Tuesday, 30 May 2023

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A bureaucratic tangle has replaced the UK’s industrial policy

A bureaucratic tangle has replaced the UK’s industrial policy

How will we keep our footing in the new gold rush? As investors and manufacturers saddle up and ride out for America, the EU is scrapping over how best to respond to President Joe Biden’s Inflation Reduction and Chips acts. But the UK seems marooned, with ministers shuddering at any mention of “industrial policy”.

You don’t have to have read Friedrich Hayek’s The Road to Serfdom to feel a little nervous about the idea that every nation should have a gun-slinging set of protectionist business incentives. Nevertheless, it’s surreal to have watched UK ministers talking up Britain’s prowess in life sciences and green energy while we slip down the rankings for clinical trials. AstraZeneca is building its new factory in Ireland, carmakers warn Brexit has undermined electric vehicle production and the solar firm Oxford PV says the UK is the “least attractive” place to site a factory.

When the shadow chancellor Rachel Reeves set out a contrasting vision in Washington this week, of an active state working in partnership with the free market, I was amazed she was so restrained. It’s hard to beat America in the subsidy race. But government should at least be clear about its ambitions and help with regulation, intellectual property and infrastructure. The Conservatives’ furtive approach to industrial policy has just sown confusion.

Britain is still haunted by the experience of the 1960s and 1970s, which convinced many Treasury officials and politicians that the best industrial policy is no industrial policy at all. Governments which tried to pick winners ended up backing losers: like the elegant but hopelessly expensive Concorde, of which only 20 were ever made, and the ugly Morris Marina, a car which rusted even in summer. 

Thatcher, Major and Blair largely steered clear of interventionism. It was only during the 2008 financial crisis that Labour developed an “industrial activism”, looking strategically at what might be done to help each sector of the economy. That approach continued through the coalition, which backed economic “clusters” like the Northern Powerhouse, and into the May government, which championed an official industrial policy. Memorably described by then Tory backbencher Kwasi Kwarteng as a “pudding without a theme”, it was too sweeping. But by scrapping it as business secretary, Kwarteng lost the Industrial Strategy Council, which could have audited what worked, and the Industrial Strategy Challenge Fund,…

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