Will the industrial strategy prove successful?

1. Define the mission – don’t just rehash existing policies

A long-term industrial strategy must be built around a clearly-defined mission. But the Government has not fully considered the tensions of prioritising both productivity and addressing regional disparities. The BEIS Committee notes that the Government’s approach appears primarily sectoral, rather than ‘horizontal’ (which means enabling factors that aid all businesses). Proposed sectoral deals are less strategic and more ad hoc forms of government intervention, raising questions about the clarity of the mission. Whilst the Government’s final position will develop following the consultation, the BEIS Committee is rightly concerned that the industrial strategy Green Paper does not set out a framework for future decision making – despite significant preparation time.

2. Avoid ‘picking winners’ (or losers)

The Green Paper tried to avoid past criticisms of industrial strategy, by advocating horizontal initiatives in addition to supporting sectors with a ‘competitive advantage’. Yet concerns remain about this approach. One problem is that the sectoral deals are for traditional industries, raising concerns about the right balance between powerful existing sectors and emerging ones. If the Government is committed to growing new and small businesses, the strategy needs to find ways of engaging them too. Smaller UK companies lag internationally in up-scaling and past strategies have overlooked their needs.

3. Make this the last technical education reorganisation

Skills development is recognised as crucial by both the industrial strategy and the committee report. The Budget announced a £500 million per year investment in the transformation of technical education, doubling the training available for 16-19 year olds. This is an opportunity to pursue a stable policy offer in the skills sector and end the cycle of churn experienced for decades.

Meanwhile, the BEIS Committee report recommends that the Government devolves skills responsibility and funding to local authorities and Local Enterprise Partnerships (LEPs). The IfG has written before about the benefits of skills devolution in boosting productivity and innovation. However, outside of the already agreed devolution deals, the Government appears to have put English devolution on the backburner, reducing the plausibility of skills devolution.

4. Funding isn’t enough – support collaboration in science and research

There is continued dissatisfaction with the Government’s financial commitment to research and development. Despite the £4.7 billion suggested in the Green Paper, the BEIS Committee argues that 3% of gross domestic product – or a proportion comparable to OECD economies – should be ring-fenced.

However, the Government’s plans to support the UK technology and science industries post Brexit is a welcome development. The Digital Strategy details the intention to create five international tech hubs in the UK, while £500 million from the National Productivity Investment Fund will help innovate UK companies. This a promising start, but businesses will still press on the Government to provide greater security and certainty.

5. Adapt to Industry 4.0

The growth of artificial intelligence and robotics has been called a fourth industrial revolution, but there are concerns about the UK’s readiness. The committee argues that this revolution will bring about radical change and suggest preparing for this challenge should be a strategic objective. Yet when compared to other advanced economies, like Germany’s €40 billion annual investment, the UK’s approach to Industry 4.0 is underdeveloped. So, while proposals for an Industrial Strategy Fund to support Industry 4.0 are welcome, alignment with STEM (science, technology, engineering and maths) skills and workforce adaption is still missing.

6. Make cost-effective infrastructure investments

In the Green Paper, the Government prioritises investing in the highest value-for-money (VFM) infrastructure projects. This is to be commended – rigorous economic appraisal should be central in investment – but VFM cannot be the key criteria. As the BEIS Committee notes, it is natural to assume that the Government already prioritises the highest VFM projects, given the well-established Treasury guidance on value-for-money. As we have repeatedly highlighted, cost-effectiveness – how efficiently investments achieve a certain policy aim – is equally important. The Government must show how it will evaluate infrastructure projects against its productivity-enhancing, and regional-rebalancing objectives.

7. Commit to a set of institutions for the long term

Industrial strategy presents a particular challenge to the Government because its ambitions and delivery of benefits extend beyond the five-year political cycle. Therefore, it is encouraging that ‘institutions’ are one of the pillars of the industrial strategy. However, the BEIS Committee correctly notes that the Government’s actions have not matched its rhetoric. For example, the IfG has noted that the Government’s decision not to make the National Infrastructure Commission (which frames infrastructure commitment in a long-term basis) statutory undermines the claim to improve to become more strategic.

Based on the BEIS Committee report and government actions over the last two months, there is not yet a robust industrial strategy. The report is a timely criticism, which the Government would do well to engage with.