BRIEFING PAPER
Number 07682, 31 January 2017
Industrial strategy
By Federico Mor
Contents:
1. Defining ‘industrial strategy’
2. Industrial strategy under the
May Government
3. Risks and opportunities of
Brexit
4. Industrial strategy under the
Cameron Government, May
2015 to July 2016
5. Industrial strategy under the
Coalition Government, 2010
to 2015
www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary
2
Industrial strategy
Contents
1.
Defining ‘industrial strategy’
Horizontal vs sectoral industrial policies
Mission-based industrial policies
2.
2.1
2.2
2.3
2.4
2.5
2.6
Industrial strategy under the May Government
Early policy statements
The industrial strategy green paper
Northern Powerhouse and Midlands Engine
Policies not covered by the green paper
Reactions to the green paper
ARM takeover
Role of the Department for Business, Energy and Industrial Strategy
Cabinet Committee for industrial strategy
BEIS Committee inquiries
6
6
6
9
9
10
11
12
13
14
3.
3.1
3.2
3.3
Risks and opportunities of Brexit
State Aid
Trade and investment
Research and Development
15
15
16
17
4.
Industrial strategy under the Cameron Government, May 2015 to July
2016
Steel industry crisis
19
19
Industrial strategy under the Coalition Government, 2010 to 2015
20
5.
4
4
5
Cover page images copyright: Communications hardware by Tom Blackwell; pills, pills,
lots of pills by .pst; Robots in the Tesla Factory manufacturing line by Patrick Herbert;
Construction, Aldgate by John Wilson; Licensed under CC BY 2.0 / images cropped.
3
Commons Library Briefing, 31 January 2017
Summary
Defining ‘industrial strategy’
Industrial strategy is about coordinating a wide range of economic policies to achieve particular
objectives, which need not be purely economic.
Industrial strategy under the May Government
During her leadership campaign and early into her premiership, Theresa May signalled a return to a
more active and explicit industrial strategy, compared with the previous Coalition Government and
Cameron Government.
The publication of the green paper called Building our Industrial Strategy on 23 January 2017 is the
latest development in this policy area. Whilst the current Government’s strategy marks a clear shift
towards more prominence and emphasis placed on industrial strategy, there is also a significant degree
of continuity with previous policies. The difference in substance may turn out to be less great than in
letter, though much detail remains to be determined. The strategy set out in the green paper is not
“the last word, but [the] start [of] a consultation.”
The Government invites organisations and the public to respond. The consultation closes on 17 April
2017.
Key goals of the Government’s industrial strategy
•
Build on UK strengths and extend excellence into the future;
•
close the gap between the UK’s most productive companies, industries, places and people and
the rest; and
•
make the UK one of the most competitive places in the world to start or grow a business.
The green paper identifies ten ‘pillars’ for the industrial strategy that are said to drive growth. The
actions described under each pillar are a mixture of existing policies and ‘new commitments’.
The bulk of the strategy proposes ‘horizontal’ policy interventions, such as investments in skills,
research and infrastructure, facilitating access to finance and keeping costs down for businesses.
Risks and opportunities of Brexit
In common with many areas of Government policy, industrial strategy could be radically altered by the
UK’s decision to leave the EU.
Aspects of industrial strategy that could see significant risks and opportunities from Brexit include state
aid rules, trade, investment, and research.
The Government’s green paper contains little analysis of what Brexit might mean for industrial strategy.
The paper states that the Government will welcome an agreement to continue to collaborate with
European partners on major science, research and technology initiatives, and that procurement policy
will no longer be constrained by EU law. There are no other explicit attempts to link up the
Government’s industrial and Brexit strategies.
4
Industrial strategy
1. Defining ‘industrial strategy’
‘Industrial strategy’ is traditionally understood as a set of government
interventions which seek to support or develop specific industries –
especially manufacturing, but not only. 1 However, current usage of the
term is much broader. Industrial strategy in recent times has been more
about coordinating a wide range of economic policies to achieve
particular objectives, which need not be purely economic. For example,
an industrial strategy can have social and environmental aims.
A recent roundtable (24 November 2016) with representatives from
industry, policy and academia produced this summary of how industrial
strategy should be approached:
Industrial Strategy should be seen as a framework rather than as a
collection of specific industrial policies. …
…The purpose of industrial strategy should be to identify what is
societally necessary and beneficial, and thus to align with other
key national strategies (for example on economic growth,
wellbeing or environmental sustainability). 2
Intervention in industry can occur with varying degrees of intensity:
•
At one extreme, an intensive industrial policy could involve
government taking full control of a particular industry through
nationalisation.
•
At the other extreme, government would allow domestic
industries to collapse under the pressure of international
competition, regardless of the importance of the industry in terms
of employment or strategic advantage.
In recent decades, UK industrial policies can be placed somewhere
between these poles. Governments have generally not taken ownership
of key firms within sectors that they view as important, but neither have
they allowed the market to completely dictate the industrial and
geographical structure of the economy.
