Industrial Strategy: First Review Contents

3Principles for an effective industrial strategy

31.The Secretary of State has said that the Government’s industrial strategy aims “to provide a policy framework against which major public and private investment decisions can be made with confidence,” and that the purpose of the Green Paper is to help develop this framework collaboratively.56 Evidence to our inquiry has led us to conclude that such a framework needs to be underpinned by some clear design principles. These principles, and the extent to which the proposals in the Green Paper align with them, are discussed in further detail below. To summarise, in our view, an effective industrial strategy needs:

(1) Clear objectives, with progress measured against meaningful metrics;

(2) A ‘mission-based’ approach, shaped by a vision as to the direction we want the economy to move towards, underpinned by a foundation of strong horizontal policies;

(3) To ensure that all relevant Government departments and devolved administrations work effectively together to reconcile policy tensions and contribute fully to the delivery of industrial strategy;

(4) To be long-term in its approach, transcending parliaments and individual administrations, and developed in close collaboration with the full breadth of economic actors and with sensitivity to geography, to ensure that it endures;

(5) To be simple, accessible and understandable to business across the economy, including small and medium-sized enterprises (SMEs) and supply-chains;

(6) To be clear that, painful though this may be, it should not provide palliative care for failing and obsolete industries; and,

(7) To retain the flexibility to act pragmatically according to events.

Clear objectives measured against meaningful metrics

Ensuring objectives are coherent and aligned with goals

32.A strategy is not a static document but an evolving process that works towards a clearly defined goal; its core purpose is to identify the critical factors that need to be addressed to achieve that goal and then design a way of coordinating and focusing action to address those factors.57

33.The Government has stated that the objective of its industrial strategy is: “to improve living standards and economic growth by increasing productivity and driving growth across the whole country.”58 In doing this it has said that its industrial strategy must:

34.All of these are sensible overarching aims and we welcome them. However, there are implicit tensions between these objectives. We heard that one weakness of previous strategies is that they have not given clarity about how to prioritise ‘horizontal’ policy decisions,60 and it is not clear to us how the objectives for the industrial strategy provide a framework for wider policy making or addressing policy trade-offs or contradictions. For instance, building on our economic strengths could imply supporting the most productive industries and regions, but this would not necessarily help close the “gap” with less productive companies.

35.The only objective of the industrial strategy which directly aligns with the Prime Minister’s vision is the ambition to close the productivity gap between the UK’s companies, nations and regions. It is entirely conceivable that Government could develop policies to “build on our strengths” and make the UK “one of the most competitive places” to start or grow a business without addressing the regional disparities that the Prime Minister has spoken so strongly about addressing.

36.In this context, it is important to understand how the Government sees the specific objectives and policies of the industrial strategy aligning with the Prime Minister’s overall goal of an economy that works for all. The Government also needs to provide clarity on to what extent, if any, other forthcoming strategies and policies are intended to contribute to that end.

37.The Prime Minister’s rhetoric marks a significant shift away from that of previous Governments; consciously or unconsciously, it implies that the Government is willing to exchange headline economic growth for more evenly distributed and resilient growth. At a time when Government is already having problems in balancing the books, any decision to sacrifice some element of short-term economic growth for other objectives (with a longer-term return) will make that task more difficult. We would welcome clarity as to whether this is the right way to interpret her remarks. Success will only be achieved if policies are of a scale to match the Government’s ambition and clearly drive forward economic rebalancing.

Meaningful metrics are necessary to assess progress

38.As the adage goes, ‘what gets measured gets managed’, having clear metrics can help galvanise and focus action. Giving evidence to us, the Secretary of State expressed his reluctance to give a “round number [ … ] just for the purpose of setting out an approach,”61 and we appreciate that arbitrary targets are unhelpful. However, clearly articulated targets are necessary to ensure Government and industry are able to align in the same direction and to build a sense of common purpose. As the Confederation of British Industry (CBI) told us, “To deliver effective industrial strategy, all departments, agencies and levels of government should share common industrial strategy goals.”62 It is hard to comprehend how policies can be designed to deliver a strategy in the absence of a clearly articulated and measurable set of outcomes, even if those will necessarily be high-level. As the EEF – the Manufacturers’ Organisation wrote in evidence, one of the main components of any industrial strategy has to be “A clear sense of economic outcomes, with measures that ensure progress can be monitored and acted upon.”63

39.In developing metrics against which to assess the impact of the industrial strategy, we hope that lessons are learned from our Report on the Productivity Plan, in which we expressed concern about the lack of metrics for success.64 We are grateful that the Government’s response to our Report included a very useful and detailed annex listing progress against commitments and detailed “success metrics”, but we are not convinced that all of the metrics are sufficiently meaningful and outcomes-focussed. For instance, having a target of the lowest rate of corporation tax in the G20 is solely a measure of policy inputs, not of outcomes.

40.Another example relates to the Productivity Plan’s objective of having “World-class digital infrastructure in every part of the UK”65. One of the measures of success, the percentage of UK premises with 4G coverage from at least one operator, sounds impressive on the face of it, with the latest figure standing at 97.8 per cent.66 However, this inputs-based metric is a questionable measure of success given that the National Infrastructure Commission has found that Britain is 54th in the world for 4G, with the typical user only able to access 4G 53 per cent of the time.67 This is a clear example where Government has defined “success” on its own terms, rather than in a way which reflects the real experiences of the UK’s businesses and citizens, just as pronouncements on the UK’s overall economic growth have previously disguised the fact that too many people have not felt the benefits of this.

