Industrial strategy can’t avoid the Brexit blow
“Everyone has a plan until you get punched in the mouth.” So said Mike Tyson. He was talking about boxing but his famous quote can easily be applied to Greg Clark’s industrial strategy. Having succeeded in gaining early morning headlines the plan for Britain’s industrial renaissance was knocked off the news agenda by Prince Harry’s engagement to Meghan Markle. But the much bigger challenge to this plan for boosting UK productivity and investment is not whether it can overcome the distraction of a Royal Wedding but whether it can provide business with reassurance that Britain can flourish outside the EU.
The blueprint for “building a Britain fit for the future” sets out the government’s plans for tackling the UK’s well documented productivity problem by strengthening five ‘foundations’ on which economic growth can be built: innovation, people, infrastructure, places and the business environment. The ambition is to boost investment in research and development, develop skills and capability, upgrade the UK’s core capacity, spread economic growth around the country and make Britain a positive place in which to do business.
Tied to that is the launch and roll-out of four Sector Deal partnerships between government and industry which are aimed at increasing sector productivity. The ‘first’ Sector Deals – suggesting more are in the pipeline – are in life sciences, construction, artificial intelligence and the automotive sector. Alongside the productivity foundations, the strategy identifies four areas – ‘Grand Challenges’ – where Britain can ‘lead the global industrial revolution’; a task that the document acknowledges is made ‘even more important’ by the biggest challenge of all: Brexit.
The four Grand Challenges commit to:
- ‘put the UK at the forefront of the artificial intelligence and data revolution’;
- ‘maximise the advantages for UK industry of the global shift to clean growth’;
- ‘become a world leader in shaping the future of mobility’; and
- ‘harness the power of innovation to help meet the needs of an ageing society’.
The original industrial strategy Green Paper, which identified 10 pillars on which to rebuild the economy, was criticised for being too complicated. However the final version feels similarly convoluted, with a variety of foundations, challenges and sector deals bolted together.
In that sense it bears the mark of Greg Clark’s technocratic approach. In broad terms it arguably represents a continuation of the model of moderate state intervention in industry previously pursued by Peter Mandelson and Vince Cable. The CBI has given the plan an initial welcome, but stressed that it must be viewed in long term perspective.
But the long term is the problem. Brexit is the looming punch that is heading this way and the critical factor, more than any domestic industrial strategy, that will govern business decisions about future investment.
An inadequate basis for future growth
While sector deals and specific funds will be of interest to companies in particular sectors, the issues that really matter in boardrooms are the UK’s future trade, regulation and labour supply framework. Many people in industry believe the biggest boost to industrial investment that the government could provide would be a commitment for Britain to stay in the customs union and the single market.
But while that may be where the UK ends up during a post-Brexit transitional period, the Prime Minister has ruled it out as a long term destination. Instead, her government seeks a preferential trade deal that aims to give Britain as much access to the single market as possible, with as frictionless trade as possible, whilst being free to strike new global trade deals.
Yet for now Britain seems a long way from securing such an outcome. The critical December meeting of the European Council is barely a fortnight away. The UK has been told it needs to move further on a financial settlement. It is also being put under severe pressure over the future of the Irish border, where the government’s reliance on DUP votes in the House of Commons reduces its room for manoeuvre.
If the December meeting does not result in a judgement by the EU27 that ‘sufficient progress’ has been made to move the Brexit talks forward to trade and transition, then business alarm will spread. In such a context, Mr Clark’s industrial strategy will seem an inadequate basis for future growth.