Interventions can take many forms, ranging from tax breaks and
deregulation to strategic procurement decisions and specific investment
in particular skills and places.
Horizontal vs sectoral industrial policies
One way to classify the interventions governments take to support or
develop industries is to distinguish between ‘horizontal policies’ and
‘sectoral policies’.
Horizontal policies are polices which address market-wide issues. They
provide the “resources and economic environment” which make it
easier for businesses and individuals to be productive. Examples of this
type of policy include adjustments to regulatory frameworks,
1
2
Warwick, K. (2013), “Beyond Industrial Policy: Emerging Issues and New Trends”,
OECD Science, Technology and Industry Policy Papers, p. 15
Written evidence from UCL (ISG0194) to BEIS Select Committee’s Industrial strategy
inquiry, “Supplementary submission based on UCL industry-policy roundtable on
industrial strategy”, 9 January 2017.
Industrial strategy is
about coordinating
a wide range of
economic policies
to achieve particular
objectives, which
need not be purely
economic.
5
Commons Library Briefing, 31 January 2017
establishing tax regimes which favour business, polices which foster
innovation or polices which encourage skill development. 3
Sectoral policies (sometimes called ‘selective’ policies) include any
policies directed towards one specific sector in the economy. Examples
include agricultural subsides, providing ‘seed funding’ for high
technology clusters and support for research and development in
particular industries.
In practice, industrial policies generally have aspects of both categories,
and the two types of policies are “highly complementary.” 4 For
example, an education system which seeks to emphasise the importance
of science, engineering and maths (‘STEM’ subjects) is horizontal in
ambition because it seeks to provide pupils with a grounding in subjects
which are valuable in almost all careers. But this strategy could also be
viewed as sectoral or selective because it targets particular sectors and
skills.
Mission-based industrial policies
As the earlier definition implies, an industrial strategy can be mission
driven. A mission-driven strategy uses economic policy to pursue
solutions to particular public policy challenges. Mission-based policies
are unlikely to neatly fit into the horizontal vs sectoral categories. For
example, challenge funds can be directed at issues which are crosssectoral in nature, such as low carbon innovation. In her oral evidence
to the Business, Energy and Industrial Strategy Select Committee,
Professor Mariana Mazzucato put it this way:
What industrial strategy can do is give a direction to economic
growth.
…a more mission-orientated industrial strategy… is based on big
problems the nation might have that many different sectors can
work on together. Going to the moon in the past required more
than 10 sectors. 5
3
4
5
Department for Business, Innovation and Skills, Industrial strategy: UK sector
analysis, September 2012, p. 7
Ibid
BEIS Committee, Oral evidence: Industrial Strategy, HC 702, Tuesday 22 November
2016, Q295
6
Industrial strategy
2. Industrial strategy under the
May Government
During her leadership campaign and early into her premiership, Theresa
May signalled a return to a more active and explicit industrial strategy,
compared with the previous Coalition Government and Cameron
Government.
The publication of the green paper called Building our Industrial
Strategy on 23 January 2017 is the latest development in this policy
area. Whilst the current Government’s strategy marks a clear shift
towards more prominence and emphasis placed on industrial strategy,
there is also a significant degree of continuity with previous policies. The
difference in substance may turn out to be less great than in letter,
though much detail is still to be determined. The strategy set out in the
green paper is not “the last word, but [the] start [of] a consultation.” 6
2.1 Early policy statements
In the speech launching her campaign to be Conservative Party Leader,
Theresa May outlined proposals to “make the economy work for
everyone”, which included many ideas related to industrial strategy: 7
•
Continued work towards higher productivity
•
Research and development policies that encourage investment
•
Reliable, lower-cost energy
•
Delivery of infrastructure projects, including more house
building
•
Continued support for regional development of cities and areas
outside London
•
Stricter merger and acquisition rules, with more emphasis on a
‘public-interest test’ for foreign take-overs
•
New corporate governance structures, including consumer and
employee representation on boards, and greater transparency
around executive pay
2.2 The industrial strategy green paper
The May Government published a green paper called Building our
Industrial Strategy on 23 January 2017. The Government’s stated
objective is “to improve living standards and economic growth by
increasing productivity and driving growth across the whole country.” 8
The paper sets out how the Government proposes to build its industrial
6
7
8
Building our Industrial Strategy, January 2017, p. 8
Conservative Party, Speech by Theresa May: together we can make Britain a country
that works for everyone, 11 July 2016. This speech is sometimes referred to as the
“Birmingham speech”.
Building our Industrial Strategy, January 2017, p. 9
The Government’s
objective is “to
improve living
standards and
economic growth
by increasing
productivity and
driving growth
across the whole
country.”
7
Commons Library Briefing, 31 January 2017
strategy, and invites organisations and the public to respond. The
consultation closes on 17 April 2017.
