Industrial Strategy: First Review Contents

Conclusions and recommendations

A new vision for our economy

1.In recognising the extent to which economic growth has failed to trickle down to many households and describing the causes of our poor productivity, the Government has provided a compelling argument for change. The Green Paper outlines deeply embedded weaknesses within the UK’s economy that have remained unresolved by successive governments. The UK’s headline economic success in recent decades has been felt by too few and its foundations are shallow. As a country, we have not invested enough in infrastructure or innovation, and our skills-levels remain poor despite significant spending. Too many people in too many parts of the country have not felt the benefits of growth. (Paragraph 16)

2.We strongly welcome and endorse the Prime Minister’s aspiration of “an economy that works for everyone”. The ultimate test of Government’s success in delivering this will be whether we see increased living standards across society and a reversal in the trend of widening gaps in the distribution of income and wealth. (Paragraph 17)

3.We agree with the Government’s vision that we should aspire towards an economy which is more productive and where the benefits of growth are felt more evenly throughout the UK. To this we would add that a further objective should be to ensure that the UK economy is fit to face the global challenges and opportunities of our age such as: the technological changes brought about through the fourth industrial revolution, and the challenges these will present for the labour market; changing demographics and an ageing population; and, the pressing need for decarbonisation. (Paragraph 18)

4.Successive governments over many decades have correctly identified long-term challenges and weaknesses within the UK’s economy on matters like poor productivity, skills deficiencies, inadequate investment on infrastructure and low spending on research and development. However, few administrations have had unqualified successes and many have spent huge amounts of taxpayers money in failing to address these weaknesses. While the Prime Minister’s rhetoric suggests an intention to approach this with a welcome and renewed vigour, the incremental proposals outlined in the Green Paper leave us sceptical about whether the fresh thinking or political will is present across Government to deliver the Prime Minister’s objectives. (Paragraph 19)

5.An explicit industrial strategy recognises that many Government policies inherently have an impact on the different sectors, nations and regions that comprise the UK’s economy. We have a choice as to whether these policies are implemented in an incoherent, ad hoc manner or work together toward a clear vision of the kind of economy we want. As the Prime Minister has recognised, an industrial strategy can provide a ‘practical and proactive’ framework for government intervention that can help address our economic weaknesses and ensure that our economy works for everyone. (Paragraph 29)

Principles for an effective industrial strategy

6.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. (Paragraph 37)

7.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:

8.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. (Paragraph 43)

9.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.” (Paragraph 48)

10.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. (Paragraph 54)

11.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. (Paragraph 55)

12.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. (Paragraph 57)

13.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. (Paragraph 63)

14.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. (Paragraph 64)

15.“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. (Paragraph 65)

16.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. (Paragraph 71)

17.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. (Paragraph 72)

18.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. (Paragraph 76)

19.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. (Paragraph 79)

20.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. (Paragraph 82)

21.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. (Paragraph 84)

22.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. (Paragraph 87)

23.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. (Paragraph 88)

24.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. (Paragraph 90)

25.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’. (Paragraph 93)

26.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. (Paragraph 95)

27.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. (Paragraph 96)

Horizontal policy pillars

28.We agree with the Secretary of State’s assessment that the UK needs to do more to commercialise its world-class R&D base and welcome commitments to do so. Catapult Centres are a promising model for public–private collaboration and we urge Government to allow them time to grow and avoid unnecessary tinkering. We also welcome evidence that universities are increasing their focus on commercialising their research; this should continue to be encouraged and supported. (Paragraph 99)

29.We are disappointed that the Government’s response to our Report on the Productivity Plan did not accept our recommendation to set a target of increasing public and private R&D investment to 3 per cent of GDP. (Paragraph 102)

30.We repeat our previous recommendation that the Government should set a target to increase R&D investment to 3 per cent of GDP and implement policies to achieve it. (Paragraph 103)

31.As part of its review of the tax environment for R&D, the Government should not shy away from ambitious measures to ensure additionality. (Paragraph 106)

32.In line with the Secretary of State’s stated aim to support disruptors and economic innovation, we recommend that the Government review with industry whether additional steps are needed to provide regulatory certainty for emerging business models. (Paragraph 111)

33.A skilled workforce is an essential foundation of economic success. Given the weaknesses identified by the Government in the UK’s skills base, the proposals contained in the industrial strategy Green Paper leave much to be desired. After six months in development we expected more than a disappointing combination of re-announcements, continuations of existing policy, and vague aspirations. It is deeply disappointing that the Green Paper fails to outline any detailed proposals for discussion in relation to encouraging the uptake of STEM subjects, and improving the skills of those already of working age. These will need to be addressed far more comprehensively in the White Paper. We welcome commitment to a proper system of technical education, linked to local needs, but it is unclear how this actually goes beyond proposals contained in the previous Productivity Plan. The Government needs to set out more detail about how it will achieve parity of esteem between vocational and academic training in practice. (Paragraph 115)

34.We recommend that the Government consider the potential for greater devolution of responsibility and funding for skills to local authorities and Local Enterprise Partnerships, who are well placed to work to identify regional needs and design appropriate solutions. (Paragraph 117)

35.In the context of negotiations over free-movement as part of withdrawal from the EU, Government must ensure that businesses continue to be able to access the skills they need. In its response to our Report, the Government should provide further clarity on how it intends to do this. (Paragraph 121)