41.We do not expect the Government to commit to arbitrary targets, but it should produce a set of measures against which it will be possible to assess whether progress is being made towards delivering an economy that works for everyone. In its response to this Report, the Government should outline a set of clear, outcomes-focussed metrics that can be used to frame its goals and to measure progress in meeting these. We recommend that the Government should consider including metrics relating to the following:

42.While we recognise that information on all of these is already regularly published by different Government bodies such as the Office for Budget Responsibility and the Office of National Statistics, we believe that it would be helpful to bring them together in a single annual report to Parliament, with a debate on industrial strategy becoming a regular and established part of the Parliamentary calendar. Such a report could also include updates on commitments being delivered to implement the industrial strategy and any new commitments made as the strategy evolves over time, recognising that strategy is “a process, not an event.”68 It would also be helpful for the Government to publish details of any interim updates on statistics in the same place on GOV.UK, providing a clear dashboard of measures through which Parliament and the wider public could hold the Government to account for delivery.

43.As the Government develops the detailed policies that work towards its overarching vision and goals, we anticipate that it will develop more detailed commitments and interventions. We recommend that the Government publishes annual updates to its action plan outlining progress in delivering policies and setting out any new policies and how they align with the overall strategy. The Government should also create a single dashboard of metrics relating to industrial strategy on GOV.UK which should be updated as new statistics are published.

44.Together, these measures would demonstrably show a commitment to ensuring transparency and accountability.

A ‘mission-based approach’ underpinned by strong horizontal policies

The need for strong horizontal policies

45.The Government’s approach to industrial strategy places a strong focus on horizontal policies, coupled with deeper, sectoral interventions.

Table 1: Analysis of the 10 pillars of Government’s industrial strategy by type of intervention

Horizontal Pillars

Sectoral Pillars

- Investing in science and research

- Developing skills

- Upgrading infrastructure

- Business support

- Improving procurement

- Encouraging trade and investment

- Creating the right institutions

- Delivering affordable energy

- Cultivating world-leading sectors

- Supporting energy innovation

Source: BEIS Committee Analysis

46.As the Secretary of State told us, “a lot of the meat of what we need to do is quite cross cutting and will affect things, whether it is science and research and innovation, whether it is education and training, whether it is infrastructure; it will cover a lot of different sectors”.69 This focus on strengthening horizontal policies was widely supported in evidence to us. As the CBI have commented, horizontal policies such as these are essential precursors and enabling factors that form “the bedrock on which a successful industrial strategy is built” and “enable and incentivise all businesses to undertake activities central to realisation of the UK’s industrial potential.”70

47.However, as both the CBI’s submission to our inquiry and the Secretary of State’s approach make clear, horizontal policies alone do not amount to the totality of an industrial strategy. Being on the front foot in responding to the changing nature of work, emerging technologies, and climate change, for instance, will require a more focussed response than broad-brush horizontal policies. While a small number of submissions to our inquiry suggested that Government should focus solely on horizontal approaches,71 the majority called for these to be complemented by deeper interventions, whether those be to support specific sectors or missions. Although not an advocate of industrial strategy themselves, as the Institute of Economics Affairs commented, a “horizontal industrial strategy [ … ] is just an economic policy [ … ] not worthy of the name industrial strategy.”72 We very much agree with this assessment.

48.The Government’s Green Paper has emphasised the importance of horizontal policies, including improving investment in: research and development, upgrading our performance on education and skills, and upgrading the quality of our infrastructure, procurement policy, trade and investment, clean growth, and business support. Horizontal policies form the backbone of effective industrial policy. However, as the Government has recognised, they alone seem unlikely to deliver the Secretary of State’s larger ambition of getting to grips with “the problems and opportunities that we face over the next 10, 15 or 20 years.”

Sector-based interventions

49.The Industrial Strategy Green Paper places an emphasis on cultivating “world-leading sectors” through sectoral “deals”.73 This deeper and more proactive form of intervention is what takes the Government’s proposals beyond economic policy and into the realms of industrial strategy. These are what the CBI sees as being at the higher end of Government intervention.74

50.A substantial body of evidence we received related to specific sectors calling for recognition as part of a new industrial strategy, ranging from the financial technologies industry,75 and professional services,76 through to hospitality and tourism.77 Major business umbrella organisations, including the CBI and the EEF also called on the Government’s industrial strategy to take a sector-led approach that, in the words of the CBI, “seeks to capitalise on areas of the economy in which the UK has a competitive advantage.”78 Arguments supporting sector-based interventions are frequently and understandably made on the grounds that each sector has unique needs and playing an important role in the economy: “The needs of financial services are different from aerospace which differ in turn from life sciences.”79 We have particularly heard that long-term sectoral support for the automotive and aerospace industries has helped them flourish;80 however, it has also been pointed out that the sectoral approach promoted under the Coalition Government did not necessarily prove successful for other sectors, such as construction.81 It was also unclear as to how the eleven sectors adopted as the Coalition Government’s industrial strategy were chosen, to the exclusion of other important sectors, such as the creative industries.

