Industrial Strategy: Building a Britain Fit for the Future

  • By David Arnold and Jenny Gulliford

The Government’s Industrial Strategy White Paper aims to help build growth into the UK’s economy as it leaves the European Union. The Strategy hopes to establish better, higher-paid jobs in every part of the UK through investment in the skills, industries and infrastructure of the future. 

Background

The Strategy promotes a framework for industrial strategy across all sectors, and acknowledges a set of four Grand Challenges for the UK that must be addressed: 
  1. Put the UK at the forefront of the artificial intelligence and data revolution
  2. Maximise the advantages for UK industry from the global shift to clean growth
  3. Become a world leader in shaping the future of mobility
  4. Harness the power of innovation to help meet the needs of an ageing population.
 
The Strategy sets out a series foundations of productivity to address these challenges. These five foundations align together to produce a vision for a transformed UK economy, based around:
  • Ideas: investment in Research and Development (R&D) to increase innovation.
  • People: a new technical education system, including more investment in STEM and a new National Retraining Scheme, to create good jobs and greater earning power for all.
  • Infrastructure: increased investment and major upgrades for the UK’s physical, green and digital infrastructure.
  • Business Environment: new Sector Deals between Government and industries to increase productivity and make the UK a better place to start and grow a business. 
  • Places: long-term local industrial strategies led by Combined Authorities (CAs) and Local Enterprise Partnerships (LEPs) to develop prosperous UK communities. 
Devolution and Growth deals as well as streamlined decentralised governance are referenced as methods to drive productivity across the UK. The Strategy’s recognition that the UK is one of the most centralised countries in the world suggests that devolution should be a primary mechanism for delivering components of the strategy in cities like London. 

Analysis

Ideas
Through the Industrial Strategy the Government aims to make the UK the most innovative country in the world, and commits to tackling regional barriers to innovation. The Strategy argues that public spending should be used to stimulate, not replace, funding from other sources. Supporting business and organisations to turn ideas in to commercial practice will be a key part of this, with innovation and funding focused on the four ‘grand challenges’.

The Strategy sets out a number of new funding opportunities as part of its long term commitment to raise total R&D investment to 2.4 per cent of GDP by 2027 – equivalent to an additional £7billion over the next five years. Government will work with industry to develop a roadmap to deliver this change, with a framework for business investment. This focuses on existing growth sectors. 

A key announcement of relevance to Local Authorities is the launch of the new competitive £115 million Strength in Places Fund. The fund will support collaborative programmes based on research and innovation excellence in places right across the UK which can demonstrate a strong impact on local productivity and enhance collaboration between universities, research organisations, businesses, local government and LEPs in England and relevant agencies in the devolved nations. This will link to local industrial strategies. The Government and UK Research and Innovation will evaluate these in 2021 to see how they are working and consider further scaling up.

Other key recommendations include commitments to:
  • Increase the rate of R&D tax credit to 12 per cent.
  • Increase awareness among SMEs of the R&D tax credits.
  • Invest £725 million in second wave of the new Industrial Strategy Challenge Fund programmes to capture the value of innovation. 
  • Provide £300 million over three years to develop and bring in talent to the UK – through schemes such as knowledge transfer partnerships and PHD programmes. 
  • Make it easier to finance innovation through activity such as increased funding for the business bank and a new investment fund. 
  • Improve the role of public procurement as a source of finance for innovative businesses. 
  • Add a further £725 million in the Industrial Strategy Challenge Fund over the next four years. 

People
The Strategy argues that the UK, despite its high employment levels, continues to experience challenges in meeting its business needs for talents, skills and labour. A lack of people who are highly skilled in STEM topics is identified as a key concern. It argues that low skill levels are the main driver of poor productivity in the UK.  

In order to tackle this, the Strategy commits to establishing a technical education system that rivals the best in the world,  a new National Retraining Scheme, and increasing investment in maths, digital and technical education.

