused Industrial Strategy. Most, though not all, will go to high growth new energy markets, as well as core other industries. Again, alignment between the business community and politicians, along with a focus on clean energy.
The EU will also introduce the world’s first carbon boarder tax called the Carbon Border Adjustment Mechanism (“CBAM”) in the coming years[1]. It aims to balance the higher cost clean energy used in by its industrial sectors against highly polluting imports. Put these two initiatives together and you have what looks like an Industrial Strategy backed by several hundred billion euros.
The third 800lb gorilla is China. They have had a hugely successful industrial policy for decades, making it “the world’s factory”. It is now aggressively pivoting from cheap exports to higher quality products, including impressive electric vehicles and new clean energy generation. They have had an Industrial Strategy for decades, and are now the world’s largest economy.
Surely the UK won’t sit on its hands with no clear Industrial Strategy…though that is what we have seen for decades. Just as the US and EU have recently pivoted to having clear strategies, it is time we move from hot air talking points and start implementing a real Industrial Strategy for the next few decades. If we don’t, we will be left in the dust!
What might an Industrial Strategy look like for a post-Bexit UK? We do not have the hundreds of billions to put toward large subsidies and broad industrial support; we will have to play the game smarter and harder. Luckily a successful Industrial Strategy isn’t just about throwing tax breaks, grants and subsidised loans at a wide range of industries. It is also about supporting technical advances, having an ease of doing business, and finally sensible, targeted support. Let us elaborate on each.
Firstly, the UK still leads the world in advanced research, which is supported by us having four of the top ten universities in the world, according to QS World Rankings[2]. To put this towering achievement in perspective, that is 40% of the top ten in a country representing less than 1% of global population! This success really is a big deal.
These top universities are supported be many other leading universities, institutions and corporate R&D hubs. We as a country have what it takes to stay on the cutting edge. These core technical advances should lead to large, cutting-edge corporates and thousands of jobs in SMEs, which are often the backbone of the economy; we should develop the British equivalent to the mittelstadt.
The UK is ranked 8th in the world for ease of doing business, according to the World Bank[3]. That puts us just behind the US and ahead of every country in the Euro area. We remain an attractive place to set up and grow a business.
We need to caveat this ranking due to our lack of a clear or healthy trading relationship with the EU. We must insist that our government sort what has become, frankly, a mess. Our exports to the EU dropped to £267 billion in 2021, down circa 10% from 2019![4] Failure to get a good trading relationship with our biggest trading partner is an own-goal…now we need to own it and fix it.
And finally our Industrial Strategy must give a clear, long term pathway for economic growth. In this area we have the freedom to set our own policies, though they must be targeted as we lack the financial firepower of China, the EU and the US.
Successive governments correctly talk about aerospace, automotive (including EV), green energy, medical tech, and advanced manufacturing. These industries give us as a nation plenty of opportunities, and should be manageable for a medium sized economy.
Now is the time for the government to set out clear policies to grow these industries and create jobs for the future. We need:
clear and favourable tax policies to encourage investment in plant, equipment and technical training,
swifter, simpler planning laws to permit development and infrastructure improvements
stability in its decision making…something we have sorely lacked since 2016
My last point is particularly urgent. Established corporates and scale-ups alike need confidence that our government has sensible policies that will last for decades. A sustainable industrial policy leads to better jobs, strong national champions, higher tax revenues, a resilient economy, the list goes on.
Once companies grow roots, they rarely move. We need to get going and make sure some of the future global champions start growing here.
[1] European Commission:
https://taxation-customs.ec.europa.eu/green-taxation-0/carbon-border-adjustment-mechanism_en
[2] QS Top Universities:
https://www.topuniversities.com/university-rankings/world-university-rankings/2023
[3] The World Bank:
https://data.worldbank.org/indicator/IC.BUS.EASE.XQ
[4] House of Commons Library:
https://researchbriefings.files.parliament.uk/documents/CBP-7851/CBP-7851.pdf