Key goals of the Government’s industrial strategy: 9
•
Build on UK strengths and extend excellence into the future;
•
close the gap between the UK’s most productive companies,
industries, places and people and the rest; and
•
make the UK one of the most competitive places in the world to
start or grow a business.
The Government identified ten ‘pillars’ for its industrial strategy that are
said to drive growth.
The ten ‘pillars’ of the industrial strategy: 10
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Investing in science, research and innovation
Developing skills
Upgrading infrastructure
Supporting businesses to start and grow
Improving procurement
Encouraging trade and inward investment
Delivering affordable energy and clean growth
Cultivating world-leading sectors
Driving growth across the whole country
Creating the right institutions to bring together sectors and places
The bulk of the strategy proposes horizontal policy interventions, such
as investments in skills, research and infrastructure, facilitating access to
finance and keeping costs down for businesses.
The eighth pillar, though, is explicitly sectoral. Underpinning the
Government’s approach to sectors is the idea of “sector deals”:
Leadership from business has been key to the success of
sectoral policies in the UK and other countries. We propose
to set an ‘open door’ challenge to industry to come to
Government with proposals to transform their sectors
through ‘Sector Deals’. The Government will work with
sectors that organise themselves behind strong leadership
to help deliver upgrades in productivity.
This could involve: addressing regulatory barriers;
promoting competition and innovation; working together
to increase exports; and working together to commercialise
research. 11
The idea of “sector deals” – having an open door for sectors to develop
proposals with Government – is reminiscent of Sajid Javid’s description
of his approach to sectors during his time at the helm of the old
Business, Innovation and Skills Department (May 2015 to July 2016).
Javid talked about “[a] willingness to deal with representatives of all
9
10
11
Building our Industrial Strategy, January 2017, p. 6
Building our Industrial Strategy, January 2017, p. 11
Building our Industrial Strategy, January 2017, p. 20
8
Industrial strategy
sectors and to respond positively to industry-led solutions.” 12 Similarities
notwithstanding, the new strategy marks a shift in emphasis, as noted
earlier.
A departure from the previous Government’s approach is a greater
focus on place. The new strategy aspires to do more regionally across
the UK, seemingly building on the Northern Powerhouse & Midlands
Engine approach. Pillar number nine captures this aspiration.
The green paper describes a mixture of ‘actions under way’ (existing
policies) and ‘new commitments’. The number of ‘new commitments’
amounts to about 60% of the total number of actions described. Not all
‘new commitments’, however, are entirely new.
Some of the new commitments are about consulting the public to
further develop existing plans, funding and programmes. For example,
the Government seeks views on how it should invest its R&D funding,
setting out options ranging from investment in local science and
increased support for commercialisation, to investing in future research
talent.
The green paper also consults on the priority challenges for the
‘Industrial Strategy Challenge Fund’, a cross-sectoral mission-based fund
first announced at the Autumn Statement 2016. The fund supports
collaborations between business and the UK’s science base in tackling
specific challenges. It is modelled on the USA’s Defense Advanced
Research Projects Agency. The fund will “back technologies at all stages
where the UK has the potential to take an industrial lead, from early
research to commercialisation.” 13
Other commitments in the green paper express or restate the
Government’s intention to carry out reviews. Examples include a review
of the opportunities to reduce the cost of decarbonisation, a review of
the Government’s procurement policies, and reviews of the roles and
priorities of the Department for International Trade and Local Enterprise
Partnerships (LEPs).
The Government also commits to new sector deals, and explicitly lists
the following five industries: life sciences, ultra-low emission vehicles,
industrial digitalisation, nuclear and the creative industries.
Finally, the green paper also describes specific projects, such as £170m
of capital funding for the creation of Institutes of Technology to deliver
higher technical education in STEM subjects (science, technology,
engineering and mathematics). Other specific projects committed to
include road investments, such as the M60 North West Quadrant, the
A66 and the A303 Stonehenge route.
12
13
BIS, Sajid Javid speech to Mansion House, 3 March 2016. See section ‘4. Industrial
Strategy under the Cameron Government’.
Building our Industrial Strategy, January 2017, p. 30
9
Commons Library Briefing, 31 January 2017
Northern Powerhouse and Midlands Engine
One of the hallmarks of the Cameron Government was the ‘Northern
Powerhouse agenda’. This was a loosely defined combination of
transport infrastructure projects, increased funding for business and
research, and increased political devolution to the North of England,
particularly around Manchester.
Since Theresa May became Prime Minister there has been no formal
change of Government policy in this area. However, there were reports
of “reluctance” from Theresa May to endorse the Northern Powerhouse
agenda. It was suggested that the Prime Minister prefers a regional
policy which explicitly promotes a wide range of rural and urban areas
outside London, rather than focusing exclusively on the North of
England. 14
Nevertheless, the industrial strategy continues to include references to
the Northern Powerhouse (14 in total) and the Midlands Engine (seven
in total).
