The cornerstone of Theresa May’s economic vision for the country, the government’s Industrial Strategy was launched this week. Policy@manchester Co-Director Professor Andy Westwood assesses the size of the challenge, the scale of the strategy’s commitments, and places the strategy in the historical context of recent government efforts to achieve the same ends.
- Industrial Strategy combines elements of previous government efforts with a substantial commitment to research and development investment and significant cash injections to regions and sectors
- The decision on whether to follow Plan A (interventionist industrial economics) or Plan B (low-tax, low-regulation, business haven) depends on the final shape of UK’s Brexit deal
- Despite rhetoric to the contrary, May’s Industrial Strategy remains primarily a vehicle for supply-side solutions to long-term productivity challenges
- Whether it’s ultimately Plan A or Plan B that we follow, we will need to raise the scale of our ambitions if we are to create an economic success from our current situation
It came – as these things do – in a barrage of publicity. Theresa May had been trailing a new Industrial Strategy and an ‘economy that works for everyone’ from the moment she stepped into Downing St in July. Hers was to be an active government, ‘stepping up’ and ‘stepping in’ when required. By the looks of the Industrial Strategy she is prepared to put at least some money where her mouth is. It confirms the borrowing announced in the Autumn Statement to invest £4.7 billion extra in Research and Development. Likewise it also confirms the Industrial Strategy Challenge Fund (ISCF), prioritising key technologies and a National Productivity Fund for infrastructure. It also sets out more detail in growth deals with councils and LEPs across the North, including £556m for the Northern Powerhouse.
More prosaically it sets out ten pillars of its ‘new radical approach’ (.pdf) too – on science, skills, infrastructure, trade, procurement, energy, business growth, sectoral policy, geography and institutions. And it pulls no punches on the size of the UK’s productivity gap with other OECD and EU countries or on the uneven performance within and between English regions. A lot of it reads like the Productivity in the UK documents that used to come out as part of Treasury Budgets in the early years of Gordon Brown. She even took her Cabinet on the road to Daresbury, a science facility in Cheshire, once threatened with closure when major scientific facilities were relocated to Harwell (near Oxford) in the early 2000s.
Continuity is of course one of the prizes (and challenges) of any industrial strategy and so it’s good to see some familiar principles and ideas from the Mandelson and Denham era (‘New Industries, New Jobs’) and Cable and Willetts (‘Eight Great Technologies’). It also takes up George Osborne’s regional focus with mentions (and money) for the ‘Northern Powerhouse’ and the ‘Midlands Engine’. Greg Clark too has been able to revisit his own time as HE and Cities minister, including the 2014 Science and Innovation Strategy that first made a virtue of ‘place’.
The Strategy strikes back?
The Government’s Green Paper (.pdf) clearly nods to previous instalments in the Industrial Strategy franchise like a Star Wars reboot. But that’s all to the good. Thinking for the long term matters and repetition helps. So too does money. Here, on the whole there is more to consult on than there is to announce. How do we allocate the £4.7bn? How do we spend £170m creating new Institutes of Technology? Are we focusing on the right technologies in the £1.8bn Industrial Strategy Challenge Fund?
But what of the specific themes and overall approach? Gordon Brown wanted to improve productivity by focusing on ‘five drivers’ and Greg Clark has ‘ten pillars’, though of course there are plenty in the Conservative party who would not give ‘four candles’ for either approach. Matt (Lord) Ridley said as much in yesterday’s Times and his scepticism is shared by many on the right. Industrial Strategy in any form or extent isn’t the traditional preserve of Tory Prime Ministers.
So why is it? And how much of it is really the new approach that Theresa May promised? In PM’s Brexit speech last week, she announced her plan for Brexit (ie the best possible deal and the hardest version of Brexit outside of the Single Market and Customs Union). But she has also set out a Plan B just in case ‘our friends’ in Europe don’t play ball. Plan A is the one that works for everyone (and trades with everyone). Plan B is an explicit threat of a low tax, off shore model that could seek to undercut better performing EU nations.
The Plan B version of industrial strategy is more familiar to the UK and to the majority of Theresa May’s Conservative colleagues. Lower tax, less regulation, a smaller state, and enterprise and market-driven growth. The industrial strategy is in some ways a rather strange combination of the two. On one hand it emphasises the need for more spending on R&D, skills and infrastructure and on the other it offers sector deals that could reduce regulation. On the one hand it plays to those rather worried about the effects of Brexit and on the other to those who see welcome commitments to a building a ‘Global Britain’.
Demand-side politics; supply-side strategy
Of the ten pillars, those supporting business growth and trade would feature in any economic strategy and certainly in a Liam Fox or David Davis vision. Infrastructure, energy and skills spending would likewise suit a predominantly supply side approach consistent with most of the last four decades. Likewise the sectoral deals that look at least partly to deregulation and getting rid of barriers. Even science and research investment can be seen as a largely supply side measure and it has been so even in the relatively recent past. Just over a year ago we were considering the end of Innovate UK and the replacement of funding with soft loans. Today we are consulting on a £1.8bn Challenge Fund for key technologies and new R&D funding focused on underperforming places.
So it’s less a wholly new approach and more a combination of existing thinking with some sensible active policy approaches bolted on. It’s also a combination of evolution and nudge. Cross cutting green papers often end up this way. Different ministers and departments have different views (from Liam Fox at DIT who has to get a ‘pillar’) and others have policies ready formed that can be parcelled up into the strategy (DFE have had Sainsbury Review and the idea for Institutes of Technology since before the EU Referendum).
Many of the measures therefore look small by comparison. £170m for new Institutes of Technology compares to £6.9bn capital spending on science or £1.8bn for ISCF compared to the whole R&D spend across the parliament of some £30bn. The overall procurement budget of £268bn isn’t on the table but Department of Business, Energy, and Industrial Strategy (BEIS) officials (like those in the department’s previous incarnations, BIS and DIUS) hope to nudge big spending officials in other departments to get more industrial bang for their bucks by committing small amounts to innovation.
This applies within BEIS budgets too. Most of their financial levers come through research funding. The extra £4.7bn announced in the Autumn Statement increases that significantly. Before that, most of the money would be likely to go to research intensive universities doing blue sky research. And much of that – 46% of Research Council and HEFCE funding goes to the so called ‘golden triangle’ of Oxford, Cambridge and London. So some of BEIS thinking now needs to consider how (or whether) their new pillars apply to existing budgets as well as to new resources.
“The grand ambition of doing things differently”
All of this highlights an ongoing challenge for any UK iteration of industrial strategy. All of our most recent incarnations have been relatively small in scale. None have quite lived up to the grand ambition of doing things differently or even to a new approach to thinking about and supporting the economy. Certainly not when compared to other OECD countries in Europe and beyond. Instead they’ve tended to work around the edges and not really take on the central orthodoxies of how either the government or the economy has operated. That may be as far as an industrial strategy ‘made in Britain’ is able to go. Theresa May’s Plan B has always been the default cultural and political option.
Some industrial strategy may be better than no industrial strategy and for now, this version may be the most realistic in the current political context or in our long term culture of doing – or not doing these things. But will it be enough to close the productivity gap between the UK and other countries or within and between regions? Will it be enough to mitigate the negative effects of Brexit? Or if you have a more optimistic view of a free trading, ‘Global Britain’, does this do enough to support the businesses, industries and technologies that must help us prosper?
Either way we may have to further scale up our ambitions for what an Industrial Strategy can really achieve.