51.We recognise that specific industries are likely to have particular asks of Government, and that sectors are a natural way for many businesses to coordinate and organise. We do not necessarily disagree with this approach, although we also believe there is a significant risk that it can lead to capture by private lobbying interests. We heard claims in evidence that “some of the most regressive and problematic tax policy in this country has been lobbied for by particular companies in the name of innovation. That is capture and it wastes a lot of public money.”82

52.While recognising that many sectors perhaps naturally favour sector-specific strategies, we have also heard strong arguments against a sectoral approach. A range of witnesses have cautioned that information imbalances and competing priorities can lead to poor decision-making in Government: “mistakes in the past have been made in part because dialogue with the private sector on industrial strategy is not always easy: companies have competing interests, influence and priorities.”83 Evidence against adopting a sectoral approach argued that it can be bureaucratic,84 that benefits are not felt by the wider economy,85 and that, at worst, a siloed approach can have an adverse impact on other parts of the economy.86 A number of witnesses argued that innovation occurs at the boundaries between sectors,87 and noted that many businesses, particularly in supply-chains, do not neatly fit in to specific sectoral categories.88 It is not clear how spill-over effects can be maximised if a stricter sector-based vertical approach was adopted. Our nation’s strength in creative industries, particularly design, for example, will undoubtedly have a positive impact upon producing new products and processes in manufacturing.

53.Although we frequently heard evidence that successive Governments’ support for the automotive and aerospace sectors had helped them flourish, we note that the Government has described these as having “unique characteristics that warrant particular support being provided”.89 We have also heard that the benefits of a sectoral approach were less clear for many of the other sectors. We heard for instance, that previous sectoral strategies had lacked “operational detail”,90 and that while elements of some sectoral plans had been delivered successfully, they had not necessarily had the clear leadership and broader industry support necessary to ensure benefits were fully realised.91 Essentially, “approaches where specific sectors are targeted have not always delivered the strongest results”92 with some sectoral strategies having set overarching visions but been “less successful in terms of moving beyond that to concrete actions that have delivered measurable progress.”93

54.Sectoral policies appear to have worked well for the automotive and aerospace industries. However, with regards to other sectors this approach has had, at best, mixed results. Furthermore, this approach appears to have the greatest risk of policy being built on the vested interests of big businesses and incumbents that are best equipped to lobby. Despite Government allowing sectors to self-identify, there is a risk that a sectoral approach encourages businesses to maintain rather than break down silos, and leads to policies designed to suit preferred industries at the expense of other sectors and the wider public interest.

55.We recommend that Government reconsider giving sectoral strategies priority and instead focus on horizontal policies and specific ‘missions’ to meet UK-wide and local public policy challenges.

Early sectoral deals

56.The Industrial Strategy Green Paper announces that work is underway on a number of early sector deals covering: life sciences, ultra-low emission vehicles, industrial digitalisation, nuclear and creative industries. We do not question the importance of these areas of the UK economy, but it is unclear why they appear to have been given a privileged status in the Green Paper or how they were chosen to spearhead implementation of this approach. Use of the term ‘sectors’ is also unhelpful—arguably the ultra-low emission vehicles industry is increasingly well established and is a product rather than a sector, “industrial digitalisation” is a vague term that could cover many things, and the “creative industries” is likewise hugely diverse. In the absence of a clear set of criteria for “deals”, there is a real risk that engagement lacks focus and leads to talking-shops rather than meaningful results with a real transformative potential. The suggestion that industries need to “organise behind strong leadership” and the naming of key individuals to lead different deals,94 risks creating a cult of personality where individual leaders come to the fore at the expense of areas where a potentially greater impact could be had. Given the Government’s on-going positive support for the aerospace industry, it is curious that this sector is not also included and highlights the limitations of choosing, in an arbitrary way, specific sectors.

57.In in its response to this Report, the Government should set out the process by which it agreed to prioritise “deals” with the five sectors listed in the Industrial Strategy Green Paper, whether it held discussions with any other sectors about doing ‘deals’ and, if so, why those “deals” were not progressed at this time or referred to in the Green Paper. The Government also needs to clarify how it will evaluate future sectoral definitions, priorities and targets if it continues to pursue sectoral deals.

Mission-based interventions

58.Although the Government has signalled that it intends to take a sectoral approach, we believe that some of the risks outlined above, particularly around special pleading, could be mitigated by adopting a ‘mission-based’ approach, whereby Government support for deeper industrial interventions is focussed on addressing particular public policy challenges. In essence, “an industrial strategy need not have a sector-by-sector focus in order to deliver benefits. Instead, it may set out the objectives that the economy should deliver, and leave it to industries to respond to the challenge.”95

59.This challenge and the benefits of a mission-based approach were summarised particularly clearly in evidence from the University of Sussex Science Policy Research Unit:

“Past UK industrial strategies have tended to default towards a sectoral approach. There are good reasons for this, as sectors offer a good organizing basis for solving coordination problems related to, for example, skills. But there are also risks to a sectoral approach, such as capture to private lobbying interests [ … ] This is where instead of driving to the frontier of new ideas, firms influence governmental programmes and policy making. Starting with problems, not sectors, helps to minimise this problem.”96

60.A mission-based approach was also warmly endorsed by the British Chambers of Commerce, who told us that “setting a series of national goals or missions that galvanise public and cross-political support could boost new industrial development.”97 It was also backed by the Government’s own innovation agency, Innovate UK, which saw a mission-based approach as a “strong driver” for tackling the country’s productivity problem and enabling actors from multiple-sectors “to work in a common direction for the highest societal benefit.”98 Linked to this, we heard evidence that a mission-based approach could help build the broad-based support necessary for a long-term industrial strategy by recognising that economic growth has a “direction” as well as a “rate” and seeking to harness this towards societal outcomes.99

61.There are some positive examples of Government leaning towards this approach in its Industrial Strategy Green Paper—for instance, the announcement of a strategy with a clear aim to support the transition to ultra-low emissions vehicles. However, other early announcements on sectoral strategies lack this level of focus. The Government’s proposal that new sector “deals” should be targeted at addressing “sector-specific challenges”100 does go some way towards our mission-based industrial strategy but it is important that those “challenges” are focussed clearly on societal goals, and long-term economic goals.