Further information can be found in the House of Commons Library
briefing paper on The Northern Powerhouse. A debate pack was
prepared by the Library on The Midlands Engine too.
Policies not covered by the green paper
The ten pillars broadly capture Theresa May’s early policy statements (as
listed in sub-section 2.1), with one notable exception – merger and
acquisition rules. In her leadership speech, Theresa May stated the
following on corporate takeovers:
A proper industrial strategy wouldn’t automatically stop the sale
of British firms to foreign ones, but it should be capable of
stepping in to defend a sector that is as important as
pharmaceuticals is to Britain. 15
Building our Industrial Strategy does not mention corporate take-overs.
However, it was reported that a separate document is being prepared
on the issue of foreign ownership of critical national infrastructure, and
is expected to be published by the end of March. 16
In her leadership speech, Theresa May also talked about corporate
governance and executive pay:
And I want to see changes in the way that big business is
governed. The people who run big businesses are supposed to be
accountable to outsiders… So if I’m Prime Minister, we’re going
to change that system – and we’re going to have not just
consumers represented on company boards, but employees as
well.
… I want to make shareholder votes on corporate pay not just
advisory but binding. I want to see more transparency, including
the full disclosure of bonus targets and the publication of “pay
multiple” data: that is, the ratio between the CEO’s pay and the
14
15
16
The Times, End of powerhouse feared as May shifts focus, 6 August 2016
Conservative Party, Speech by Theresa May: together we can make Britain a country
that works for everyone, 11 July 2016.
Sky News, Doncasters defence arm to be hived off over China security fears, 25
January 2017
10 Industrial strategy
average company worker’s pay. And I want to simplify the way
bonuses are paid so that the bosses’ incentives are better aligned
with the long-term interests of the company and its shareholders.
Whilst the industrial strategy green paper does mention corporate
governance, the issue is covered in more depth in the Government’s
Corporate Governance Reform green paper, published on 29 November
2016. The corporate governance paper explores options for
strengthening the link between executive pay and long term company
performance, encouraging greater investment by firms.
Reactions to the green paper
Reactions to the Government’s green paper were broadly positive,
though criticisms were made too.
Reactions from industry
British Chambers of Commerce called the strategy a “first milestone in a
renewed partnership between business and government, working
together to create the conditions for future growth.” 17
The Confederation of British Industry (CBI) commented that it “has
long-called for a new Industrial Strategy and it’s welcome to see the
Government creating an opportunity for all sectors to get involved.”18
Terry Scuoler, CEO of EEF, the manufacturers’ organisation, said:
[The industrial strategy] must live up to the promise of driving
different behaviours and outcomes for the British economy, which
requires the whole of Government working together to support it
with clear leadership from the Prime Minister and her Cabinet.
The fact that the PM has unveiled these plans herself suggests
that this message too has successfully landed. 19
However, Terry Scuoler is also reported to have said that “the jury is still
out”, and that the main significance of the strategy was that it was
spearheaded by the prime minister. 20
Research by Ipsos Mori — who interviewed 114 board members at the
top 500 UK companies by turnover — found that only a third thought
new industrial policies would encourage growth (though interviews
were prior to the publication of the Government’s green paper). 21
The Financial Times believes that skilled immigration is important to
solving the UK’s productivity problems, and that trade and immigration
policies cannot be easily separated:
If the productivity problem is to be solved, Britain must make it
easy and attractive for skilled immigrants to enter and work. This
issue is mentioned [in the Government’s industrial strategy green
paper] only in the limited context of attracting researchers to
universities. The key role of letting international students in
technical fields stay after they complete their degrees receives not
BCC: Harness potential of places to make success of Industrial Strategy, 23 January
2017
18
CBI: A modern Industrial Strategy will be a landmark opportunity, 22 January 2017
19
EEF comments on industrial strategy announcement, 23 January 2017
20
FT, Theresa May’s industrial strategy meets with faint praise, 23 January 2017
21
Ipsos MORI: Captains of Industry place infrastructure at the top of their wish list, 24
January 2017
17
11 Commons Library Briefing, 31 January 2017
a word. Neither do work visas. As Prime Minister Theresa May
discovered in India, exports, especially exports of services, are tied
very closely to movements of people. Given the politics of Brexit,
the omission of a discussion of immigration might have been
politically necessary for Mrs May. It is certainly economically
dangerous. 22
Reactions from politics
George Osborne, former Chancellor of the Exchequer under the
Cameron Government, congratulated Greg Clark, Secretary of State for
Business, Energy and Industrial Strategy (BEIS):
I congratulate my right hon. Friend on the intelligent approach set
out in the Green Paper, building on what has been achieved over
the past six years but taking it much further in skills, science and,
in particular, the northern powerhouse. 23
Clive Lewis, Labour’s shadow business secretary, welcomed the broad
thrust of the document but said it was thin on detail. “Unless the
government puts a lot of flesh on these bones, this will be a strategy of
spin rather than substance.” 24
Iain Wright, Chair of the BEIS Select Committee, said he welcomed the
concept of a long-term strategy but said the paper had “no real vision”
and was a “mishmash of mostly existing policies.” 25
2.3 ARM takeover
On the 18th July 2016, it was announced that Arm Holdings, a
Cambridge-based technology firm, had accepted a £24 billion takeover
bid from Japanese firm SoftBank.
