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The unveiling of the UK government’s long-awaited industrial strategy this week was greeted by an unusual sound: polite applause from business leaders and groups such as the CBI and Make UK, the manufacturing body. Given the gloom that Rachel Reeves, the chancellor, caused last year with corporate tax rises, it made a change.
The new strategy, which focuses on encouraging high-growth industries including advanced manufacturing and life sciences, gave them many things for which they asked. These include cuts to high industrial energy costs for 7,000 intensive users, and more apprenticeship and skills funding.
It also has a striking tone for a government that came to power speaking the moral language of “missions” and a more strategic state. That rhetoric still dominates its clean energy policies but its economic prescription for the rest is distinctly liberal: less regulation, fewer planning delays, more competition and higher private sector investment to boost productivity.
This is industrial strategy, but not as we know it. It has elements of the UK’s most radical postwar effort to increase competition and productivity: Margaret Thatcher’s interventions of the 1980s. Sir Keir Starmer, prime minister, wrote critically in the FT this week of the UK state being “both overbearing and feeble”. That sounds like the 1970s Labour governments she swept away.
Reeves argued last year that the late Nigel Lawson, Thatcher’s influential chancellor, thought “the state had little role in shaping a market economy.” But Thatcher and Lawson believed in a state that was active in curbing regulation and stimulating competition, including by liberalising the City of London. Lawson might have sympathised with some of this week’s analysis.
She has clearly listened to business leaders including Sir John Kingman, chair of the insurer Legal and General, who has observed that “all governments actively limit growth the whole time” with regulation. The policy also has the mark of Prof John Van Reenen, chair of the Treasury’s council of economic advisers, who studied how UK under-investment stunts growth.
The UK needs more of what the economist Joseph Schumpeter called “creative destruction”, the displacement of inefficient, lacklustre enterprises by higher growth, more productive companies. It has instead indulged in constant institutional reshuffles (does anyone else recall Training and Enterprise Councils?) while the underlying weaknesses remain.
Aside from the fact that I largely agree with its philosophy, there are other merits to a 10-year plan endorsed by the private sector. I would support any plausible strategy that has a decent chance of outlasting the next change of government, rather than being replaced with fresh quangos and another pointless rebranding of the Department for Business and Trade.
The government’s straitened circumstances dictate its approach: even if it wanted to back winners with public money, it does not have deep pockets. It has committed £86bn over four years to research and development and allocated an additional £4bn to the British Business Bank to invest in companies in strategic sectors but its spending is otherwise modest.
That makes it imperative to focus: it has picked eight industries that comprise a third of the economy. Some others feel left out, including the retail and hospitality industries, which have already been affected by a rise in national insurance. Still, it is sensible to favour high productivity sectors that could grow further and have potential to form economic clusters.
Most governments favour successful companies and struggle with letting the losers fail, especially those located in marginal constituencies. Pledges to encourage investment by relaxing regulations and planning laws must meanwhile contend with local opposition to many development proposals, from a Cranswick chicken farm to a Thames Water reservoir.
So success depends on being brave. The target of doubling business investment in advanced manufacturing to £39bn by 2035, for example, will only be met if obstacles erected by past governments are cut. The UK has been “too over-regulated and overburdened”, the strategy says. Tell that to some Labour MPs, who quite enjoy regulating.
But I like the tilt of the policy and the ambition to tackle the UK’s flaws where others have failed. It is a serious initiative, despite the difficulties of putting it into practice. If the government means what it says, and will take on the forces vested against it, let us give industrial strategy a chance.
