Growth Commission verdict on the Government’s Modern Industrial Strategy

72 hours after the dust has settled on the publication of the Government’s Modern Industrial Strategy white paper, experts from The Growth Commission today give their verdict on the proposals contained in the 160-page document.

Douglas McWilliams, Growth Commission member and Founder of the Centre for Economics and Business Research, observes:

“Governments of all colours have an historic record of major failure in implementing industrial strategies. I have been involved with or observed every one since the mid-1970s and not one has worked. Partly this is endemic – there are fewer spillover benefits than governments like to assume – but it is partly to do with the culture of Whitehall. In general it’s hard for governments to boost GDP per capita, but surprisingly easy for them to reduce it.

“The one policy in this new strategy that looks halfway sensible is cheaper electricity for intensive users. But why not simply abandon the flawed Net Zero strategy and replace it with the Growth Commission’s ‘Smart Net Zero’ approach? Imposing a costly and uneconomic energy policy and to then only subsidise intensive users is surely the worst of all worlds.

“The UK has had two areas of particular industrial success in the last quarter of a century: the flat white economy and life sciences, each of which offers contrasting lessons. The flat white economy succeeded with no government support (maybe in fact because of that lack of intervention). Life sciences, meanwhile, have been much more intensively linked with government and the NHS in particular – so much so that access to the NHS is part of the Trump trade deal.

“The most important thing that any government can do to help industry is to stop doing the more stupid things it has done or is doing that will hinder its growth and success. This is why The Growth Commission continues to urge a rethink in a number of areas being pursued by the current Government, including – but not limited to – the job-destroying Employment Rights Bill; the pursuit of Net Zero; the abolition of non-dom status and increases in taxes on capital; its anti-car policies; and the proposed Carbon Border Adjustment Mechanism. Taken together, these policies reduce GDP by about 20%. No government industrial policy could ever hope to offset that.”

Srinivasa Rangan, Growth Commission member and Luksic Chair Professor of Global Studies at Babson College in Massachusetts, says:

“The best industrial policy an advanced country like the UK can pursue is an indirect one whereby entrepreneurs are not held back or hobbled. Judged by that critical criterion, the British Government’s new industrial policy is largely a smorgasbord of the unnecessary, the poorly reasoned and the crucial.

“For starters, it unnecessarily proposes expanded access to finance. Is there a market failure in financial markets in the UK? Of course not: Britain is home to one of the world’s premier capital markets.

“In the poorly reasoned category comes the recognition that access to global talent is vital for entrepreneurs before then veering off into talk about visas instead of recognising the need to allow talented foreign students to come to the world-class British universities and do leading edge research.

“What is crucial is the commitment to promote free trade and lower regulatory burdens since both help entrepreneurs to succeed in the marketplace. In sum, like the proverbial curate’s egg, the paper is good in parts, yet those parts are few in number and need more elaboration.

“The best approach for the British Government would be to focus on a few vital areas to help entrepreneurs, abandon its penchant to intervene heavily in the economy and avoid political favouritism in the allocation of scarce resources.”

Shanker Singham, Chairman of The Growth Commission, concludes:

“As has often been the case with this Government since it took office last summer, there is much in its pro-growth rhetoric to welcome, but the devil will be in the detail of its delivery.

“Reduction of regulatory burdens and an enhanced role for the Regulatory Innovation Office are welcome, but only if they are focused on the competition effects of anti-competitive regulation – not just business compliance costs.

“Likewise, the removal of planning barriers is to be applauded if it can be delivered, while full expensing and at least a cap on the corporate tax rate is welcome, although we have been clear that we would like it brought down. Similarly, we welcome support for freeports and investment zones, but these actually have to be capital attractors and so far the progress on them has been lamentably slow.

“The desire to bring in more private capital and investment is at odds with the heavy government role of the British Business Bank and National Wealth Fund, which will tend to crowd out the private sector and skew investment decisions.

“The Growth Commission has previously set out the economic folly of adopting a Carbon Border Adjustment Mechanism (CBAM), yet the Government has not only ignored our concerns, but now seems to be doubling down on linking the UK and EU Emissions Trading Schemes – at a time when the CBAM appears to be on the table in talks between the EU and U.S.

“Since the CBAM effectively takes six products out of our customs tariff (and into an EU version of our tariff), with 32 products in the pipeline, this will have a negative impact on our external trade policy. We can already see the beginnings of this loss of independence as the U.S. is negotiating Sanitary and Phytosanitary measures and CBAM only with the EU, knowing the UK will simply have to follow suit.”