Greg Clark welcomed the bid, characterising it as “a huge vote of
confidence in the British economy…” and highlighting the fact that
SoftBank wants to increase employment at ARM and keep ARM’s
headquarters in Cambridge.
However, the Government’s support for this takeover led some
commentators to question the robustness of the new industrial strategy,
and of the Prime Minister’s caution around foreign takeovers. Nesta –
an innovation charity – commented that: 26
…we can perhaps deduce that [Theresa] May considers some
industries more requiring of intervention than others...
Iain Wright MP, Chair of the BEIS Select Committee, commented that: 27
… There is a tension… On the one hand, it is a good thing that
Britain is open for business… [but there is]… always the risk that
foreign-owned firms headquartered in other [countries] than
Britain will move things away from the UK.
Industrial policy in the UK, without the industry, 23 January 2017
Parliamentary proceedings | 620 cc41-67, 23 January 2017
24
FT, Theresa May’s industrial strategy meets with faint praise, 23 January 2017
25
FT, Theresa May’s industrial strategy meets with faint praise, 23 January 2017
26
Nesta, Industrial strategy back on the agenda, 22 July 2016
27
Financial Times, Government welcomes ARM takeover but tech leaders mourn loss,
18 July 2016
22
23
12 Industrial strategy
The need to maintain inward investment following the EU referendum
result has been suggested as a possible motivation for the rise of the
industrial strategy agenda. Nesta have suggested that: 28
…private investment may take a hit [following the EU referendum
result], and industrial strategy may be a method of introducing
economic stimulus.
Further information on takeovers and Government policy in this area
can be found in the House of Commons Library Briefing Paper on the
topic: Mergers and takeovers: the public interest test.
2.4 Role of the Department for Business,
Energy and Industrial Strategy
One of Theresa May’s first acts as Prime Minister was to create a new
Department for Business, Energy and Industrial Strategy (BEIS) by
combining most of the functions of the old Department for Business,
Innovation and Skills, and the Department for Energy and Climate
Change.
This move was characterised as “the re-introduction of ‘industrial
strategy’ to the political lexicon.” 29
Even though BEIS is nominally in charge of industrial strategy, important
elements of the strategy sit with other departments. For example,
higher education and skills are now with the Department for Education,
procurement policy is led by the Cabinet Office, and infrastructure and
productivity are mostly led by the Treasury.
BEIS’s responsibilities regarding industrial strategy are summed up in the
memorandum attached to the Ministerial Statement outlining the
Machinery of Government changes introduced by Theresa May: 30
•
Business and enterprise: cementing the UK’s position as the
best place in Europe to start and grow a business – by
supporting local growth, entrepreneurs, and making it
easier for businesses to resolve disputes quickly and easily.
•
Competitiveness: developing a long-term industrial
strategy, supporting competitive markets, cutting red tape
and protecting intellectual property.
•
Science and innovation: ensuring that the UK is the best
place in Europe to innovate, maintaining our world-leading
research and science base to drive growth and productivity
while reforming the system to maximise value from our
investments.
Nesta, Industrial strategy back on the agenda, 22 July 2016
Nesta, ICYMI innovation policy roundup: industrial strategy back on the agenda, 22
July 2016
30
Prime Minister Machinery of Government: Merging the Department of Energy and
28
29
Climate Change with the Department for Business, Innovation and Skills to create
the Department for Business, Energy and Industrial Strategy 18 July 2016
Even though BEIS is
nominally in charge
of industrial
strategy, important
elements of the
strategy sit with
other departments.
13 Commons Library Briefing, 31 January 2017
Box 1: Ministerial responsibilities in BEIS
The Ministerial responsibilities in BEIS are as follows: 31
•
Rt. Hon. Greg Clark MP, Secretary of State for Business, Energy and Industrial Strategy, with
overall responsibility for the Department.
•
Nick Hurd MP, Minister of State for Climate Change and Industry, leads on industrial strategy,
with particular responsibility for advanced manufacturing, materials and automotive policy.
•
Jo Johnson MP, Minister of State for Universities, Science, Research and Innovation (joint
minister with Department for Education), with responsibility for research and innovation policy, in
addition to higher education.
•
Lord Prior of Brampton, Lords lead on all BEIS issues.
•
Margot James MP, Minister for Small Business, Consumers, and Corporate Responsibility, with
responsibility for regional and regulatory issues.
