Government's industrial strategy marks change but lacks long-term plan
3 March 2017
The Prime Minister's talk of a proper industrial strategy, with more active intervention into the activities of the economy, marks a significant shift from the approach taken by previous Governments of the last 40 years but so far there's little evidence of the strategic framework or the co-ordination across Government necessary to achieve 'an economy that works for all', says the Business, Energy and Industrial Strategy Committee.
- Read the report summary
- Read the report conclusions and recommendations
- Read the full report: Industrial Strategy: First Review
The report finds the Government's Industrial Strategy Green Paper, is similar to the Productivity Plan in 2015, consists of a long list of policy interventions but lacks the framework for future decision-making which should be the core of a long-term strategy. The report also points to early signs that the Government is failing to pursue a co-ordinated approach to industrial strategy across Whitehall, noting, for example, the Housing White Paper's failure to spell out how Government and the construction industry could collaborate to tackle the housing challenge.
The Committee recommends the Government steps back from its current trajectory of focussing on sectoral 'deals' which risk a return to the discredited credo of 'picking winners'. The Committee calls on the Government to instead focus on horizontal policies, the ingredients of any successful economic policy, and adopt for the country's industrial strategy a bold, ambitious and targeted 'missions' approach to meet global, UK-wide and local public policy challenges and maximise UK advantage for businesses in such matters as decarbonising energy intensive industries, tacking health and social care, or automating and electrifying transport infrastructure.
Iain Wright MP, Chair of the Business Innovation and Skills Committee, said:
"Theresa May's stated commitment of an economy that works for everyone and to a more active role for Government in our economy and an Industrial Strategy is a very welcome development. The UK's headline economic success has been felt by too few and that too many parts of the country have not felt the benefits of growth. However, an Industrial Strategy can only begin to help tackle these issues if it recognises that an economy can have a direction of travel, has a vision, and is ambitious, and co-ordinated right across Government. As a Committee, we are concerned that with Government announcements the approach seems to be "business as usual" and a silo-based approach in Whitehall which will not achieve the step change the Prime Minister aspires to and that as a result the industrial strategy will fall short in providing a clear framework for industries and businesses to deliver future success. The Government must be bold, ambitious and visionary in developing their Industrial Strategy to ensure the sectoral and regional balancing to which it rightly aspires is achieved.
Early tests such as the Housing White Paper do not suggest a Government which is willing to answer the tough questions required to deliver an 'economy that works for everyone'.
As a country, we have not invested enough in infrastructure or innovation. Our skill levels remain poor despite significant spending. Too many people have not felt the benefits of growth. To achieve an economy that works for everyone the Government needs to bring together a much sharper focus on horizontal policies, such as skills and innovation, whilst adopting an ambitious mission-approach which could tackle challenges such as decarbonising energy intensive industries, tacking health and social care, or automating and electrifying transport infrastructure, which will create prosperity and employment for the UK and its citizens for the long-run."
When skills levels remain poor despite significant spending, the BEIS Committee say current Government's skills proposals are 'deeply disappointing', with the Green Paper failing to outline detailed proposals to encourage uptake of STEM subjects, to improve the skills of those of working age, or to set out how parity of esteem will be achieved between technical and academic training. The Committee strongly supports Lord Heseltine's comments in evidence to the Committee that "industrial strategy starts in primary schools" and wishes to see proper coordination in business and education and skills policies.
The Committee heard evidence of significant disparities in infrastructure spending per head of population around the country, with IPPR North stating that by their estimates this stood at £2,600 per person in London compared to £380 per person in the North for planned transport infrastructure investment. The Industrial Strategy Green Paper contained a commitment to "use infrastructure to support rebalancing", and said that, "We will continue to prioritise the highest value-for-money projects, as we seek to address productivity weaknesses across the country." The report notes the potential tension within this proposal in that the highest value for money projects may not always be those which address productivity weaknesses across the country. The Committee calls for clarity on how the Government's approach will differ in the future to better support rebalancing.
The Government's Industrial Strategy recognises the importance of place, which is welcome and a marked return from previous plans, but the report highlights the difficulties of co-ordination and tensions likely to arise between national and regional priorities within England and between Westminster and the devolved administrations. The report asks the Government to provide clarity on the respective roles and responsibilities between national, local and regional institution and warns that failure do so will lead to unnecessary complexity and confusion for business and reduce accountability to the electorate.
The Committee also recommends the Government set out a clear plan to close per head spending gap on infrastructure, R&D and education between London and the rest of England.
Manufacturing, innovation and high-quality jobs
The report recognises the importance of the services sector says that support for industries which produce goods, technology, and innovation, will help boost productivity and create high-quality jobs. The report points to the economies of Sweden, Germany and Switzerland, as examples which demonstrate that there is no intrinsic reason for advanced, developed countries to weak manufacturing performance. Success of automotive and aerospace sectors has been aided by strong Government support and collaboration. The report says this same level of support has not been consistent more widely across the UK-manufacturing base, as evidenced by closure of the Manufacturing Advisory Service and AMSCI in recent years.
Investment in R&D
The Committee heard many witnesses point to a successful science and innovation ecosystem as being key to boosting productivity. The Committee believes clear targets can give focus and energy to the direction of Government policy in this area and reiterates its recommendation that the Government set a target to increase R&D investment to 3 per cent of GDP and implement policies to achieve it.
In the wake of the abortive Kraft Heinz bid for Unilever, and noting the PM's tough rhetoric on foreign takeovers, the Committee calls on the Government to provide much greater clarity and certainty as to what steps it intends to take to intervene in foreign takeover deals and in what circumstances. The Committee also recommends the Government takes steps to ensure it has the power to retain IP (intellectual property) benefits in the UK in the event of a foreign takeover where a business has been supported in developing new IP through taking advantage of taxpayer funding or tax-incentives.
The Committee heard evidence that the current structure of business rates act as a particular disincentive to capital investment and that devolving responsibility for rate setting to local authorities is unlikely to boost investment in those areas which need it most. The Committee calls on the Government to conduct a fundamental review of the outdated structure of the business rates system, regarding current arrangements as a disincentive to capital investment. The report also finds that where retail is increasingly carried out online, business rates risks disadvantaging retailers who maintain a physical presence on the nation's high-streets.
Freedom of movement and inclusion of students in immigration totals
The Committee heard evidence from a range of sectors expressed concern about the impact of proposals to curtail freedom of movement on the UK's future economic success. The report recommends the Government exclude university students from immigration totals and promote high skilled migration to the UK on an equal "who contributes most" basis to people wishing to invest and innovate in the UK.