Shaping Britain’s Industrial Future

Rishi Sunak has gone from Tory poster-child to damaged goods in under 7 days. Nice going. Even his much vaunted - and expensive - PR team couldn't save him, reinforcing the truism about lipstick and certain farmyard animals.

His problem is history is pulling against him. Every economic instinct he has developed in banking and politics tells him to cut the national coat according to the available cloth, yet Covid, Net Zero 2050, soaring energy prices/inflation and now the disaster in Ukraine are forcing him to behave contrary to instinct. Famously a non-drinker, the reaction to his threadbare spring statement last week is telling him the only way out of this mess is to lock himself in a brewery and organise a party.

But I am not sure what else to expect. Sunak and the other the free-market, small state ideologues in government are seemingly unaware of what 12 years of ‘belt-tightening’ (aka austerity) have done to our economy. The fabric of our public realm is depleted, in places threadbare. In exercising their version of prudence, successive chancellors have cut investment and spending as if they were one and the same. They are not.

Our manufacturing sector...holds the key to creating a more prosperous future for the UK in the face of the multiple threats that assail us

As a result, the economy has lost muscle, and our social infrastructure has been weakened. Politicians wring their hands over the UK’s weak productivity, but forget that it is damned difficult to grow and be more productive when public investment is salami-sliced year on year.

Which brings me to our manufacturing sector, and why I believe it holds the key to creating a more prosperous future for the UK in the face of the multiple threats that assail us.

But to think about the future, one must first understand the past. ?

The past 30 years have witnessed an erosion of the UK’s manufacturing base, already depleted by de-industrialisation in the 70s and 80s. The completely understandable attraction of sourcing cheap components and finished goods from the Far East meant we gave up large sections of volume manufacturing. Long supply chains became efficient and lean enough to keep delivered costs down and everyone celebrated, including consumers who got high on the plethora of cheap goods that flooded high streets. Manufacturers who lost out to foreign competition either went under or were bought out. Nobody really noticed, except other manufacturers who wondered at the growing national ignorance of the contribution they make to the economy, and how much more they could do given the chance.

There were some positives during this time. The creation of the Catapults network including the High Value Manufacturing Catapult and Innovate UK in the 00s, and in 2018 the unification of the various public research councils that had grown up over the years, including Innovate UK, under the UK Research and Innovation (UKRI) banner provides a much greater level of connection between business, academia, and government funding.

Yet it is impossible to avoid the conclusion that they – and the wider manufacturing sector – are seen by government as tools or resources for implementing the marquee policies governments like to attach themselves to – such as Net Zero 2050 – rather than having a strategic importance and purpose in their own right. The pandemic offers another example. At a time of national emergency, government called and manufacturing answered magnificently, supported to a very large degree by the above-mentioned government agencies. But by then the Industrial Strategy Council had been scrapped as had any growing sense that manufacturing was part of a wider national economic purpose.

It is possible, again, to understand why this is so, without having to agree with it. Conservatives are so haunted by the spectre of the centrally managed economies of the 60s and 70s that the very prospect of any kind of government involvement in industry makes them uneasy. The fact that other countries have strong, successful government/industry partnerships appears not to count. Their default position is that markets should chart our course, with only minimal and often reluctant government intervention.

But the tragic truth is that years of this kind of policymaking mean we have been, in the words of the former Bank of England governor Mark Carney, 'living on the kindness of strangers', sucking in foreign investment to pay for the fact we couldn’t afford our national lifestyle. It started in the 1980s with the privatisation of national assets and has continued ever since. Ask yourself why so many of the companies providing us with rail travel, water, energy and other services, and why so many properties and land assets, are foreign-owned.

We were lured by Just in Time and forgot to prepare for Just in Case.