•
Jesse Norman MP, Minister for Industry and Energy, supports Nick Hurd on industrial strategy,
and has responsibility for aerospace, in addition to energy.
In a speech delivered to The Royal Society, Greg Clark (Secretary of
State at BEIS) introduced his approach to the Department’s areas of
responsibility. Regarding industrial strategy he emphasised the
following: 32
•
•
•
•
•
•
Successful industries in the UK must be recognised and supported,
including automotive, aerospace and space
Scientific research must be encouraged through support for relevant
institutions
New industries and technologies must be allowed to develop
The interests of consumers must be protected and served through
innovation and competitive pricing
The contribution of employees and businesses owners must be
recognised
Local areas must be encouraged through transport, skills and “probusiness leadership”.
2.5 Cabinet Committee for industrial strategy
A Cabinet Committee for industrial strategy was established in July
2016 and includes the Secretaries of State for 11 departments in order
that the Government’s industrial strategy has input from all policy areas.
The Committee is chaired by Theresa May.
The Cabinet Committee met for the first time on Tuesday 2 August
2016. A press release summarised the Committee’s priorities:
The new committee, which will bring together Secretaries of State
from more than 10 government departments, will help to drive
forward an industrial strategy that will aim to put the United
Kingdom in a strong position for the future, promoting a diversity
of industrial sectors and ensuring the benefits of growth are
shared across cities and regions up and down the country.
In particular, it will focus on addressing long-term productivity
growth, encouraging innovation and focusing on the industries
and technologies that will give the UK a competitive advantage.
31
32
BEIS website, 27 January 2017
Greg Clark speech to Royal Society: Introducing BEIS, 28 July 2016
14 Industrial strategy
2.6 BEIS Committee inquiries
The Business, Energy and Industrial Strategy (BEIS) Select Committee is
conducting an inquiry into the Government's Industrial Strategy. The
scope of the inquiry is outlined below:
The Committee will consider what the Government means by
industrial strategy and questions how interventionist in the free
market it should be, such as whether it should prevent foreign
takeover of UK companies.
Priorities for the private sector, in terms of what businesses want
from a revamped industrial strategy, the pros and cons of a
sectorial approach and possible geographical emphasis will also be
explored by the Committee.
It will also look at the industrial strategies of previous
governments and of other countries to see if there are any lessons
to be learnt.
The BEIS Committee is also conducting an inquiry into Corporate
Governance. The scope of the inquiry is outlined below:
The [BEIS] Committee has launched an inquiry on corporate
governance, focussing on executive pay, directors’ duties, and the
composition of boardrooms, including worker representation and
gender balance in executive positions.
The BEIS
Committee is
conducting an
inquiry into the
Government’s
Industrial Strategy,
and another inquiry
into Corporate
Governance
15 Commons Library Briefing, 31 January 2017
3. Risks and opportunities of
Brexit
This section provides an overview of how the EU exit might change
important policy areas, and how these changes might affect industrial
strategy and industry more broadly.
The Government’s green paper contains little analysis of what Brexit
might mean for industrial strategy. The paper states that the
Government will welcome an agreement to continue to collaborate with
European partners on major science, research and technology
initiatives, 33 and that procurement policy will no longer be constrained
by EU law. 34 There are no other explicit attempts to link up the
Government’s industrial and Brexit strategies.
The implications of Brexit are still very uncertain, though. Further
information on the impact of Brexit on a range of policy areas can be
found in the House of Commons Library Brexit online hub.
3.1 State Aid
EU rules strictly prohibit most instances of financial support from
Government to failing or threatened industries. These rules are known
as ‘State Aid rules.’ Further information on their operation is available in
a House of Commons Library Briefing Paper: State Aid.
The UK will be a member of the EU until negotiations have been
finalised. Until the UK’s formal exit, State Aid rules will still apply.
After the UK exits the EU, the extent to which State Aid rules will apply
will depend on the nature of the relationship with the EU that is
negotiated. If the UK became a member of the European Economic
Area (EEA), like Norway, then State Aid rules would still apply since they
are broadly replicated in the EEA agreement. 35
If the UK negotiated a unique trade deal with the EU, then the
likelihood is that some form of State Aid rules would still apply since the
EU would probably require some form of state aid control – and vice
versa. 36
If the UK were to leave without entering into any formal relationship
with the EU, then theoretically, no form of State Aid controls would
apply to the UK Government, and it would be free to provide any
assistance to industries. However, various factors mean that the UK
Government would be unlikely to begin subsidising failing industries:
•
The UK has historically been averse to providing direct financial
support to failing industries
33
See p. 28 of Building our Industrial Strategy
See p. 71 of Building our Industrial Strategy
EEA website, State Aid
Wolters Kluwer (competition law blog), Together forever? How state aid law will
affect the UK even after Brexit, 2 July 2016
34
35
36
Some form of state
aid controls is likely
to remain
16 Industrial strategy
•
As a member of the World Trade Organisation (WTO), the UK is
bound by the WTO Agreement on Subsidies and Countervailing
Measures, which restricts the use of subsides, although less
stringently than the EU State Aid rules. 37
3.2 Trade and investment
“Encouraging trade and inward investment”, and “Cultivating worldleading sectors” are two pillars of the Government’s strategy. One of
the reason that trade and investment are important is because they can
enhance productivity growth. Productivity matters because it is a crucial
contributor to a country’s long-term economic growth potential – the
rate at which it can grow sustainably over many years. This connection
is reflected in the green paper’s stated objective, “to improve living
standards and economic growth by increasing productivity and driving
growth across the whole country.”
