Industrial strategy is back in fashion. As part of the emerging subsidy war between the US and EU both sides have launched charm offensives to global investors, each seeking to secure their position in the competition for 21st-century industrial superiority. Hundreds of thousands of high-paying jobs are poised to be created across the US rust belt, particularly in manufacturing and the green economy, as companies have already committed more than $200bn to manufacturing projects alone. In response, the EU has hurried to forge a consensus around its plans to enhance its own economic security – namely the European Sovereignty Fund, and the Green Deal Industrial Plan.
Industrial strategy may be in vogue, but the UK remains hesitant. Attempts to woo business leaders are not going to plan. The launch of Rishi Sunak’s new “Business Connect” forum last month felt second order to the frenzy of firms quitting the scandal-hit Confederation of British Industry (CBI). Since then, Microsoft’s president has lambasted the Competition and Markets Authority (CMA) for blocking its bid to acquire the video game giant Activision, stating that “the European Union is a more attractive place to start a business than the United Kingdom”. The manufacturing company Unipart said last month that it is considering its investments in the US and Europe, citing generous subsidies under President Biden’s Inflation Reduction Act and the EU’s Net Zero Industry Act.
It’s hardly surprising that businesses aren’t queueing up to invest here. The UK deserted its industrial strategy in 2019 to make way for Boris Johnson‘s levelling up agenda, yet so far this has amounted to little more than a few small-scale local projects, with only 9 per cent of the modest Levelling Up Fund spent so far. This stands in stark contrast to Joe Biden’s Inflation Reduction Act (IRA), worth around $500bn, which targets public investment particularly towards America’s “left behind” communities. It seeks to “catalyse innovative investments across cities and towns that haven’t seen such investment in years”, according to Janet Yellen, the US Treasury secretary. The early signs suggest that this approach is working.
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If the UK wants to stay in the global race and deliver investment and growth to our own lagging local economies, we need to take a similar approach to our competitors. Our new report at the Centre for Progressive Policy, Open for Business, sets out a blueprint for how such an industrial strategy for the UK might look.
Our analysis highlights 72 “left behind areas” – mainly towns, rural, and coastal areas – that already contain pockets of high-potential, highly productive industry, that through greater nurturing could be the driving force behind economic renewal for these areas. Incuded in this list is Boston, Scarborough, Stroud, Newport, Burnley, the Scottish Borders and Stoke-on-Trent. Over 80 per cent of the opportunities in those areas lie in manufacturing industries, but there are other sectors, too, such as ICT and civil engineering. We estimate that increased business investment in line with their potential could boost the UK economy by £70bn – equivalent to around 3.8 per cent of our economic output.
A new manufacturing mission should be the backbone of a new industrial strategy. It should focus explicitly on productivity in manufacturing firms in left behind areas, particularly driving up the adoption of digital technology and other productivity-enhancing products, as well as supporting their decarbonisation, and increasing adoption of greener practices.
Many firms struggle to access the finance needed to invest in productivity-enhancing technology, particularly in more rural and peripheral urban areas. We therefore propose a new programme of what we call “Regional Co-Investment Funds”, based across the UK. These funds could be developed through collaboration between the British Business Bank, the UK Infrastructure Bank, private lenders, and local government, and would seek to equalise access to finance across places, catalyse private investment in local industries, and support higher levels investment in regional development activities and infrastructure, particularly in transport and digital connectivity, and energy security.
If the UK is to compete on the global stage, it needs a bold, innovative industrial strategy. Not only will it keep us in the race, it is also a golden opportunity to breathe new life into the UK’s long-neglected areas, empower forgotten communities and foster economic growth and innovation from the bottom up. It is a challenge. But one that we can, and should, rise up to.
This article was updated on 11 May to reflect that Unipart is not considering a move out of the UK
[See also: Building the business case for growth]