A bureaucratic tangle has replaced the UK’s industrial policy

How will we keep our footing in the new gold rush? As investors and manufacturers saddle up and ride out for America, the EU is scrapping over how best to respond to President Joe Biden’s Inflation Reduction and Chips acts. But the UK seems marooned, with ministers shuddering at any mention of “industrial policy”.

You don’t have to have read Friedrich Hayek’s The Road to Serfdom to feel a little nervous about the idea that every nation should have a gun-slinging set of protectionist business incentives. Nevertheless, it’s surreal to have watched UK ministers talking up Britain’s prowess in life sciences and green energy while we slip down the rankings for clinical trials. AstraZeneca is building its new factory in Ireland, carmakers warn Brexit has undermined electric vehicle production and the solar firm Oxford PV says the UK is the “least attractive” place to site a factory.

When the shadow chancellor Rachel Reeves set out a contrasting vision in Washington this week, of an active state working in partnership with the free market, I was amazed she was so restrained. It’s hard to beat America in the subsidy race. But government should at least be clear about its ambitions and help with regulation, intellectual property and infrastructure. The Conservatives’ furtive approach to industrial policy has just sown confusion.

Britain is still haunted by the experience of the 1960s and 1970s, which convinced many Treasury officials and politicians that the best industrial policy is no industrial policy at all. Governments which tried to pick winners ended up backing losers: like the elegant but hopelessly expensive Concorde, of which only 20 were ever made, and the ugly Morris Marina, a car which rusted even in summer. 

Thatcher, Major and Blair largely steered clear of interventionism. It was only during the 2008 financial crisis that Labour developed an “industrial activism”, looking strategically at what might be done to help each sector of the economy. That approach continued through the coalition, which backed economic “clusters” like the Northern Powerhouse, and into the May government, which championed an official industrial policy. Memorably described by then Tory backbencher Kwasi Kwarteng as a “pudding without a theme”, it was too sweeping. But by scrapping it as business secretary, Kwarteng lost the Industrial Strategy Council, which could have audited what worked, and the Industrial Strategy Challenge Fund, which meant key budgets seeped out into the bureaucratic soup.

The system certainly wasn’t perfect — the Covid vaccine was only scaled up fast enough because the Vaccine Taskforce was created outside the official machinery. Still, as one senior executive in the creative industries told me: “It’s bad enough that there’s a flip-flop every time there’s a change of party. But a flip-flop when it was the same party was truly distressing.” 

Businesses prize certainty. But the UK has had terribly haphazard policymaking. In 2015, one Tory government privatised the Green Investment Bank; six years later, another Tory government set up a UK Infrastructure Bank to do the same thing. When Dominic Cummings created Aria, the advanced research agency, it sounded like an echo of Qinetiq, which had been privatised by Labour nearly 20 years earlier. 

If we can’t learn and adapt, but keep acting on whims, we are far more likely to fall into exactly the trap feared by those on the right: of naive statism. According to the economist Diane Coyle, many other democracies are much better at evaluating the efficacy of their industrial policies. 

“Hopeless”, “slow” and “confused” are some of the words used to describe the current state of UK government machinery by businesses and experts I’ve spoken to — and that’s from those who want to stay here. Outsiders are confronted with a labyrinthine set of institutions and initiatives. Critics say that planning permissions and R&D funding allocations take too long and that the UKRI, the primary funder of research and innovation, is “ponderous” and “bureaucratic”.

The residual machismo of Brexit doesn’t help. Rishi Sunak’s premiership has restored a sense of pragmatism and Tory ideologues have been talked down from an insane, wholesale scrapping of every EU law. Yet exporters remain nervous that ministers may decide to deviate from some EU rules just because they can. Divergence would double the workload of businesses, as well the ludicrous attempt to replace the EU’s long-established ‘CE’ safety mark on industrial and electrical goods with a rival mark called UKCA — another political indulgence.

It is nonsense for this government to pretend it doesn’t have an industrial policy: it has just offered Tata Motors £500mn to build an electric vehicle battery plant in the UK rather than Spain, and allocated extra money to the life sciences. Chancellor Jeremy Hunt has set out five growth areas for the economy. But he shouldn’t have to champion them in a whisper. Without something we used to call joined-up thinking, we are in danger of wasting money on failed bets. EVs won’t take off without a system of universal charging points. And big pharma won’t run more clinical trials unless they can use patient data.

Every gold rush has its cowboys. At the beginning of this new industrial revolution in genetics, green tech and AI, no one can see very far ahead. But we need agility, not ideology.

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