Building an Industrial Strategy for London?

  • By David Arnold

The government’s Green Paper ‘Building our Industrial Strategy’ aims to establish a coherent framework for a UK industrial strategy across all sectors in response to the challenges and opportunities created by Brexit. The objective of the strategy is to improve and re-balance economic growth in the UK. This briefing outlines the strategy and its proposals. Should boroughs wish to respond to the Green Paper, the consultation closes on 17 April 2017.

Background

The strategy promotes a framework for industrial strategy across all sectors, comprising 10 pillars to drive growth across the entire UK economy:

1. Increased investment in Research and Development, science and innovation.
2. Developing skills to establish a framework for businesses to invest alongside public investment.
3. Upgrading infrastructure to improve the UK’s performance in digital, energy, transport, and flood defence infrastructure and link government investment with local growth priorities.
4. Support for businesses to start and grow by understanding barriers to new businesses and developing the Business Growth Fund.
5. Improving procurement to encourage innovation and growth.
6. Increased trade and a more strategic approach to inward investment to aid economic growth and productivity across the UK.
7. Delivering affordable energy and clean growth through reducing costs for businesses and securing the economic benefits of the transition to a low-carbon economy.
8. Cultivating world-leading sectors through collaboration between sectors and national and local government to increase productivity.
9. Driving growth across the UK by identifying and developing particular strengths of different places and encouraging partnership work to reduce skills gaps between regions.
10. Creating the right institutions to bring together sectors and places through a series of reviews to encourage local growth.

The strategy sets out proposals to improve living standards and economic growth by increasing productivity and driving growth across the UK. Devolution deals and streamlined decentralised governance are referenced as methods to achieve this and to close the productivity gap between regions. The strategy’s recognition that the UK is one of the most centralised countries in the world suggests that devolution will be a primary mechanism for delivering components of the strategy in London. It encourages places to lead on increasing productivity and promotes this as a key method for driving economic growth across the country. It also recognises that the 10 pillars will hold different value in different places, depending on local priorities and the relevance of each pillar to the local economy.

Analysis

Developing skills
The proposals for developing skills include plans to incentivise businesses to invest in skills alongside public investment, in order to increase skills levels to drive higher incomes in the long term. The strategy highlights the UK’s relative poor performance in basic and technical skills resulting in lower levels of productivity compared with other advanced economies. The provision of funding for a network of new Institutes of Technology and additional support for Further Education (FE) colleges to become centres of excellent in English and Maths are suggested as ways to improve the delivery of higher level technical skills provision. The paper highlights the government’s recent proposals to reform technical education by creating 15 clear technical routes into employment via the government’s Post 16 Skills Plan.

Infrastructure
The strategy’s proposals for investing in economic, transport, housing and digital infrastructure across the UK – in order to increase productivity – include making infrastructure costs more competitive and encouraging increased private sector investment. The strategy also announces that funding for local road and transport infrastructure improvements will be allocated to areas and suggests that the balance of government spending on infrastructure per head between regions will be reconsidered in future round of investment.

Business support, growth and investment
The strategy recommends that support should be provided for businesses to start and grow by identifying and supporting high-growth businesses and improving access to finance for companies looking to scale up. Proposals to achieve this include additional funding for the British Business Bank and the Productivity Council. The strategy also encourages local economic growth strategies to include the provision of support to moderate-growth businesses through existing mechanisms, such Local Enterprise Partnerships (LEPs) and local Growth Hubs. London government has previously made the case for the devolution of all business support funding and programmes to the Mayor of London, who should possess joint responsibility with the Secretary of State for the London Business Growth Service business plan. The proposals within the strategy create an opportunity for London to push for further devolution of business support funding.

Improving procurement
The strategy includes proposals to introduce a more strategic approach to government procurement in order to drive innovation, competition, investment in skills and the creation of new technology businesses.

Trade and investment
The strategy aims to establish more trading relationships, improve government trade and investment services as well as market access for exporters. Proposals to achieve this include the creation of a more active ‘Team UK’ approach to winning overseas contracts and a more strategic approach to inward investment. London government has previously sought to bring together trade, investment and export services in a joint Trade and Investment Strategy for London. Using the London brand and adopting a clear market segmentation approach would present an opportunity for London to attract more private investment to the local export system, which would also benefit the rest of the UK.

Affordable energy and clean growth
The proposals to deliver affordable energy and clean growth across the UK are separated into three distinct challenges: ensuring that the shift to a low carbon economy minimises costs to businesses, taxpayers and consumers; working with the energy industry to manage the changes to energy networks required for the transition to a low carbon economy; and ensuring that the UK capitalises on its strengths in energy industries to win a substantial share of global markets. The government also proposes to publish its Emissions Reduction Plan as part of the strategy.

Cultivating World-leading sectors
The strategy aims to cultivate world-leading sectors within the UK through maximising collaboration between sectors and local and central government. As part of the strategy, the government proposes to expand the Challenger Business Programme, which identifies and responds to the needs of businesses with new technologies and products to help them enter and grow in their target markets, in order to remove barriers that stop innovative businesses thriving in the UK. The government commits to developing early sector deals in life sciences, low emission vehicles, industrial digitalisation, the nuclear industry, and the creative industries within the strategy.

