This article was originally published as an edition of the Green Transition, our weekly newsletter on the economics of net zero. To see more editions and subscribe, click here.
Ahead of the general election last summer, businesses were clambering over each other to cosy up to Keir Starmer and Rachel Reeves. Roll-forward to February, and those same businesses are growing ever more perturbed by the prime minister and his chancellor. How times change.
In November, businesses reacted furiously to the inclusion of tax rises and increased borrowing in the Autumn budget; a slew of ‘reset’ speeches have struggled to improve the mood music ever since. AstraZeneca’s decision to cancel a major expansion of its vaccine plant in Merseyside and the Bank of England’s downbeat growth forecast are the latest blows to a government struggling to articulate a coherent theory of growth.
The government needs to explain how a disparate policy programme, as comfortable with nationalised rail as it is with NHS privatisation, with deregulating as with boosting workers’ rights, with approving new oil fields while claiming itself a clean energy superpower, works together in service of growth. Because to businesses, signals matter and at the moment they’re mixed.
That is why industrial strategy is important. A clear direction for policy can provide that signal to businesses looking to invest. I have written previously on the role industrial strategy can play in driving growth, and Labour has touted it as the crown jewel in its growth strategy, building from Rachel Reeves’ Bidenomics-inspired New Business Model for Britain to October’s Invest 2035 green paper.
In reality, this green paper is more Theresa May than Joe Biden: it is built on sector deals. But this approach risks policy slipping between the cracks and could lead to the government acting where the private sector doesn’t need its help. Though industrial strategy is the most developed aspect of the government’s economic policy, the government must resist the urge for it to become their entire economic policy. The strategy is meant to be one of seven pillars of a growth strategy, but in the absence of other equally developed pillars, businesses see industrial strategy as the only route to growth. Of course they want a piece of the action.
But in trying please everyone, you’re likely to please no one.
Industrial strategy is – at its core – about being selective. That doesn’t have to mean ‘picking winners’ – it means clarity on the place of industrial strategy an overarching growth plan. To the government’s credit, the green paper lists specific goals: net zero, regional growth, and economic security. But how each of the growth sectors meet these goals is not always obvious. The sectors chosen cover around a third of GDP; keeping consensus within a single strategy and limited spending will undoubtedly be challenging. There are few international precedents for a successful industrial strategy with such a broad range of sectoral interests.
To get the investment it desires, the government needs to be clearer about what industrial strategy is, and what it isn’t. That’s why Public First brought together a number of trade bodies from critical sectors to make the case for an industrial strategy that can achieve the government’s goals. Our report, Making the Industrial Strategy work, sets out a vision on what industrial strategy should do to succeed against its own metrics, what policy it needs to achieve it, and where in the country success might be most keenly felt.
Thankfully, the green paper does contain the obvious answer. The chancellor even mentioned it in her growth speech: ‘net zero is the industrial opportunity of the 21st century’. The strategy must now zero in on that opportunity. It is hardly controversial to suggest that clean energy and advanced manufacturing – the sectors that will propel us to net zero – should be the clearly defined focus of an industrial strategy; they are the sole focus of virtually every industrial strategy globally.
That is not to downplay the clear economic value of all eight sectors government has listed. But clean energy and advanced manufacturing most obviously meet the goals of net zero, regional growth, and economic resilience (learned the hard way during the recent energy crisis). The focus on regional growth is particularly important – our analysis found major potential in the north-west for growth in clean energy and manufacturing, while the majority of the sectors government lists are concentrated in the south-east, aptly demonstrating why the industrial strategy needs clearer edges. With the recent doubling down on the south-east’s strengths in the form of airport expansion (see the third runway at Heathrow), it is all the more important that the UK’s industrial strategy is sharply defined, focusing only on interventions which will allow it to succeed politically. Greater concentration of investment in London is only going to take Labour further down the path that Joe Biden fatefully walked.
If done right, industrial strategy can power growth across the economy by doubling down on areas where government has clear capabilities. Areas such as energy, or advanced technologies which power the rest of the economy. A strong, secure energy supply chain will, for example, allow investment in data centres powered by clean energy, that government so desires. By tackling common barriers to investment – access to capital, access to skilled labour, industrial decarbonisation, planning reform – government can supercharge the industries and technologies that power the economy.
Nobody ever said this would be easy for Labour – delivery through a government which is stuck in siloes is a massive challenge. And that’s before you get to the mess Labour inherited from a previous Conservative government which repeatedly ducked hard decisions. In so many ways, the need to be clear and specific on industrial strategy is a parable for Labour’s wider challenge in needing to make tough choices to turn around an ailing economy.
Pinning all hopes for growth on an industrial strategy is getting it the wrong way round. Instead, an industrial strategy which focuses on those areas where government has clear capabilities, and sectors which can deliver the strategy’s goals – allowing government to show its success to the public through the delivery of lower bills, better jobs, and regional prosperity – is the way forward. In clean energy and advanced manufacturing, the UK has a growth story to tell, and in industrial strategy, it has the mechanism to tell it. Delivery means being brave, being selective, and being clear on the direction you intend to take.
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