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Au revoir to laissez faire: A Modern Industrial Strategy

The Government has prioritised its Modern Industrial Strategy (MIS) ahead of the much-awaited and delayed Housing White Paper.

Overview

The Government has prioritised its Modern Industrial Strategy (MIS) ahead of the much-awaited and delayed Housing White Paper. What we have in the MIS is a more interventionist approach than we have seen in recent decades. It is very much a case of “so long” and “au revoir” to Mr Javid’s laissez faire approach to industrial development.

The new strategy has the hallmarks of a more interventionist Government directing investment and support to specific business sectors where we have an existing strength. Alongside this it seeks to achieve a difficult balance with widening opportunities for people across the country, no matter where they live. There is an inherent tension in these two competing objectives and it is not fully resolved in the strategy.

The strategy is surreptitiously “spatial”. It targets cash and support to specific locations. This could very helpfully form one component of a spatial plan for England, alongside the ongoing work of the National Infrastructure Commission on housing growth locations and infrastructure provision. We suspect, however, that this joined up approach to planning for the country would be a step too far for the Government at this time.

Irrespective of the distributional effects of the strategy, what we do have is greater clarity on the sectors, locations and types of activity that will be supported by the Government. This is a step in the right direction.

Silent on planning

The strategy is silent on the role that the planning system can play as an enabler of industrial development. This is conspicuously different to the forthcoming Housing White Paper which is anticipated to recognise the link between the planning system and provision of new homes.

It is somewhat disappointing that the Government hasn’t realised the relationship between the planning system and industrial development also exists.

Planning is more than a regulatory system. The planning system can create a positive environment for business investment and plan to accommodate future business growth and needs. Local Plans should enable investment and give businesses the confidence to invest. In our experience, the extent to which they do this is highly variable.

The Industrial Strategy could have done more to ensure that positive planning does occur. For example it could have specifically mandated local authorities and LEPs to revisit the economic evidence which underpins Local Plans and to ensure that the supply of land is sufficient and in the right locations to support business needs.

In our view the Government has missed a trick in omitting to recognise the role of positive planning in the country’s Modern Industrial Strategy.

Ten pillars

The strategy is based on ten pillars which are summarised in Figure 1.

Figure 1: Ten pillars of the strategy

Figure 1: Ten pillars of the strategy

Cultivating world-leading sectors

The Modern Industrial Strategy focuses support and investment on a number of key sectors. It offers “sector deals” which offer support in addressing regulatory barriers, and use of trade and investment deals among other measures to support specific sectors. Early work on sector deals relate to:

  • Life sciences
  • Ultra low-carbon emission vehicles
  • Industrial digitisation
  • Creative industries
  • Nuclear

The Government does not consider this to be an exhaustive list, but clearly signals support for those sectors in which the country can demonstrate competitive advantage on a global stage.

Infrastructure and housing

The strategy recognises the role infrastructure plays in supporting business growth and investment. Accordingly the strategy includes measures to improve digital, energy, water, flood defence and transport infrastructure. Support for key road investments such as the M60 North West Quadrant, the A303 Stonehenge route, the Oxford to Cambridge Expressway and the Lower Thames Crossing all feature. The Government also commits to using “additional infrastructure funding to unlock growth” and to allow coordination of local economic plans with infrastructure investment.

The strategy also cross references the £2.3 billion Housing Infrastructure Fund (previously announced in the Autumn Statement 2016), the £1.7 billion Accelerated Construction programme (previously announced) and £1.1 billion funding to address local travel bottlenecks. It is not clear to what extent additional transport infrastructure investment will be required to support delivery of the Industrial Strategy. The strategy contains no further announcements about housing delivery, rather deferring to the forthcoming Housing White Paper.

Driving growth across the whole country?

At the heart of the Industrial Strategy is the Prime Minister’s desire to ensure that “…more people in all corners of the country share in the benefits of its success”.

Any strategy which prioritises sectors is going to have a different impact according to location, the presence of sectors and their size and strength in a given locality. The strategy does not overtly acknowledge this inconvenient truth.

The Government has sought to widen opportunity for participation in the labour market by young people by overhauling the provision of technical education. This includes a £170 million fund for regionally-based Institutes of Technology. This investment will help to ensure that the 50% of school leavers who currently do not go on to university are equipped with the skills needed by industry and local employers.

However, the sector-based focus will inherently be biased towards specific regions in our view. There are a long list of sectors which are not prioritised but which play a critical role in providing opportunities for employment, training and progression for a wide cross section of the labour market. Logistics is one such example of a dynamic sector that provides entry level jobs and a range of career opportunities. Sectors such as logistics are not catered for by the Government’s new strategy and yet can also support the broadening of opportunities out to some locations less likely to be the focus of Government investment, given the changes we are seeing within the sector.

Some more direct attempts have been made within the strategy to support specific projects that can help to boost growth and reduce regional disparity. For example the strategy announces a £556 million investment in the Northern Powerhouse (see Figure 2 for distribution of investment by LEP area). The funding awarded is clearly skewed towards LEPs in the North West of England, for example £258 million allocated to the North West compared to £71.5 million investment in the North East. This may inadvertently widen existing economic differences between the west and east of the Powerhouse.

The extent to which the award of funding and the prioritisation of sectors will benefit “all corners of the county” as the Prime Minister has promised, remains to be seen.

The total scale of investment to LEPs and regions is clearly not sufficient in itself to address regional inequalities, and more investment is needed if the infamous North South productivity gap is to be improved.

Figure 2: Distribution of investment

Figure 2: Distribution of investment

Making sense of it all

The Modern Industrial Strategy is a step in the right direction. It provides more clarity on the sectors, locations and activities that the Government will support. However in our view it is inevitable that this targeted approach will have different effects in different places. This is a fact that is not acknowledged in the strategy. The Government insists that it will provide opportunities for all.

We are also concerned that the strategy omits any reference to the role of the planning system in delivering growth. More should be done to ensure that land supply for business keeps pace with demand and that Local Plans are positively prepared to meet the needs of growing businesses. Unfortunately this is not always the case in practice to the detriment of economic growth and prosperity.

23 January 2017