Section 6 of the House of Commons Library briefing paper on
Productivity in the UK explains the channels through which Brexit can
affect future productivity and growth prospects:
The impact of Brexit on productivity will be felt principally via trade and
investment. Economic theory and academic literature show a link
between an economy’s degree of openness to foreign trade and
investment and its productive capacity. 38
Many UK industries trade extensively with EU and non-EU member
states. Whilst the UK is a member of the EU, trade deals are negotiated
at EU level by the European Commission, meaning that trade
negotiations have not formed part of the UK’s industrial strategy for
many years.
The precise nature of the trade relationship with the EU following the
UK’s exit will determine the extent to which the current tariff-free
trading relationship with other EU members will be replicated. The
Government is aiming for a “comprehensive, bold and ambitious free
trade agreement”. 39
Regarding trade with non-EU members, the UK will likely be able to
negotiate new trade deals after leaving the EU. This might mean setting
its own tariffs and other regulations. 40
The only scenario following Brexit where the UK would not have the
power to set its own external trade policy would be if it stayed within
the EU Customs Union, like Turkey. That scenario has been ruled out by
the Prime Minister: in her 17 January 2017 speech, Theresa May stated
that she did not want Britain to be bound by the Common External
37
38
39
40
WTO website, Overview of the Agreement on Subsides and Countervailing Measures
House of Commons Library, Productivity in the UK, 22 November 2016, p. 15
Theresa May, The government's negotiating objectives for exiting the EU: PM
speech, 17 January 2017
LSE Centre for Economic Performance, Life after BREXIT: What are the UK’s options
outside the European Union?, February 2016
17 Commons Library Briefing, 31 January 2017
Tariff and prevented from striking trade agreements with other
countries. 41
In a post on the Government’s industrial strategy, Chris Cook (Policy
editor, Newsnight, BBC) explains that Brexit poses important trade risks
to some of the industries that the Government is explicitly targeting in
its industrial strategy:
…there is a Brexit issue here. Pharma and car-makers are lucrative
– but they are both heavily regulated around the world. Both are
vulnerable as we leave the EU to the prospect that a British stamp
of regulatory approval won’t mark them as safe abroad, as they
are now in Europe.
…The problem we need trade deals to fix is not tariffs, so much
as that sort of finicky market-entry regulation.… Our top goods
are unusually vulnerable to getting stuck in tiresome market
approval processes. 42
3.3 Research and Development
The very first pillar of the Government’s Building our Industrial Strategy
is “Investing in science, research and innovation”. The green paper
explains that the UK is currently very successful at attracting foreign
investment for R&D and securing funding from the EU for R&D:
The proportion of the UK’s business R&D investment financed
from abroad is considerably higher than other countries: 22 per
cent in 2013, compared to seven per cent in the OECD. Under the
current European Union programme, Horizon 2020 (2014-2020)
[this is the largest EU Research and Innovation programme], the
UK has to date secured €2.63 billion, the second highest level of
funding. 43
The EU has historically contributed large funds to UK R&D. In 2015 EU
funding for research and innovation in the UK amounted to €1.3bn, or
£1.1bn. 44 The vast majority of this funding comes from Horizon 2020.
£1.1bn is equivalent to 19% of the UK Government’s £5.8bn budget
for research and innovation in 2015-16. 45
As mentioned earlier, it is possible that the UK will decide to pay into EU
research programmes such as Horizon 2020 in order to be able to
continue participating in them. 46 The UK can also replace the funding
domestically.
Setting questions of funding aside, Brexit also presents opportunities for
UK research. In its inquiry report on Leaving the EU: implications and
opportunities for science and research, The Science and Technology
41
42
43
44
45
46
Theresa May, The government's negotiating objectives for exiting the EU: PM
speech, 17 January 2017
Chris Cook, A few scattergun thoughts ahead of today’s industrial strategy, 23
January 2017
P. 27
Conversion at the 27 Jan 2017 exchange rate.
European Commission data:
http://ec.europa.eu/budget/library/biblio/documents/2015/internet-tables-20002015.xls
Science and Technology Committee report, The science budget, 3 November 2015,
p. 9
See p. 28 of Building our Industrial Strategy.