Focus on improving maths: The Government identified poor basic maths skills as a key challenge, noting that the UK sits far behind other developed countries on this issue. Steps to address this will include new £40 million Further Education Centres of Excellence to build teaching capacity and spread best practice. Schools will be encouraged to do more, with the Government providing a £600 premium on top of existing per pupil funding rates for each additional student who takes maths or further maths at AS/A level or core maths. Other announcements include the expansion of the ‘Teaching for Mastery’ maths programme and the provision of £350,000 annual funding for every maths school to deliver the specialist maths school model.

Developing digital and technical skills: Addressing the four ‘grand challenges’ and making sure that the UK remains at the forefront of technological innovation requires a highly skilled population. To do this the Strategy sets out that the Government will:
  • Introduce a new entitlement for adults who lack core digital skills to access specified basic digital skills training free of charge. 
  • Invest £84 million over the next five years to deliver a comprehensive programme to improve the teaching of computing and drive up participation in computer science
    • Upskilling computer science teachers
    • New National Centre for Computing Education
    • New Institute for Coding 
  • Promote local Digital Skills Partnerships that will increase collaboration between public, private and charity sector organisations and help address local digital skills needs in more targeted and innovative ways.
Tackling regional differences: Addressing regional differences in skills and educational achievements will be vital to boost earning power among all UK citizens, and the recent skills strategy is explicitly linked with the Industrial Strategy in the paper. Key announcements include:
  • The devolution of the Adult Education Budget to all Mayoral areas in 2019. 
  • The roll out of Skills Advisory Panels. These will be integrated with the Mayoral CAs and the LEPs to inform the analysis that feeds in to the local industrial strategies. 

Lifelong learning: The UK’s skills challenges and ageing population mean that a system which allows people to learn and train throughout their lives is required. To achieve this, the Strategy proposes the introduction of a National Retraining Programme which will be in place by the end of this Parliament. Initial roll out will focus on tackling skills shortages in two key sectors – digital and skills. Its work will be informed by a high level advisory group that brings together government, businesses and workers through the CBI and the TUC. Other announcements include:

  • £40 million will be set aside in the Spring Budget to test innovative approaches to helping adults up-skill and re-skill. The pilots will help us learn more about how to support and incentivise adults to learn skills that will help them, their local economies and national productivity.
  • Future pilots testing other barriers to adults’ learning will be announced in due course. 
  • £34 million to expand innovative construction training programmes focused on supporting the country’s housing needs. 
  • The publication of a comprehensive careers strategy – this will build on the Careers Enterprise Company. It will aim to increase encounters between business, young people and the National Careers Service and improve the quality of careers advice in schools. The strategy was published shortly after the Industrial Strategy. There will be a separate member briefing on this strategy.

Infrastructure
The Strategy provides for increased National Productivity Investment Funding (NPIF) towards transport, housing and digital infrastructure. It is hoped that the continued strengthening of local decision-making on new infrastructure through local industrial strategies will make the most of places’ strengths and abilities to support local, high-value infrastructure projects. The Strategy commits £11.5 billion of the £31 billion NPIF to housing, £7.1 billion to R&D, £4.9 billion to transport, and £700 million to digital infrastructure, in addition to a £400 million investment in electric vehicle charging infrastructure plus an extra £100 million for the Plug-In car grant.

Improved transport networks that support housing supply will be delivered through a £1.7 billion Transforming Cities Fund. Half of this funding will be allocated through a competition for transport projects in cities, with the remainder allocated to the six CAs with elected metro Mayors. 

There will be £5 million to develop a Digital Railway upgrade on the South East and East London lines, alongside existing funding to develop an upgrade to the Moorgate branch. £300 million will be invested to ensure High Speed 2 (HS2) infrastructure can accommodate future Northern Powerhouse and Midlands’ services. 25,000 jobs will be supported by the construction of HS2, including up to 2,000 new apprenticeships, with 70 per cent of these jobs based outside London. The Strategy also aims to deliver new airport capacity in the South East, with a new runway at Heathrow being Government’s preferred scheme.

