Is the UK’s new industrial strategy starting to work?
Brexit has increased the challenge but business is welcoming attempts to boost productivity
A nondescript warehouse down a quiet side street in Oxford is not the place where you would expect to see Britain’s industrial strategy in action. But parked inside are four cars equipped with cutting-edge self-driving systems.
Oxbotica, a British start-up spun out of Oxford university four years ago, builds the brains inside the self-driving vehicles. The company has just secured a share of a £25m government-funded grant to trial driverless vehicles on UK roads by 2021.
For business secretary Greg Clark, the funding is a good example of how the government’s industrial strategy is being put into action. Autonomous vehicles and their technologies are a key area where the UK can play to its strengths, he said, after a brief test drive last week in a self-driving car that uses Oxbotica’s software.
Launched one year ago in a 255-page policy document, the government’s industrial strategy set out what ministers hoped would be the definitive road map towards building a productive, wealth-creating economy. Fixing Britain’s weak productivity performance was one of the key goals.
The white paper identified five foundations of productivity: ideas, people, infrastructure, places and the business environment, and it promised several sector deals between government and industry that would attract investment and improve workers’ skills. There was also a promise to raise total research and development investment to 2.4 per cent of gross domestic product by 2027.
Business welcomed the strategy but some critics said the funding pledges would not be up to the task and that the myriad old and new initiatives could be confusing. The strategy covers more than 200 policies across government — not all of them will end up moving the dial.
Business anxiety over Brexit has only added to the challenge. For example, some areas of manufacturing, such as car production, are under visible strain.
Questions have also been raised about the pace of the industrial strategy’s implementation given the government’s time devoted to the UK leaving the EU. An industrial strategy council charged with overseeing the strategy’s roll out only met for the first time this month.
Mr Clark said the strategy “established a diagnosis of what we need to do to improve productivity and where we need to do better”. “We have been competitive even despite the uncertainty that Brexit brings with it,” he added.
One year on, he said he believed the strategy has come a fair way since its launch. Six sector deals have been published, from automotive and construction to artificial intelligence and nuclear, and more are imminent.
A big step forward, said Mr Clark, has been a boost in R&D spending, which the government put at the heart of the strategy. Some £7bn has now been committed and more than 600 projects have received funding this year. One early success has been the establishment of the Faraday challenge to develop batteries for electric vehicles.
Juergen Maier, chief executive of the UK operations of Siemens, the German conglomerate, expressed broad optimism about the industrial strategy. A member of the industrial strategy council, he conceded “the question of Brexit is taking up too much of our bandwidth” but that despite this “the narrative about the industrial strategy . . . is strong”.
The government was not just investing more in R&D but “that spend is more focused”, said Mr Maier, with some core themes such as artificial intelligence emerging.
The broad consensus among business lobby groups and industry executives is that progress has been made with the industrial strategy. But more work needs to be done, notably to develop workers’ skills and to boost the productivity of small and medium-sized businesses.
Mike Cherry, chairman at the Federation of Small Businesses, said: “We need to see small business impact assessments . . . so we can measure the impact on small firms”.
Mandy Ridyard, finance director of Produmax, a small engineering company that makes flight control components, said many peers have yet to recognise that the industrial strategy is aimed at them.
While there was government support and investment in Stem subjects — science, technology, engineering and mathematics — that should help in the long term, the overall “engagement” with small businesses needed to be higher up the agenda, she added.
Ms Ridyard would like to see more investment in “people”. “As an SME I can generally get finance for kit but not finance for the transformation of people skills,” she said.
Her views were echoed by Ben Willmott, head of public policy at the CIPD, the professional body for human resources and people development. The CIPD recently ran a trial providing free support for human resources functions to small companies in three cities.
Although the support offered was “very basic it was also transformational for the businesses — labour productivity went up”, said Mr Willmott.
Ultimately, for the industrial strategy to have any chance of success, it must survive beyond the current government.
Mr Clark said what should stand the strategy in good stead was that it was formed in collaboration with industry and was a “whole government” initiative spanning multiple Whitehall departments.
He also has high hopes for the industrial strategy council that will be chaired by Andy Haldane, chief economist at the Bank of England.
The council will develop ways to judge the success of the strategy but how to keep score will not be straightforward. It can tick off whether government promises have been fulfilled and ultimately judge performance on improvements to Britain’s productivity.
But it will also need to develop intermediate metrics to show that the industrial strategy is beginning to pay off in other ways. Measuring basic levels of numeracy and literacy among young people might be one such measure.
“My hope for the council is that it can achieve a similar role to the Office for Budget Responsibility [the UK fiscal watchdog] — an arm’s length arbiter and monitor on whether the government is following through on its industrial strategy,” said Mr Haldane.
“For this to have any hope of success, it needs to be stuck to. Execution and sticking to is key.”