62.Such an approach requires a vision for the economy. The Prime Minister has arguably made a good start with “an economy that works for everyone”. However, this strapline now needs to be translated into more detailed policies to enable this objective to be achieved.

“One thing that comes out strongly through the review of industrial experiences in other countries is the importance of the national vision. If Hamilton’s vision that his country can one day become a powerful industrial nation, like Britain, lost out to Jefferson’s vision, harking back to the days of yeoman farmers, the US may have remained a richer version of Argentina today. Without Japan daring to dream that one day it will beat the Americans in the car industry (in 1955, the US produced 7 million cars, against 70,000 for Japan), we would have had no Toyota, and its luxury brand, Lexus. If Finland–a tiny nation of 3–4 million people with seven centuries of colonial history–did not aspire to compete in the most difficult industries with the best nations in the world, it would have maintained its specialisation in logging–not an easy thing to avoid, when you have one of the largest endowments of timber per capita in the world. Without China–once one of the poorest nations in the world–believing itself to be capable of becoming the next superpower (which may or may not come true), its industrial policy efforts would have been much less ambitious than what it has been and the result of it much more modest. And so on.”101

63.Whereas a sector based approach is essentially another form of “picking winners”, a mission-based approach provides a means of articulating a positive economic vision and picking public policy challenges and allowing all sectors to put forward contributions to solving these.

64.We recommend that specific support for industry be guided by a targeted ‘mission-based’ approach, channelling the Government’s support towards addressing the big challenges of the future. It is for Government to set those missions, in discussion with stakeholders. Examples could include decarbonising our energy intensive industries, improving the affordability and effectiveness of health and social care in the context of an ageing population, maximising the country’s opportunities arising from the fourth industrial revolution, automating and electrifying our transport infrastructure, or capturing as much value from a growing global population with rising disposable income which wishes to travel, be educated and be entertained.

65.“Missions” need not be inconsistent with the Secretary of State’s vision of deals focussed on sectoral challenges. Rather, any such “deals” need a clear, time-bound goal. Furthermore, clear criteria are needed to decide which challenges are worth pursuing and which are not. Missions could provide a useful framework for setting those criteria.

A genuinely whole of Government approach

66.Over the course of our inquiry we heard a recognition from former Ministers that there are “inherent tensions” between government objectives,102 coupled with a frustration from business that often Government policies are not coherent and decisions made by one part of Government may be “undermined by decisions in other parts of Government.”103 For example, we heard from university-sector representatives that the ambition to grow education exports could clash with goals on immigration. Many witnesses saw industrial strategy as a vehicle to “link all Departments for a common purpose.”104 We think this is an admirable approach for the Government to pursue, although equally we also recognise that it is an ambitious request given the competing perspectives about what such a “purpose” should be and the competing political ideologies at play—e.g. there are competing views on whether deregulation can help or hinder competitiveness.105

67.Delivering an industrial strategy that is able to chart a clear path through tensions and genuinely ensures a coordinated approach to reconciling policy tensions will require a step-change in inter-departmental cooperation (and cooperation with the devolved governments), something which successive administrations have failed to achieve. A whole-of-Government approach was expressed as an ambition of industrial strategy under both the last Labour government and the Coalition Government, but we heard that this was challenging to realise. As the Rt Hon Sir Vince Cable told us, “some bits of Government were very well engaged and very positive [ … ] there were, however, bits of Government that did not engage.”106

68.We believe that a better coordinated approach from Government can only be led from the top. The fact that the Prime Minister is chairing the Cabinet Committee on the Economy and Industrial Strategy provides a real opportunity to improve coordination, as does the Secretary of State for Business’s attendance at a significant number of Cabinet Committees. However, many of the pillars outlined in the industrial strategy are discrete responsibilities of particular departments and there is a risk that these are implemented in silos rather than by Government identifying and exploiting potential synergies, trade-offs and linkages.

69.As the Prime Minister’s Chief of Staff, Nick Timothy, has previously commented in the context of Spending Reviews, when allocating resources the Government often makes the assumption that “the baseline for any public spending is broadly right, and officials and Ministers seek to negotiate from there.”107 A similar risk applies to silo-based industrial strategy, where all Government departments are asked to contribute and simply take a business as usual approach rather than more fundamentally questioning how they can more effectively address underlying economic problems. For example, the Chancellor, in Autumn Statement 2016, talked about addressing “the housing challenge”. In February 2017, less than a month after the Green Paper on Industrial Strategy, the Government published its Housing White Paper, ‘Fixing our broken housing market’ and, with the exception of two cursory references, did not link in with collaboration between Government and the construction industry. This demonstrates how industrial strategy does not appear to be a priority for other Whitehall Departments.

