Britain’s industrial strategy is still missing in action

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Britain’s industrial strategy is “alive and kicking”, according to Jeremy Hunt. Pity he appears to have forgotten to inform anyone what it is.

The declaration by the chancellor in a recent Financial Times interview was met with surprise — and gallows humour — in sectors such as manufacturing and energy this week. Responses I heard included: “They have been keeping it quiet if it is.”

Humour turned to despair in some quarters after Prime Minister Rishi Sunak watered down some key green policies on Wednesday. The green industries are one of the government’s five targeted economic growth areas. Yet plans such as the 2030 ban on the sale of new petrol and diesel cars were unpopular with the right of the Conservative party.

Even before this week, though, companies have been confused over Britain’s industrial goals. In 2021, the government dropped an industrial strategy developed under former prime minister Theresa May. Kwasi Kwarteng, business secretary at the time, witheringly dismissed it as a “pudding without a theme”. A report by manufacturing group Make UK earlier this year suggested a lack of industrial strategy was putting the UK at a disadvantage compared with other nations.

Make UK has a point. Not having a clear industrial strategy is particularly perilous at a time when other countries, including the US, do.

“UK industrial policy has lacked consistency in recent years, and we are starting to see the consequences in terms of investment appetite,” Simon Virley, head of energy and natural resources at KPMG in the UK, told me. 

Granted there has been some recent support for certain industries.

The government agreed subsidies of up to £500mn for the Tata Group to secure the future of the Port Talbot steel works in Wales. Taxpayer funds will also ensure electric Minis are produced in Oxford. The government similarly helped to land Tata’s £4bn electric vehicle battery facility for Somerset when there was competition from Spain.

But the failure to attract any bids from offshore wind developers in a flagship renewable energy contract auction this summer is a development that baffled many clean energy investors. Companies such as Vattenfall and Ørsted warned ministers for months that starting auction prices were unrealistic. Their entreaties were ignored. 

The approach to industry is not unusual. There is also a lack of clarity about some of the government’s other growth areas, said Verity Davidge, director of policy at Make UK. Ministers are relying on digital technology, life sciences, creative industries and advanced manufacturing to expand the economy. Yet there is “some doubt” concerning the definition of advanced manufacturing, for example.

The chancellor is expected to lay out details of a reborn industrial strategy in his Autumn Statement.

He has already announced a review by Lord Harrington of how the UK can better attract foreign direct investment. He has made clear he will not mimic America’s widespread “subsidy bowl” approach, referring to the US’s Inflation Reduction Act.

Few industrial leaders expect him to match the US. Clarity would go a long way, however.

Hunt will have to reassure investors that other targets won’t also be subject to future revisions. He would do well to spell out how the government intends to overcome this month’s offshore wind auction flop.

As the Port Talbot example shows, ministers will provide subsidies to stimulate private investment in some cases. Investors want to know which sectors will qualify.

The government could also move faster in certain areas. Companies wanting to produce hydrogen and create carbon capture and storage facilities have long been waiting on promised funding mechanisms to stimulate investment.

“We can’t outspend them [the US]”, said Keith Anderson, chief executive of energy group ScottishPower, “so we have to outsmart them and outpace them”.

Industrial companies also complain that tax incentives are often too short term, particularly when compared with stimulus abroad. The UK’s super deduction capital allowance announced in 2021 expired in March, for example.

“We have a preference [in this country] for short-term, sector-led deals. [By contrast] what the IRA does is provide a decade of policy clarity from the point of receiving tax credits with little bureaucracy,” said Ben Westerman, director of energy and net zero at consultancy Henham Strategy.

“Businesses like long-term certainty” is a mantra repeated so often in the City of London that it induces eye-rolls. Yet clearly when it comes to industrial policy, the UK government has been deaf to it.