18 April 2023

The UK’s semiconductor industry is vulnerable – but how will Rishi Sunak strengthen it?

The PM needs to secure the supply of key components to make computer chips, otherwise the UK will be left exposed.

After more than two years in the pipeline, the government’s semiconductor strategy was due to be published on Thursday. It will not be published on Thursday. Politico informs us the delay is due to confusion over who will provide maternity cover for Michelle Donelan, the Secretary of State for Science, Innovation and Technology.

Many Westminster watchers, particularly those interested in China, have been calling for this strategy for a while. Beneath the bombast about standing up to the Communist totalitarians is a recognition that the UK needs to secure the supply of key components such as semiconductors, which are essential to making computer chips. Taiwan produces more than 60 per cent of the world’s semiconductors and over 90 per cent of the most advanced ones. If China invaded Taiwan, that supply would be jeopardised – to put it lightly.

The UK government did force a Chinese-owned company to sell 86 per cent of a semiconductor factory in Newport in November, citing national security. But a report from the Business, Energy and Industrial Strategy Committee states that the “UK is particularly exposed to future disruption in global supplies of semiconductors and is falling behind other governments in mitigating such risks”.

The semiconductor strategy is particularly prominent because of the national security implications. But it is one example in a growing debate about securing supply chains through government subsidy, triggered in part by the American Inflation Reduction Act which will invest billions of dollars into US green industry.

Ben Houchen, the influential Tees Valley mayor, said last night at an Onward event that: “The government still doesn’t speak the language of business… They don’t understand the certainty that industries need, particularly new emerging industries, the confidence, certainty, and to be frank in this modern world, funding given what’s happening not just in China and North America, but now what seems to be emerging even in Europe as well.”

Houchen pointed to the government’s failure to follow-up success in industries such as offshore wind with subsidies to secure the supply chain in the UK. (On that note, I recommend this long read from James Meek on the wind sector.)

The UK government is unlikely to take Houchen’s advice anytime soon. “Our approach will be different – and better. We are not going toe-to-toe with our friends and allies in some distortive global subsidy race,” the Chancellor Jeremy Hunt, said in March. Such intervention would cut against Hunt’s free-market instincts.

Bookmark Houchen’s comments. They presage a heated debate within the Conservative Party about protectionism that will come to the fore if they lose the next election.