In choosing to place Industrial Strategy within the title for the latest rebranding of Whitehall’s business department, the Prime Minister set her Government apart from her predecessors, who refused to embrace the term. The Department for Business, Energy and Industrial Strategy published its plans for British businesses in November 2017. Among its five foundations of productivity and four cross-cutting grand challenges, were proposals for a new type of Government intervention: sector deals to support productivity growth in specific industries.
Sector deals were launched with four industries already having been able to negotiate a settlement with the Government. While no new money from the Government was officially available, those sectors that managed an early deal found that existing funds could be repurposed to meet the challenges that Ministers had decided were a priority. The construction sector, on which we focused part of our inquiry, struggles with low productivity and a potentially unsustainable business model. The Government’s decision to support it with an early sector deal reflects its scale of operations within the UK, including for the public sector, and the need for a coming together of an often fragmented and dysfunctional sector, for it to remain sustainable. We found that despite this deal, funding promised from Government has been slow to appear, an issue beginning to affect other sector deals. We recommend that the Government prioritises releasing this funding and ensuring all its sector deal commitments are met. There is no point in the Government and businesses announcing sector deals if they are not then carried out, failing to realise the potential economic benefits.
We found that other sectors that have sought a deal have not shared the success of the construction sector. The steel industry presented a united front and a set of ambitious proposals to the Government, only to be rebuffed. Meanwhile, the Industrial Strategy promised to work with low productivity sectors, such as retail and hospitality, with the potential for even small productivity gains across people-heavy sectors having a significant beneficial impact on the UK’s overall productivity. Yet we found that so far neither the retail nor hospitality sector has been able to make significant progress on securing a sector deal of their own, with the Government seemingly focused on sectors in which R&D investment rather than policy changes can make an achievable difference. We recommend that the Government be more transparent on the sectors with which it is willing to do a deal, and if it is to honour its ‘open door’ offer to industry, should reengage with those sectors currently left behind.
Even those sectors that have managed to secure a deal, such as offshore wind, have found the process for negotiating and agreeing a deal to be difficult and opaque. We found that the criteria for deals are vague and the decisions are subject to delay in Whitehall. We recommend that the criteria are made clearer and more closely align with the foundations of productivity that are meant to underpin the Industrial Strategy. The Government has also set artificial barriers in who can negotiate a deal. They require an identifiable leader for each sector but have refused to engage directly with trade bodies. They require sector councils but lack consistency on who they should actually represent, leaving workers and small businesses in the dark. We recommend that the Government engages fully with trade bodies and makes sector councils representative of the breadth of the industries that they are meant to represent.
Cross-cutting policies may have a more significant long-term impact than sector deals by dealing with challenges that extend beyond industry classifications. However, while the Government and business continue to pursue deals, we found that more should be done to ensure that the Industrial Strategy is used as a lever to support diversity in industries, support innovation through Catapults, and deliver across the UK. We recommend that the Government do more to ensure that any benefits of the Industrial Strategy and sector deals are shared across the UK rather than focusing almost entirely on London and the South East. BEIS itself needs to lead by example, and we recommend they end their London-centric approach on policy to recruitment.
Solving the UK’s productivity puzzle and reducing the ‘long tail’ of low productivity businesses would have an enormous impact on the UK economy. It is too early to tell what impact the Industrial Strategy and sector deals will have on this challenge, but we welcome that the Government has finally established an Industrial Strategy Council to measure success and make recommendations to the Government. We recommend that the Council includes sector deals as part of its scrutiny of the Government, and we look forward to engaging with them as they begin their work.
Published: 19 March 2019