36.We recommend that the Government exclude university students from immigration totals and promote high skilled migration to the UK on an equal “who contributes most” basis to people wishing to invest and innovate in the UK. (Paragraph 122)

37.We presume that the Government has always prioritised “the highest value-for-money projects”. Given this, we would welcome clarity on how its approach will differ in the future to better support rebalancing. (Paragraph 126)

38.The decision not to place the National Infrastructure Commission on a statutory footing risks creating the impression that the Government is not backing up its aspiration for a long-term policy framework with action that will help embed that. (Paragraph 128)

39.We are surprised that the National Infrastructure Commission gets little prominence in the industrial strategy and it is unclear how the questions in the Green Paper are intended to complement the Commission’s own call for evidence. For example, has the Commission been asked to prioritise rebalancing in its assessment of the country’s infrastructure requirements? We would welcome clarification from the Government. (Paragraph 129)

40.The problem of impatient capital and the UK’s poor track-record on scale-up have been subject to a number of reviews in recent years. We welcome the fact that Government is taking this issue seriously and look forward to seeing the review followed by meaningful action. We will also continue to consider this issue as part of our inquiry into Corporate Governance and a new inquiry into Scale-Up. (Paragraph 131)

41.Evidence on the impact of Growth Hubs is mixed. In its response to this Report, Government should set out how it intends to evaluate the impact of current funding in order to determine what needs to be done to support Growth Hubs to provide a better service in the future. (Paragraph 133)

42.Fiscal levers can play a key role in shaping business behaviour. We recommend that Government commission an independent review bringing together broad representation to consider whether taxation levers can better be used to boost investment in physical and human capital, research and innovation. (Paragraph 136)

43.We recommend that the Government conduct a fundamental review of the outdated structure of the business rates system, given that it acts as a disincentive to investment regardless of who is responsible for setting the overall rate. (Paragraph 138)

44.We welcome the fact that the Government is considering opportunities to better utilise public procurement to maximise economic opportunity for UK firms, and it should make greater use of flexibility in existing state aid rules prior to our departure from the European Union. The Government should also consider the opportunities to further boost procurement from within the UK as part of its negotiating strategy for withdrawal from the EU. (Paragraph 140)

45.We welcome the review of the Small Business Research Initiative that the Government has commissioned; we hope this will be ambitious in its recommendations and that the Government will increase the scale of the scheme and better embed it across Whitehall. (Paragraph 142)

46.Given the Prime Minister’s previous comments about foreign takeovers, the Government needs to provide much greater clarity and certainty as to what steps it intends to take to intervene in foreign takeover deals and in what circumstances. (Paragraph 150)

47.We recommend that the Government takes steps to ensure it has the power to retain IP benefits in the UK in the event of a foreign takeover where a business has been supported in developing new IP through taking advantage of taxpayer funding or tax-incentives. At the very least, it should ensure that any transfer of IP delivers a substantial return for taxpayers. This could be done, for instance, by placing constraints on access to funding and incentives. The Government should also develop mechanisms to clawback any tax relief or funding should tax-payer subsidised IP be transferred abroad. (Paragraph 152)

48.While we welcome the industrial strategy’s support for energy innovators, taking advantage of the economic opportunities presented by decarbonisation also means ensuring the UK continues to be seen as a world-leader in the transition to a low-carbon economy. In this context, we trust that the Government will publish its Emissions Reduction Plan by the end of March 2017, as indicated to us by the Minister of State for Climate Change and Industry. The Government needs to ensure that the Emissions Reduction Plan and industrial strategy are coherent and consistent, with commitments in the industrial strategy to actively support delivery of current and future carbon budgets. (Paragraph 156)

Rebalancing our economy

49.The Committee welcomes the positive signs that the Government will look to work closely in collaboration with the UK’s various national, local and regional governments in developing its industrial strategy. Where additional powers are devolved, the Government needs to ensure that appropriate funding is also devolved. (Paragraph 162)

50.While variations in perceived performance of Local Enterprise Partnerships are to be expected—that is part and parcel of devolution—the Government has a role in supporting and multiplying best practice. Given the prevalence of concerns and low awareness of LEPs, as well as fiscal constraints, the Government should review LEPs to ensure that needless duplication is avoided, best practice is shared, and value for money is secured. This should include ensuring governance and accountability frameworks are fit for purpose. (Paragraph 163)

51.The Government needs to provide clarity on the respective roles and responsibilities between national, local and regional institutions. Failure to do so will lead to unnecessary complexity and confusion for business and reduce accountability to the electorate. In partnership with business representatives, local government and the devolved administrations, the Government should consider whether any further steps are desirable to facilitate businesses in understanding and navigating different tiers of devolution. While many services may best be designed at a local level, the Government needs to ensure that it avoids creating barriers to cooperation between local institutions or inadvertently introducing perverse incentives that lead to needless and inefficient duplication of services. (Paragraph 167)

52.We recommend that the Government set out a clear plan to close per head spending gap on infrastructure, R&D and education between London and the rest of England. (Paragraph 170)

53.While the Government is experimenting more with fiscal devolution, such as the planned devolution of powers to set business rates, it is notable that the Industrial Strategy Green Paper is broadly silent on the potential for further fiscal devolution. (Paragraph 172)

54.While recognising the importance of the services sector, and the UK’s comparative economic advantage, supporting industries which produce goods, technology, and innovation, will help boost productivity and create high-quality jobs. We welcome signs that the Government recognises the value of rebalancing our economy in this way. (Paragraph 177)



1 March 2017