The Strategy aims to make the UK the best place to start and run a digital business. Public investment in digital infrastructure is to be increased to over £1 billion to develop 5G, better data sharing and better connectivity where people live, work and travel. 

Business Environment
The Strategy aims to make Britain a global draw for innovators and the best place to start and grow a business. Disparities in productivity levels across the country are to be improved by increasing collaboration and building skills to ensure everyone has opportunities for productive work and high-paying jobs. 

Key policies within the Strategy to improve Britain’s business environment include the introduction of sector deals – partnerships between Government and industries to increase sector productivity – and a commitment to invest £20 billion in innovative and high-potential businesses. Collaboration between businesses, central and local government, research institutions, universities and colleges will be necessary to align policies, enhance investments and create sector-wide institutions. The role of Government will be to ensure that the business environment is shaped by competition and contestability in which the best businesses of all sizes can thrive across the country.

This national approach must be mirrored at local level. Increased place-based decision-making to enhance the business environment locally according to local priorities is referenced as an important objective as part of the Strategy’s links to further devolution. Local partners will play an important role in targeting investments with the greatest economic potential for their places, in order to create local well paid jobs, new ways of working, drive up skills, and increase investment in R&D to stimulate new technologies.

It is hoped that the sector deals created as part of the Strategy, such as the recently announced Construction Sector deal, will address sector-specific issues in order to boost productivity, employment, skills, innovation and maximise export potential. The construction sector employs 3.1 million in the UK, with EU nationals making up 27 per cent of London’s construction workforce. Investment in innovation and training to equip workers with the skills needed for the future will therefore be important for London’s post-Brexit economy. Government will explore additional opportunities for further sector deals in new and creative industries, but the onus is on sectors themselves to develop deals and submit their proposals to Government for consideration. 

Places
The Strategy acknowledges that the UK has greater disparities in regional productivity than most other European countries. It recognises that different policies for different places that match local needs might address these disparities, as local leaders have previously lacked the means to deliver local economic growth through Government’s one-size-fits-all approach. A national industrial strategy framework will only be effective if it reflects the different economic challenges and opportunities between cities, towns and regions.

Through the Strategy, the Government aims to continue to work in partnership with local leaders and introduce local, long-term industrial strategies.. Local strategies, produced by Mayoral CAs or LEPs, will help to identify priorities to improve skills, increase innovation and enhance infrastructure and business growth locally, whilst allowing local leaders to focus their efforts where they will have the most economic impact. LEPs, universities, colleges and other local anchor institutions will be key deliverers of local strategies. 

The Government pledges to work with LEPs to review overlapping geographies and ensure clarity over who is responsible for driving local growth in places. Skills Advisory Panels are to be introduced to enable Mayors and LEPs to support employers, education providers and local government in identifying current and future local skills needs and shaping the provision of post-16 education and training and careers guidance.

Place-based approaches to economic growth can help drive competition and deepen pools of skilled labour relevant to the local job market. Local leaders will require sufficient freedoms and flexibilities to support growth and innovation. The Strategy recognises that the success of places is forged by the ambition of local government and business leaders, not by central Government. It is hoped prosperous communities can be created and developed in places across the UK through addressing national and local barriers to growth.

Commentary

The Strategy recognises that London is a world-leading hub for financial services, creative industries, tech businesses, and is a global city which continues to be a magnet for international businesses and talent. Additional growth and investment will be promoted through fostering successes and connectivity across cities, towns and regions. The Strategy also proposes launching a commercial investment programme run by the British Business Bank to support developing economic clusters and promote investment outside London. London recognises that other UK cities might not have enjoyed the same levels of economic growth as the capital, but productivity in London falls behind most similar cities across Europe and global cities such as New York and Shanghai. This need to drive growth presents an opportunity to make better use of local assets across the whole of the UK, including in London, to boost growth and productivity. London should not be left out or de-prioritised in the drive to increase productivity.