70.A number of submissions to our inquiry set out the opportunity for industrial strategy to help the UK adapt to growing automation and digitalisation—the “fourth industrial revolution”.108 While the Green Paper proposes a “review of industrial digitalisation”, potential science and innovation funding for automation, and investment in STEM skills, all of which are welcome, there is little sense of how Government will work together to ensure these efforts are aligned and work together coherently. We take seriously the advice of the former Chancellor of the Exchequer that in order to make industrial strategy something which all departments across Whitehall engage in then “you do need to drive it from the centre.”109 We would suggest that adopting cross-cutting missions could provide a focal point for bringing together activity from across Whitehall and add value in identifying and maximising business opportunities for UK-based firms.

71.We strongly support the Prime Minister’s leadership in chairing the Cabinet Committee on the Economy and Industrial Strategy. It is also a positive indication of intent that the Secretary of State for Business, Energy and Industrial Strategy sits on more Cabinet Committees than any other Cabinet Minister, creating scope for a significant degree of coordination. However, we are conscious that ‘joined-up Government’ has remained an aspiration for many years that too often is unrealised in practice. The recent publication of the new Housing White Paper is a disappointing and early illustration that Whitehall does not appear to be joined up when it comes to industrial strategy.

72.We do not under-estimate the challenge of developing genuine cross-Government framework that can identify and exploit synergies between departmental activities to create fresh policy options and bring greater coherence to policy making, but Government needs to clearly articulate how it intends to address it. We recommend that the Government consider establishing a joint unit bringing together civil servants from BEIS, the Treasury, the Department for Communities and Local Government, and the Department for Education to provide an inter-departmental team to develop and implement the industrial strategy.

Designing strategic interventions

73.As the Institute for Government noted, a “strategy needs to be more than a drawing together of good but unconnected policies though: it needs to be built around a clear mission”.110 The current Secretary of State for Business suggested in evidence to us that even without the additional hurdle of coalition, Government often faces a challenge in being genuinely strategic and that “the word ‘strategy’ tends to be applied pretty liberally to documents and policies in Whitehall.”111 This challenge is borne out by our own analysis of the Productivity Plan, which in our view presented a large basket of disparate policies rather than a considered deployment of specific, strategic interventions. We do not expect Government to shackle every policy to its industrial strategy and nor should Government loosely ascribe the term industrial strategy to any announcement it makes that relates to economic or social policy. As the academic Richard Rumelt has written: “The brilliance of good organization is not in making sure that everything is connected to everything else [ … ] Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination.”112

74.The Industrial Strategy Green Paper does contain a significant number of new commitments (64 out of a total of 106 listed actions), but the remainder are reiterations of previous policy announcements. Furthermore, a number of the new commitments are simply next steps in implementing previous policies or promises to produce more strategies and roadmaps, and several relate to specific investment proposals rather than setting out how future decisions will be guided. This is not necessarily a bad thing: there will never be a ‘Year Zero’ for government, even for a new administration. However, it leaves little if anything that gives a sense of how Government will determine which sectoral “deals” will be prioritised, how decisions on future investment could take into account regional productivity imbalances, or how the Government will determine whether its marginal pound is best spent on improving skills or boosting exports.

75.While clarity on existing commitments is undoubtedly welcome, it sits oddly with us that pre-existing policies have been shoehorned into a new strategy, rather than the strategy setting out design principles that new policies follow on from. We regret that after being seven months in development, the Green Paper does not articulate a more detailed framework for how future decisions will be made. Given that the Government’s recent response to our Report on the Productivity Plan indicates that Plan is still continuing to be implemented, it is also unclear what the relationship between the Productivity Plan and the industrial strategy will be, especially given that the Green Paper makes no mention of the Plan whatsoever. This does not fill us with confidence regarding the Government’s ability to develop coordinated and coherent thinking.

76.Industrial strategy needs to provide a clear framework for how government will make policy choices. Trade-offs will need to be made between where Government spends its marginal pound—for instance, whether that is better invested in skills or in science and innovation or whether it is better invested in London or Leeds. We do not believe that the approach adopted in the Productivity Plan, which was essentially a wide-ranging assortment of loosely connected policies, many of which were pre-existing, is a good model to follow.

Industrial strategy and Brexit

77.Another area where further clarity is needed is on the relationship between the Government’s industrial strategy and its negotiating priorities for leaving the European Union. As Lord Mandelson told us, “Brexit is the elephant in the room in all our discussions about industrial strategy”.113 A number of submissions to our inquiry both highlighted the opportunities and challenges posed, most frequently in relation to concerns over the future of free movement.114 Some commentators have also suggested that negotiations over trade deals could pose challenges for domestic economic and social priorities.115

78.The recent White Paper on the UK’s “exit from and new partnership with the European Union” contains only five references to the new industrial strategy, all of which are in the section relating to science and innovation.116 All of the references relate to existing domestic commitments made in the Industrial Strategy Green Paper. The only clarity given on the future relationship with the EU on science and innovation is that “we would welcome agreement to continue to collaborate with our European partners on major science, research and technology initiatives.”117 The Brexit White Paper refers to “five broad sectors covering the breadth of the UK economy; goods; agriculture, food and fisheries; services; financial services; and energy, transport and communication networks.”118

79.The Government needs to clarify the relationship between its industrial strategy and its strategy for negotiating the UK’s future relationship with the EU. It is unfortunate that the recent White Paper on exiting the EU fails to do this in any meaningful way and reinforces a lack of coordination between the Government’s major challenge and its principal plank of business policy. It is logical for negotiating positions to be shaped and informed by the UK’s industrial strategy.