Can we afford to go on like this? In two short years of unprecedented disruption and change, mechanisms of globalisation have been broken. Supply chains have been fractured. We were lured by Just in Time and forgot to prepare for Just in Case. Now we are exposed. Energy costs and inflation are heading inexorably upwards. In light of Ukraine, there is also a seismic political reassessment going on of how we deal with countries like Russia and China. Trade can never be separate from politics, no matter how many have so wished over the last 30 years. Russia nor China never forgot it. Foreign Secretary Liz Truss herself said this week that the days of "values-free trade" are over. Well, good. And let’s not forget, we are sanctioning the very oligarchs whose cash has been helping pay for our failure to sustain a national industrial and trade policy.

What is needed now is nothing less than a bold national strategy, vertically and horizontally integrated across the entire economy, with manufacturing very much at its core, doing what it does best – adding value.

What does this look like? My view is that it should include:

• Re-form the Industrial Strategy Council, as part of a wider National Economic Strategy Council
• Create a cross-party consensus that agrees industrial policy is for the long term and commits all parties to adhering to it when government changes hands.
• Develop a vision for what kind of economy we can afford to grow in the face of the multiple crises that confront us and ‘sell’ that idea to the people. "You may have to do with buying less imported cheap 'stuff' in future and focus instead on recycling, upcycling, renting." Start a national conversation around the circular economy, with local advanced manufacturing hubs at its core.
• Explore returning high volume manufacturing to the UK. With more attention to better, leaner design there is an entire range of products and components that can be made better and cheaper here. (Disagree? Check out the Ramfoam story .)
• Turbocharge our high value manufacturing sector with increased strategically-focused R&D spending. Best-in-class, it will continue to be what we excel at globally. Reducing our dependence on cheap imports combined with exporting more high-value products will correct some of our trade imbalance and generate greater homemade prosperity.
• Build on the excellent intentions of the latest National Procurement Policy Statement (June 2021) to formalise and if necessary make statutory a formula that determines the added social value of contracts granted to UK-based companies so that value for money goes hand in hand with value for society, underscoring the genuine competitiveness of UK manufacturing. Also introduce mechanisms, and quotas, that ensure SME manufacturers have wider access to public procurement contracts, and where multiple skillsets will be required, create mechanisms that smooth the easy formation of joint ventures between SMEs, the heart blood of our manufacturing sector.
• Renewable energy is our future, as is Net Zero 2050, but in the short term we should lower carbon targets to give us flexibility to ramp up manufacturing efficiently. But we must do what we can, quickly, to reduce our ultimate dependence on carbon by accelerating and expanding the Rolls-Royce SMR programme and building new nuclear power stations. An energy (and procurement) policy that works for UK Steel is an immediate priority.
• Ramp up FE education and training, a hardy perennial but even more urgent now.
• Oblige financial institutions to offer a broader financing framework that gives manufacturers access to increased amounts of patient capital and thus the confidence to invest for the long term, enabling the growth of more productive and powerful middle-sized companies.
• Broaden the definition of national interest when assessing takeovers of British companies by foreign investors, to include a duty of care on the relevant minister to factor in the impacts on local communities.
• Retain super deductions for capital investment beyond 2023.

This is a call for unprecedented policy coordination to address very serious threats to our prosperity

This is NOT an argument for central planning, nor is it necessarily an argument for more cash or a call for subsidies (or ‘handouts’ as some politicians dismissively call them.) No, this is a call for unprecedented policy coordination to address very serious threats to our prosperity. Above all, it's an argument for investment that will generate returns. Just give manufacturers level playing fields and stability, expand the support structures that accelerate investment and innovation, and they’ll get on with the job.

Too radical? Only in the sense that much of it requires a level of political commitment that has, to date, been patchy. But the mechanisms themselves are all by and large extant and proven to work.

It is a major sea change in the way we run our economy and it won’t be easy, but even if we get it halfway right it will be an improvement on where we are. Doing nothing is not only not an option, it could condemn us to decades of decline and recession.

On March 30th ManufacturingTV and Make UK will be holding individual panel discussions on future industrial policy with Shadow Business Secretary Jonathan Reynolds MP and Industry Minister Lee Rowley.

The discussions will be published on April 4th and then, on April 7th, manufacturers will have the opportunity to debate them at a special town hall Zoom meeting.

Announcements about how to take part will be made shortly.