UK Industrial Strategy: Has the Government gone back to picking winners?

Yesterday, Theresa May launched the Government’s long-awaited Industrial Strategy Green Paper, which set out a new ‘active role’ for Government in its approach towards business and presented a series of policy measures designed to “build on Britain’s strategic strengths and tackle our underlying weaknesses.”

As part of this Green Paper, the Department of Business, Energy and Industrial Strategy (BEIS) has set out a ten ‘strategic pillars’ which are aimed at driving growth across the whole country. These pillars set out to underpin the Government’s approach to UK industry and can broadly be split into ‘horizontal’ measures to stimulate growth across a range of different sectors, and ‘vertical’ measures to support specific parts of the UK economy. The former group includes initiatives focused on investing in science, developing skills and technical education, upgrading infrastructure, assisting companies with financing and procurement, driving trade and investment and ensuring affordable energy supplies. The latter focuses on how the Government can cultivate existing ‘world-leading sectors’ (where the UK already has a competitive advantage) and a focus on how best to support specific UK regions.

This ambitious and wide-ranging plan marks the latest attempt by UK Government to influence British business and improve UK economic productivity. It has been widely known for a while that the UK’s productivity lags behind many other developed nations (particularly France, Germany and the United States) and successive UK governments, including the Labour Government under Gordon Brown and the Coalition Government, have sought to address this through various policy measures – with mixed success. Yesterday’s announcement, however, was arguably broader in scope than previous measures and has the added significance of incorporating an approach that (a) aims to ensure UK businesses can thrive post-Brexit and (b) seeks to address the gaps in productivity and wealth across UK regions and its associated inequality in living standards – a situation that was widely thought to have underpinned the Brexit vote.

Moreover, Theresa May and her Business Secretary, Greg Clark, appear to be more serious in their vision of an interventionist industrial strategy than some of their predecessors, particularly those in the previous Conservative Government under David Cameron. This Green Paper very much reflects the philosophy that the Prime Minister set out in last year’s Party Conference speech that highlighted “the good that government can do” when it intervenes in markets. It is significant, therefore, that a key component of the strategy focuses on how the Government can support certain UK industries that already exhibit high productivity and competitive advantages at a global level. These sectors include aerospace, automotive, the life sciences, the creative industries, digital, financial services and professional and business services and have generated significant growth in recent years. As part of this, the Government will work with industry to develop ‘sector deals’ where specific policy proposals will be developed to upgrade a respective industry’s productivity.

To many, this approach represents a significant change in policy. For some, this change will be welcomed, while others will be more sceptical. Indeed, it was only relatively recently that the phrase ‘industrial strategy’ was considered an anathema to free-market Conservatives in government, particularly as it evoked policies of the nationalised industries of the 1970s under the Wilson and Callaghan Governments. The standard criticism of this type of industrial policy was that it is all about “picking winners” – in which government ministers and officials backed certain industries and sectors over others. Free-marketeers have often argued that the UK government has a poor track record of picking winners compared to the free market – and any attempt to revive such a policy will be doomed to fail.

Such criticism of this current policy, however, is unlikely to dissuade the Prime Minister. Theresa May considers it a key priority of her premiership to put in place measures that extend wealth and opportunity across the UK regions and not just focused in London and the South East. It is clear that she considers that this is not possible without a push from government and therefore a degree of intervention on industrial policy is required. In addition, the need to back certain UK industrial sectors has been brought into sharper focus given the Government’s approach to Brexit, as outlined last week. With the UK out of the Single Market and potentially out of the Customs Union, the need for Government support in specific sectors will come all the more apparent.

More broadly, the deliverability of such a bold and ambitious strategy is likely to be questioned from many quarters. While the Government’s intentions on this are clear, its ability to reshape the economy and tackle the age-old problem of the UK’s poor productivity will require more than just good intentions. Specific concerns are focused on whether infrastructure funding is sufficient to deliver what is promised, or whether the education reforms are feasible. As with any government policy, the devil is in the detail – and there is a distinct lack of detail at this stage.

It should be noted that this Green Paper is a consultative document and many of the policy measures contained in it will be subject to debate and revision. This Government itself has described the Paper as “the beginning of a dialogue to develop this strategy” and the sheer scope of the measures will mean that the consultation period is likely to be extensive. This does, however, represent a new approach in the UK Government’s interaction with business. Any business seeking to engage with Government, or navigate to a successful post-Brexit environment, should consider the measures contained here and determine an appropriate course of action. In many cases, a formal response to this Consultation would be a recommended starting point.

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