Building support for a long-term strategy

80.Much of the evidence to our inquiry emphasised the need for Government to work in partnership with business, local government, academia, trade unions and communities in order to develop and deliver its industrial strategy. We fully agree with and support the Secretary of State’s sentiment that it “cannot be a strategy that is simply written behind closed doors.”119 An industrial strategy, in the words of one witness, “is not about doing unto but doing with” industry.120 This is not the same as opening the door to special pleading; proper engagement must involve making conscious efforts to avoid group-think by seeking out diverse views and opinions.

81.It is only through broad and deep collaboration, not only with business but also with trade unions, academics and all interested stakeholders, that the Government can build the lasting support necessary to deliver the long-term industrial strategy that business, Government, and this Committee aspire to see. As the Secretary of State acknowledges, a key test of industrial strategy is the extent to which it “commands the support and the participation of all sectors of the economy, industries” that will enable it to endure.121 We would stress that this cannot only involve business representatives but also needs to build support from trade unions and other economic actors. If industrial strategy is to be a success, it needs to have institutional and cultural pillars which command support and buy-in from relevant groups and which can survive the end of any particular government. Whilst we do not advocate a revival of the corporatist ‘Neddy’, institutions such as the Automotive Council and the Aerospace Growth Partnership demonstrate how industry-Government collaborations can transcend parliaments and provide long-term policy stability for such industries.

82.It is clear that for a strategy to be genuinely long-term, Government will need to build a strong coalition of support for its objectives across economic actors. Failure to do so will critically undermine aspirations for a strategy which lasts longer than a single minister or Parliament.

The challenge of adversarial relationships

83.As part of our inquiry we visited Sweden to learn about the implementation of industrial strategy there. We were struck by the consensus within business, government and unions that the role of industrial strategy is “to protect the sailors not the ship”. Essentially industrial strategy’s purpose was seen as ensuring that people of working age had the support they needed to thrive in the workplace and protection during times of unemployment, while recognising that it was in no-one’s interest to protect jobs at the expense of productivity. Within the UK we heard frank and positive evidence of constructive, collaborative working relationships between business and unions. We heard the CEO of Aston Martin tell us how “unions and manufacturers have a common goal, which is all about longevity of industry in this country and in this region and basically keeping long-term employment.”122 The representative from Unite the Union told us about the progress in industrial relations in the car industry in recent decades.

“There has been trust built up, I believe, in many instances. That does not mean to say that everything in the garden is rosy but the reality is that there is an element of trust and consultation. If you talk to anybody who was in the car industry 30 or 40 years ago, they will say that basically the unions and the employees sometimes deserved each other. That has been said by employers as well.”123

Unfortunately, we can all readily call to mind recent examples where relationships between business and unions do not demonstrate this level of maturity. Likewise, at a political level, robust debate and challenge between political parties is a healthy part of the democratic process, but when political short-termism leads to frequent and disruptive policy changes announced for the sake of expediency then it undermines the effectiveness of Government. As the former Business Secretary, the Rt Hon Sir Vince Cable told us, “Whenever you get new politicians in post, they always want to announce new things. The key thing is the continuity that has underlined the approach.”124 A genuinely long-term strategy will require a balanced policy approach that looks to build wide consensus, focuses on evidence-based policy, and avoids being prone to instability caused by ideologically driven investments or regulatory changes that are unlikely to outlast the political cycle.

84.An adversarial culture, not just in parliamentary politics but in industrial relations, inhibits the possibility of a successful long-term industrial strategy. It is notable that those sectors which have seen success in recent years, particularly aerospace and automotive, have very productive and positive relationships between management and unions. It is crucial that the Government’s industrial strategy sets out strong mechanisms for dialogue and collaboration with businesses (of all sizes) and unions, aimed at facilitating consensual agreement on future policy direction where appropriate. In responding to this Report, the Government should articulate how it plans to establish long-term stability within its industrial strategy.

Engaging across industry

85.With the Government calling on sectors to propose deals, there is a risk that some businesses and sectors, and particularly SMEs and entrepreneurs, are left out in the cold because they are less well equipped to influence Government policy. While supporting a sectoral approach overall, the EEF, for instance, recognised that its implementation under the Coalition Government was not without its challenges: “While economic analysis was produced to support the initial sector choices, the criteria for selection was not seen as sufficiently transparent and some cross cutting technologies and capabilities fell outside the scope of the sector councils.”125

86.Although inviting businesses to develop proposals, ‘bottom-up’ as opposed to defining sectors ‘top-down’ should help mitigate this problem, Government only has a finite amount of time and resource and inevitably it will focus more of its efforts on supporting some “deals” over others. This could mean that sectors and businesses which are able to lobby effectively get the most attention, even if they may not be the best placed to deliver “an economy that works for everyone.” As one submission to our inquiry explained, “A sectoral approach can risk ignoring many sectors to support only a chosen few, which would not tackle structural weaknesses in the economy.”126

87.We agree with the Secretary of State that the industrial strategy must be developed collaboratively with industry but in doing so, the Government must engage widely and not fall prey to group-think or “capture” and must be clear and transparent about the purpose of its engagement. Collaboration must not be based on behind-closed doors deals with specific sectors or groups of sectors that have the strongest lobbying power at the expense of achieving the Government’s long-term economic and social vision. While it is to be expected that some of the UK’s largest employers and most successful companies are able to secure direct access to Ministers, the Government must ensure that industrial strategy does not become a vehicle for acquiescing to special pleading that protects and entrenches incumbents and disregards the need of less established or unified sectors, disrupters, or smaller businesses.