The Strategy reports that the UK has the highest disparity in regional productivity in Europe but fails to address disparities within regions like London, where high levels of inequality are experienced between different boroughs. Large regional cities in many other European countries tend to be drivers of national productivity as they bring together labour, suppliers, and consumers into bigger markets. Core UK cities such as London, Manchester, and Birmingham must receive greater control over revenues and local services in order to generate economic growth, to the benefit of the whole of the UK.

Devolution and a place-based approach will be key components for cities, towns and regions to deliver the Industrial Strategy. There is recognition from  Government that powers are beginning to shift from Whitehall. The Strategy emphasises the role of communities and businesses, including their relationships with local leaders, in driving productivity. However, there is no substantive mention of the role of local authorities in driving local growth and improving the business environment. The emphasis is predominantly placed on other bodies such LEPs, businesses, anchor institutions, and the partnerships between them. There is some focus on the role of Mayoral CAs, but little clarity on what this means for London. Devolution and a meaningful role for local government must be central in improving and continuing the supply of skills to an area.

Similarly, the purpose of local industrial strategies is not explicitly defined and neither is how local authorities are supposed to resource, support and deliver them. The clearly important role of local government in addressing regional inequalities, local skills provision, and the UK’s ageing society is absent. Instead the impetus is placed upon LEPs, rather than harnessing the experience and understanding of local authorities who already possess health and social care expertise as well as the ability to link skills supply to local employer demand. LEPs and councils must work together closely in order to deliver effective, long-term local strategies.

Places in England are to develop long-term local industrial strategies through elected Mayors and LEPs. This work is explicitly linked to devolution of the Adult Education Budget (AEB) and the desire to create an improved vocational education system. In London, the Mayor and the London Councils have agreed governance arrangements that give boroughs and sub-regions tangible influence on the decisions around the devolved AEB. However, the role of boroughs and sub-regional partnerships in the development and subsequent delivery of the capital’s local industrial strategy will also need to be developed over the coming months.

One of the measures to improve the business environment is to bring forward to 1 April 2018 the planned switch in indexation of Business Rates from RPI to CPI. This is two years earlier than previously planned at a cost of £770 million across those two years. Government confirmed that local government will be fully compensated for this loss of income but has not yet confirmed the mechanism for this.

Under its foundation of Place, the Strategy emphasises the importance of new policies to improve skills in all parts of the country, create more connected infrastructure, back innovation strengths, ensure land is available for housing growth, and strengthen our cultural assets. However, it is not clear whether the responsibility will be placed on local authorities or other local partnerships to design and deliver these policies. More freedoms and flexibilities for local authorities to control their own resources and shape public services would help move away from a one-size-fits-all approach to skills, employment, housing and planning.

The Strategy sets out a number of new initiatives targeted at promoting skills in key sectors – digital and construction in particular. These initiatives occur primarily at a Mayoral CA or national level, and it is unclear to what extent national Government see local authorities playing a role in these programmes. 

The Strategy sets out some clear initiatives to increase productivity and economic growth. The greater emphasis on a place-based dimension (compared to the Green Paper) is welcome. However, the Strategy undervalues the role that local authorities can play to drive forward this agenda and lacks some clarity on the levers and tools that will be available to local areas. The government needs to pursue an ambitious devolution agenda and give a key role for local authorities in order for this place based approach to provide the results it is looking for.


Links:

Government White Paper: Industrial Strategy: building a Britain fit for the future

Member briefing, 27 April 2017: London Councils’ Response to the Industrial Strategy Green Paper

Carers Strategy

David Arnold and Jenny Gulliford, Principal Policy and Project Officers

David Arnold
E:[email protected] 
T: 020 7934 9974

Jenny Gulliford
E:[email protected]
T: 020 7934 9756