Driving growth
The proposals to drive growth across the whole of the UK include ensuring that the right conditions for growth are present in all areas in order to narrow the productivity gap between different parts of the country. Better connectivity to other towns, cities or regions and better access to skilled workers are important factors for driving growth across the whole of the country. The strategy also recognises that new incentives for local growth, including opportunities for places to invest in local infrastructure, will be created through the full retention of business rates for local authorities, for which London Councils continues to make the case.

The strategy contains a commitment from the government to consider the future of the European Structural and Investment Funds following Brexit; however, the strategy does not set out a place-based approach for how areas might work with central government to reach agreements regarding this. It also sets out proposals to create new funding streams to identify and help develop industrial and economic clusters of businesses and local specialisms.

Institutions to link sectors and places
The strategy argues that the establishment of the right institutions to bring together sectors and places will support long-term growth. This will be achieved through support across different clusters and places to ensure businesses are able to employ people with relevant skills, market their goods to the world, and develop products and services for the future. The strategy highlights how competitor economies to the UK have often tended to possess better developed sectoral institutions and stronger local institutions. Methods to improve the UK’s standing in this capacity include proposals from the Government to conduct several reviews into how the Department for International Trade identifies priority investments, how to increase business expertise within local government, the location of government agencies to best support local clusters and business growth, and the role of LEPs in delivering local growth. The LEP for London for instance, which comprises the Mayor of London, London Councils and London businesses, has recently been relaunched as the London Economic Action Partnership (LEAP) in order to drive growth and job creation across London.

Commentary

This wide-ranging strategy suggests that the interests of places will be respected and maintained in order to build on shared interests that will deliver better outcomes for people in all parts of the UK. London boroughs will welcome the focus on place and the importance of place-based growth within the strategy. London Councils will work to ensure that the interests of Londoners are upheld to deliver better outcomes for London. The strategy also places emphasis on the need to re-balance the economy, so London will continue to demonstrate that its economic growth supports and delivers for the rest of the UK, not just Londoners. In its interim report, the RSA Inclusive Growth Commission argues that the linking of economic and social policy is important for driving inclusive growth for everyone across the UK. Investing in social as well as physical infrastructure as part of a place-based industrial strategy would help to deliver this.

The expected devolution of the Adult Education Budget to London government will begin to give the capital the tools it would need to meet many of the Industrial Strategy’s objectives in relation to developing skills. However, as London continues to face significant skills challenges – including sector-specific skills gaps, high youth unemployment and a high proportion of vacancies filled by EEA nationals – a wider package of devolved powers on skills is needed. These should include the commissioning all 16-18 provision in FE settings, ring-fencing a share of London’s apprenticeship levy, and the ability to develop a coherent all-age careers information and guidance service for London.

Devolved funding is soon to be secured from the Department for Work and Pensions to deliver the Work and Health Programme in London from March 2018, which will increase employment for people with disabilities and the long-term unemployed. In addition, locally run employment and skills programmes could assist in moving workers away from low quality, low paying, low productivity jobs that have contributed to a rise in in-work poverty in London during the last decade.

It will be important for the case to be made for London to ensure that the review of government spending on infrastructure per head between regions does not result in a re-balancing of infrastructure investment away from the capital. In relation to the strategy’s proposals for improvements to road and transport infrastructure, the recent final report of the reconvened London Finance Commission has already reasoned for a portion of the revenue raised from Vehicle Excise Duty in London to be retained for investment in road improvements within the capital. The strategy’s proposals for encouraging trade and inward investment could be achieved in London through the devolution of UK Trade and Investment services to London, leading to a more joined up policy approach with London and Partners across sub-regions as well as better business connections between London and the rest of the UK.

The commitment to consider the future of the European Structural and Investment Funds (ESIF) is welcome. London government has been arguing that replacement funding for ESIF should be provided by government in order to improve competitiveness, skills and employment, given this amounts to £600 million in 2014-2020 in London. This funding should be devolved to London government, so that we can flexibly respond to the challenges and impact of Brexit on London’s economy and labour market.

Reducing emission and air pollution levels in the capital is a priority for London government, so boroughs will welcome the forthcoming Emissions Reduction Plan to be published by government as part of the strategy. The case is already being made for additional powers in the form of new legislation for London to limit emission levels to acceptable World Health Organisation targets after Brexit and to manage non-road machinery emissions from the river and construction sites.

London’s world-leading sectors continue to generate significant growth for the capital and the country. It will be important for businesses, sectors, and local and central government to work together to ensure that sectors continue to have access to the skilled workers they require in order to maintain and increase productivity rates. London government recognises the importance of industrial estates for the capital’s economy; a place-based business support programme for industrial businesses should be developed to allow them to export and grow.

Interested partners have been invited to provide their feedback on the Green Paper in order to develop joint place-based plans for new and innovative ways to encourage local and national economic growth. London Councils will produce a response to the consultation in due course and will continue to engage with government, alongside the Mayor of London, to make the case for London by emphasising how the capital’s continued economic growth will benefit the rest of the UK.

David Arnold, Principal Policy and Projects Officer