88.The publication of Ministers’ and Permanent Secretaries’ meetings goes some way to providing transparency about lobbying access. However, many decisions and recommendations around policy design and implementation are developed by staff at more junior levels. Furthermore, the lack of a single unified register of meetings makes it hard for members of the public to navigate the data that is published. As set out in the Government’s recently published Digital Transformation Strategy, the internet has the potential to “improve trust between citizens and state” and make government activity “more transparent”.127 A concrete step that could be taken to deliver this would be to transform access to transparency data to make registers of meetings more accessible and to develop a non-bureaucratic way to publish details of meetings with external stakeholders at all levels of the Senior Civil Service. We recommend that the Government improve the transparency of its engagement with business by publishing details of external meetings in a single, searchable database and extending publication to include all meetings that take place at Senior Civil Service level.

89.One of the criticisms of previous industrial strategies is that they have been overly focussed on top tier companies, “assuming that addressing growth and productivity in these key sectors would automatically pull demand through from UK supply chains”.128 It has been suggested to us that the “low visibility” of much of the UK’s supply chain has led to gaps in understanding of the UK’s potential capabilities.129 As we heard from the CEO of Aston Martin, Dr Andy Palmer:

“We rely very much on a supply chain that is offshore. Through the hollowing out of industry through the 1980s we have lost that supply chain and we have to try to bring it back because much of the intellectual property that exists in a car does not exist in the OEM itself, it exists within the supplier. If you do not have that industrial strategy and if you cannot protect the supply the OEM has all sorts of other problems, not least currency exposure in the current climate.”130

90.Future industrial strategy should consider UK supply-chains as a whole, with a view to ensuring that proposals are developed that reach across industry. This is one of the key reasons why we eschew an explicit sector-based industrial strategy, as it fails to capture a lot of the potential of industry’s supply chain, which will operate in different sectors. Large companies can have a huge influence on their supply-chains and Government needs to work more effectively to utilise and leverage this potential influence to achieve productivity gains throughout the economy. A weakness of previous strategies is that they have largely engaged with top-tier companies but not engaged deeper into supply-chains. The Government’s industrial strategy needs to actively ensure that any policy interventions reach throughout the supply-chain.

Simple, accessible, understandable and relevant

91.We were concerned by the evidence we heard that previous industrial strategies had “failed” SMEs by focussing support on large sectors and the UK’s biggest businesses.131 One way that Government can avoid a disproportionate focus on larger businesses and more unified sectors with greater lobbying power is to consciously build consideration of SMEs into business engagement and deals. We welcome the signs in the Industrial Strategy Green Paper that the Government is conscious of this. However, as with many of the themes of the industrial strategy, effectively supporting and engaging with SMEs has been a long-running aspiration for successive governments, but it is unclear how substantial progress has been. It is telling that even some of the UK’s largest companies have explained how it is challenging to engage with Government on business policy:

“The ambition to improve policy-making, responsiveness and economic growth through new structures is a valid approach and positive ambition. However, it can be a challenging and often confusing landscape, requiring significant resource and time to be able to shape and benefit from outputs. We have limited resources and time to attend more meetings, support activities, events and groups, including locally. In an increasingly competitive sector such as automotive this can present a challenge. There must be a clear commitment to minimising bureaucracy and complexity.”132

While devolution deals and the renewed focus on place has been welcomed by many respondents to our inquiry, and do provide the opportunity for local areas to ensure that their business communities are not neglected, there have also been concerns expressed that these could lead to “a complex landscape for business to navigate, especially with the inherently asymmetric nature of devolution which is developing differently across the UK.”133

92.Structural complexity aside, the volume of Government policies can be a challenge for business to understand, even where those policies are designed to offer support. For instance, the GOV.UK website section on “Finance and support for your business” lists 511 available schemes.134 Even though Government does provide some tools to search through for the most relevant schemes, the volume of schemes to investigate alone creates a significant task for time-poor SMEs. Due to the way that funding programmes often have to meet narrowly defined criteria, even local schemes can be both niche and multitudinous, for example Worcestershire alone offers 22 different business support schemes.135

93.In developing its industrial strategy Government needs to pay greater attention to the customer journey for businesses looking to access advice and support. Currently, there is a confusing and complex landscape of policies and interventions designed to support businesses. This has been a long-standing feature of business support from successive well-meaning but ultimately counter-productive actions of successive governments. This approach may benefit from a clear and consistently promoted single point of contact to actively help and support businesses in navigating the support available to them—whether that be at a national level or via regional growth hubs. One of the tests of the success of industrial strategy is whether it is readily understandable, relevant and accessible to SMEs. We recommend that the Government work with industry and local government to conduct a holistic review of the business services and support it offers with a view to simplifying access to advice on these in order to improve the ‘customer journey’.