18 Industrial strategy
Committee explores the following opportunities: revising VAT rules to
stimulate university-business collaboration; regulatory reform; and
creating a new visa regime that prioritises researchers at all career
levels. 47
John Bell, regius professor of medicine at Oxford University, wrote in the
Financial Times about the opportunities to deregulate that Brexit
presents for UK science:
Britain is more inclined towards a relatively liberal risk-based
regulatory environment that allows fields to move quickly — to
reflect on ethical issues but not to over-regulate.
…We need light touch regulation similar to Switzerland so that
Britain can become a global leader in life sciences, data,
genomics, regenerative medicine and other innovation-based
fields. State aid and industrial policy should be routine. 48
47
48
Science and Technology Committee report, Leaving the EU: implications and
opportunities for science and research, 16 November 2016, p. 18-20
FT, Brexit offers opportunities for UK scientists, 25 August 2016
19 Commons Library Briefing, 31 January 2017
4. Industrial strategy under the
Cameron Government,
May 2015 to July 2016
The Conservative Party victory at the 2015 General Election marked a
change of tone related to industrial policy, relative to the Coalition
Government’s policy in this area, and the nascent industrial strategy of
the May Government.
The Secretary of State at BIS during the Cameron Government, Sajid
Javid, told the Financial Times that “I don’t particularly like the word
strategy coupled with industrial.” The term ‘industrial approach’ was
widely used instead. 49
Sajid Javid outlined the Cameron Government’s industrial policy at a
Mansion House speech in March 2016: 50
My approach can best be described as non-interventionist but
highly engaged. It’s about building on previous success, with a
much wider dialogue. About listening to businesses from all
sectors, working with them to remove barriers to growth and
productivity, and creating the conditions in which they can thrive.
We’ll still be talking to and working with the main sector councils.
They do great work and they know their areas better than
anyone. But I’ve taken the old strategy’s closed shop and replaced
it with an open door. A willingness to deal with representatives of
all sectors and to respond positively to industry-led solutions.
Steel industry crisis
Sajid Javid’s time as Secretary of State with responsibility for industrial
strategy coincided with the crisis in the UK steel industry of 2015 and
early 2016. The Cameron Government’s actions around this time
illustrate how Javid’s “non-interventionist but highly engaged”
industrial policy operated.
As steel plants in Teeside and South Wales closed in the face of
plummeting global steel prices, the Government did not provide direct
financial support to keep them open. Rather it worked with potential
buyers to secure deals that might preserve the industry in some areas. In
addition, it developed re-training packages for areas which had seen
closures, lobbied for changes to trade policy at EU level, and worked to
find ways of mitigating price pressures in the UK including business
rates and energy prices.
Further information on the steel industry and the Cameron
Government’s response to the crisis can be found in the House of
Commons Library Briefing Paper, Steel industry: statistics and policy.
49
50
Financial Times, Sajid Javid heralds Thatcherite approach to business policy, 16
September 2015
BIS, Sajid Javid speech to Mansion House, 3 March 2016
20 Industrial strategy
5. Industrial strategy under the
Coalition Government,
2010 to 2015
The Coalition Government came to power as the UK was recovering
from the recession of 2008 and 2009. The Secretary of State at BIS,
Vince Cable, expressed enthusiasm for a sector based industrial strategy
as a way of boosting economic growth.
Vince Cable set out the Coalition Government’s approach to industrial
policy in a speech in September 2012. In summary, he highlighted that
the Government has confidence in the market enabling economic
growth, but that in some circumstances, “market failures” mean
intervention is required: 51
A good industrial strategy allows for failures, and recognises that
innovation may strike in an unpredictable place - we must be
ready for that too. But as the credit crunch showed, there are
huge risks to taking a complacent, hands off approach.
The Coalition Government’s industrial strategy featured five key themes:
•
Boosting the development of 11 key sectors
•
Supporting the development of eight key technologies
•
Increasing access to finance for businesses
•
Developing the skills of employees in key sectors
•
Using public procurement to create opportunities for UK firms
and supply chains
A particularly important aspect of the strategy was the support for
specific sectors. This involved the Government identifying sectors that
they saw as strategically important, “tradeable” and with a “proven
commitment to innovation.” 52 Further information on how the
Government chose the sectors is available in the Government
document, UK sector analysis. 53
The Government’s intervention in each of these sectors involved a highlevel forum (such as the Automotive Council) that brought together
industry leaders and relevant senior Government figures to discuss
barriers to growth and other issues specific to the sector; a commitment
to the development of specific training institutions or initiatives within
the sector and some match-funded financial commitments to certain
aspects of the sectors.
Further information can be found in the House of Commons Library
Briefing, Industrial strategy, 2010 to 2015.
Vince Cable, Speech: Industrial Strategy: Cable outlines vision for future of British
industry, 11 September 2012
52
Vince Cable, Speech: Industrial strategy: next steps, IPPR conference, 27 February
2012
53
BIS, Industrial strategy: UK sector analysis, September 2012
51
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