Birth a lion for once

UK industrial strategy has been too weak and roundabout. The next government needs something much more direct

I have forced myself to read hundreds of Minister Does the Economy speeches in the last decade or so. Asked to pick their most objectionable quality, I would go with their tendency to exaggerate, grossly – most of all, their own significance. Few politicians have the perspective to realise that they are not part of a Great Man narrative when it comes to the economy. Most of what happens was going to happen anyway, unless you are FDR or Deng Xiaoping.  Mostly, the rest are bullfrogs boasting of bringing the rain. 

This exaggeration is at its worst when it comes to UK industrial strategy.  This is a realization I have been too slow to reach and acknowledge. Both its advocates and critics are guilty of the same stupid failing – of pretending that industrial policy, in its recent UK incarnation, amounts to very much at all.  We have an economy of some £2,500,000,000,000 of gross value-add. The quantity of transactions is a high multiple of this. There are 33m jobs of some kind, around 6m job-separations every year, and £4-5tn of installed capital. By comparison, the stuff that ministers promise or threaten to do is miniscule.  My favourite example: when in 2013 my boss Vince Cable unveiled a new industrial strategy, with impressive ideas like the Aerospace Technology Institute included, its fiscal weight was less than the one penny off beer duty announced that day.

I am proud of the bargains we struck to get that strategy launched; the better things in it, such as the Catapult network and various auto and aero interventions, are still chugging ahead.  But nothing so slight really changes the economy by very much.  And this is a snark I can aim at pretty much every speech calling for industrial strategy – it roars like a lion and may just occasionally give birth to a mouse. Promises to drive this sector or “get behind” that technology lead to a dribble of small challenge funds, worthily-led reviews and roundtables. Nothing much is transformed.  

It follows that the critics of intervention are just as foolish, and far too prone to use “slippery slope” arguments – as if the sporadic and always reactive involvement of ministers and officials in economic matters will invariably lead to a Department for All the Prices. (Exhibit A: the energy price cap. Calm down, everyone.)  Or we are meant to believe that a couple of politicians sounding off on a private equity deal means we are merely a step away from state ownership of everything.  

This brings me to my major gripe.  Because the topic of industrial intervention is framed as being so high-stakes, too much effort is wasted on building the case for it and what its objectives and structures should be, and far too little on how it can actually be delivered, at scale and on time.  We are like city builders endlessly fussing over the architectural model, and forever putting off the moment when the diggers are fired up.  The net result is a great many pdfs – strategy documents, consultations, invitations to round tables – and not all that much physical change.

Why is this? First, it is quite right and easy to blame the chopping and changing of the past 15 years. But this easy attack can allow the industrial strategy architect to set the bar too low.  Sure, you must get rid of the uncertainty – but only the most devoted believer in an efficient and fueled-up private sector can think that removing government-induced uncertainty is sufficient to deliver your vision.  Worse is a Peter Pan theory of industrial change – just believe hard enough, and expectations can become self-fulfilling. This may, just, work in monetary policy when the central bank is credible and expectations well-anchored. It doesn’t when hundreds of billions of pounds of capital need to be deployed in some definite way.

Second, I think we have a wonky risk-averse Whitehall culture that puts wasting public spending extremely high in the list of deadly sins. The £180m a year (or £1bn in total) that we ‘won’ out of the Treasury in 2012-13 was extremely hard won. I suspect the beer duty cut just sailed through (that cut is still costing the Exchequer today).  Half a decade later, arguments about a similar amount for attracting a giga-factory builder to our shores were similarly tortuous.

And this somehow filters through to whatever the government’s delivery mechanism is. Here is an example I keep thinking of. We have known for ever that the UK needs more charging infrastructure for EVs. So Philip Hammond in 2017 announced £400m for a Charging Infrastructure Fund. In 2019 the government announced it had stepped up a gear by launching this fund. Read, if you can bear it, the gov.uk announcement stuffed full of exaggeration. “The UK has been going further and faster in tackling climate change”… “We are driving ahead with plans to make travel greener”… and all of this to unveil just £70m of the money.  As of 2021, the money is doing things like this – financing a new company…. Which will then do something. We hope.

I find this all a bit underwhelming. Maybe this slowness stems from some automatic rule that we always need a private sector partner, and competitive, legally-bulletproof processes that follow.  At a higher level, our system ranks the waste of a few pounds higher than the delay of several years.

I am not saying all of the UK’s industrial strategy has been slow, indirect and small. Some of what happened in the Life Sciences Sector Deal of 2017 might have helped build up vital vaccine manufacturing capacity, for example (see the ISC). I am confident that Labour’s establishment of the Office for Life Sciences in 2009 must have made a useful difference. I would defend most of what has been attempted since industrial strategy was reborn under Peter Mandelson.

But watching the instant effect of Bidenomics on the US economy has really drawn my attention to what big, fat, ugly and effective industrial strategy can really look like.  An Act that passed a year ago is having loads of real effects right now. And to return to the example of EV-charging – the way it operates is just so very direct. The Inflation Reduction Act straightforwardly pays money for you to do the things it wants you to do. It subsidizes. It doesn’t issue a call for proposals to set up a fund to invest in a company to support another company to do more EV charging. It just injects industrial strategy into the economy’s veins.  It will waste more money, and it will get more done.

This is a very hasty and impressionistic evaluation of US vs UK industrial approaches, obviously, and I am sure many readers can disabuse me of quite how direct and unbureaucratic the US approach really is. I am no expert. But in my view, for too long, we have had a UK discourse that frets about our policy as if we have been toying with something as potent, direct and distortionary as Bidenomics, when all the time we have been drinking something far, far more dilute.

All of which brings me to my final point. I like the look of Rachel Reeves’ “New Business Model for Britain”. It has a very able critique of the past 13 years, a good theoretical part about how she sees the economy working, sensible respect for strong institutions where that is called for, and the right level of optimism about what government can do. It is somewhat better than the thin ideology offered up by the Conservatives before 2010 (cut spending, rates fall, investment will rise, bishbashbosh), let alone the carousel of nonsense offered by various Brexiteers. Alongside the never-ending stream of other red-tinged documents from Labour, there is an exhaustive/ing to-do list for the civil service to work on.  

But I am not going to be wholly convinced until I see some sign of something as direct and violently transgressive as what Biden has done with the Inflation Reduction Act. It needs to transform our ability to deliver what we need – like the Vaccines Taskforced did. I am myself guilty of trying to have it both ways in the past – an industrial strategy that somehow doesn’t offend free market principles at all, keeps the Treasury happy, gives the right wing alarmist nothing to be alarmed at. I still cleave to most of those principles, most of the time. But you cannot have it both ways. After three more years, with the UK economic trajectory sagging back further, the climate crisis a closer still, something bolder and more muscular is needed. Something a little alarming and distortionary. Not just a few more plans and strategies. Birth a lion for once.