Pragmatic support, not palliative care

94.It has been said that “Strategy is a system of expedients [ … ] the development of an original leading thought in accordance with the ever-changing circumstances.”136 Ministers inevitably need to respond to changing circumstances, external events and sudden shocks and, despite any amount of good planning, there will always be some ‘unknown unknowns’. Whether it be responding to a crisis in a particular industry or providing the assurances necessary to a leading employer to give them confidence to invest, Ministers will have to make difficult and pragmatic decisions on a regular basis. The key ask from a number of those who submitted evidence to us though is that decisions are made transparently in a way which demonstrates a level playing field. BT’s first principle for developing a successful industrial strategy was that it be “evidence-based, with decisions predicated on open and transparent fact-base and modelling assumptions.”137 One of the reasons why the term industrial strategy had—and continues to have for some—such negative connotations is the examples of the 1970s, when successive governments spent millions of pounds of taxpayers’ money trying to prop up failing industries. This should not be the approach of an industrial strategy for the 21st century, as the Government seems to recognise.

95.The Government needs to retain the flexibility to engage with businesses individually to encourage and support investment in the UK. For instance, we firmly welcome the fact that the Government was able to provide Nissan with assurances that have helped ensure support for tens of thousands of jobs. But such support should be transparent and made within a clear and understandable policy framework.

96.As has been the case with its efforts to support the steel industry, the Government should support industries it considers to be subject to anti-competitive pressures. But support should be in the context of helping industries that are facing challenging economic situations to adapt and thrive sustainably. Industrial strategy must not provide palliative care for failing and obsolete industries. Where industries are unsustainable, the Government’s priority should be to support individual workers, not to prop up particular companies.

56 HM Government, Building our Industrial Strategy: Green Paper, January 2017, p.7

57 Richard Rumelt, Good Strategy/Bad Strategy: The Difference and Why it Matters (London, 2011), p.2

59 As above, p.6

60 EEF (ISG0067)

61 Q86

62 CBI (ISG0133)

63 EEF (ISG0067)

64 BIS Committee, Second Report of Session 2015–16, The Government’s Productivity Plan

67 National Infrastructure Commission, Connected Future, December 2016

68 SSE (ISG0144)

69 Q105

70 CBI (ISG0133)

71 Institute of Economic Affairs (ISG0045)

72 Q302

74 Confederation of British Industry (ISG0133)

75 MasterCard (ISG0044)

76 ICAEW (ISG0183)

77 British Hospitality Association (ISG0073)

78 Confederation of British Industry (ISG0133)

79 Novartis (ISG0077)

80 Q308 [Paul Nowak]

81 Q103 [Professor David Greenwood]

82 Q311 [Professor Mariana Mazzucato]

83 ARM Holdings (ISG0005)

84 Solent Deal Authorities (ISG0010)

85 Unite the Union (ISG0048)

86 ABB (ISG0051)

87 Dell EMC (ISG0043)

88 EEF (ISG0067)

90 Bucks Thames Valley LEP (ISG0092); and England’s Economic Heartland Strategic Alliance (ISG0097)

91 Civil Contractors Association (ISG0008)

92 East Midlands Chamber of Commerce (ISG0039)

93 General Electric (ISG0108)

95 British Property Federation (ISG0042)

96 SPRU (ISG0111)

97 British Chambers of Commerce (ISG0181)

98 Innovate UK (ISG0028)

99 Q295 [Professor Mariana Mazzucato]

101 Government Office for Science, International Industrial Policy Experiences and the Lessons for the UK, 2013 pp.46–7

102 Q54 [Rt Hon Sir George Osborne MP]

103 EEF (ISG0067)

104 Q134 [Dr Hamid Mughal]

105 For example, see Institute of Economic Affairs (ISG0045) and New Economics Foundation (ISG0172)

106 Q5

107 Nick Timothy, ‘Detailed analysis? Strategic planning? Not a bit of it. Let me tell you how a Spending Review really works’, ConservativeHome, November 2015, accessed 8 February 2017

108 For example, SEMTA (ISG0026) and General Electric (ISG0108)

109 Q54

110 Institute for Government, Seven ways for the industrial strategy to succeed, 23 January 2017

111 Q103

112 Richard Rumelt, Good Strategy/Bad Strategy: The Difference and Why it Matters (London, 2011), p.94

113 Q347

114 For example, Balfour Beatty (ISG0164); ICAEW (ISG0183); and Q246 [Kevin Baughan]

115 For example, the Institute for Government’s article, Four uncomfortable truths about a quick-deal on UK–US trade, 16 January 2017

116 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm9417 (February 2017)

117 As above, p.59

118 Ibid, p.39

119 Q104

120 Q221 [Rachel Eade]

121 Q85, Work of the Department 2016–17, 14 December 2016.

122 Q197 [Dr Andy Palmer]

123 Q198 [Tony Burke]

124 Q4

125 EEF (ISG0067)

126 ICAEW (ISG0183)

127 Cabinet Office and Government Digital Service, Government Transformation Strategy, February 2017

128 UK Metals Forum (ISG0035)

129 Manufacturing Technologies Association (ISG0053)

130 Q197

131 Norfolk County Council (ISG0087)

132 General Motors (PEG046)

133 SMMT (PEG047)

136 Helmuth von Moltke, ‘On Strategy’ (1871)

137 BT (ISG0153)

1 March 2017