A bureaucratic tangle has replaced UK industrial policy

How will we keep our footing in the new gold rush? As investors and manufacturers flock to America, the EU is grappling with how best to respond to President Joe Biden’s anti-inflation and chips bill. But the UK seems broken, with ministers shuddering at any mention of ‘industrial policy’.

You don’t need to read Friedrich Hayek The road to serfdom feeling a little nervous about the idea that all nations should have protectionist business incentives. However, it is surreal to watch UK ministers talk about Britain’s life sciences and green energy sector expertise while we slide down the clinical trial rankings. AstraZeneca is building a new factory in Ireland, carmakers warn that Brexit has undermined electric vehicle production, and solar company Oxford PV says the UK is the “least attractive” manufacturing site.

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

Britain is still haunted by the experience of the 1960s and 1970s, which convinced many finance ministers and politicians that the best industrial policy was no industrial policy at all. Governments that tried to pick winners ended up supporting losers: for example, the elegant but hopelessly expensive Concorde, of which only 20 were built, and the ugly Morris Marina car, which rusted even in the summer.

Thatcher, Major and Blair largely avoided intervention. It was only during the financial crisis of 2008 that the “industrial activism” of the Labor Party emerged, which strategically examined what could be done to help certain sectors of the economy. This approach continued through the coalition, which supported economic “clusters” such as the Northern Power Plant, and into the May government, which promoted official industrial policy. Memorably described by the then Tory backbencher Kwasi Kwarteng as “pudding without a theme”, it was too overwhelming. But by scrapping the post of business secretary, Kwarteng lost the Industrial Strategy Council, which could have scrutinized what was working, and the Industrial Strategic Challenge Fund, which meant key budgets seeped into the bureaucratic soup.

The system wasn’t perfect, of course – the Covid vaccine was only scaled up fairly quickly because the Vaccine Taskforce was created outside of the official machinery. Still, as one creative industries executive told me, “It’s bad enough that there’s a fall at every turn. But a flip-flop when it was the same party was really depressing.”

Businesses reward certainty. But the policy making in the UK was terribly haphazard. In 2015, one of the Tory governments privatized the Zöld Berüházási Bank; six years later another Tory government set up a UK Infrastructure Bank to do the same. When Dominic Cummings created Aria, the advanced research agency, it sounded like an echo of Qinetiq, which Labor had privatized nearly 20 years earlier.

If we cannot learn and adapt, but continue to act according to whims, we are much more likely to fall into exactly the trap that right-wingers fear: naïve statism. According to economist Diane Coyle, many other democracies are much better able to assess the effectiveness of their industrial policies.

“Hopeless”, “slow” and “confused” are some of the words used to describe the current state of the UK government machinery by the businesses and experts I spoke to – and those who want it to stay. Outsiders face a labyrinthine array of institutions and initiatives. Critics say it takes too long to distribute planning permission and R&D funding, and that UKRI, the primary funder of research and innovation, is “burdensome” and “bureaucratic”.

The residual machismo of Brexit is not helping. Rishi Sunak’s premiership restored a sense of pragmatism, and Tory ideologues were dissuaded from a maddening wholesale scrapping of all EU legislation. But exporters remain concerned that ministers may decide to deviate from some EU rules just because they can. The deviations would double the workload for businesses, and the ludicrous attempt to replace the EU’s long-established ‘CE’ safety marking on industrial and electrical products with a rival marking called the UKCA is yet another political indulgence.

It is absurd for this government to pretend it has no industrial policy: it has just offered Tata Motors £500m to build an electric vehicle battery factory in the UK instead of Spain, and has allocated extra money for life sciences. Chancellor Jeremy Hunt has identified five growth areas for the economy. But you shouldn’t fight them with a whisper. In the absence of something we previously called connected thinking, we are in danger of wasting money on unsuccessful bets. Electric vehicles cannot start without a system of universal charging points. And big pharma won’t do more clinical trials unless they can use patient data.

Every gold rush has its cowboys. At the beginning of the new industrial revolution of genetics, green technology and artificial intelligence, no one can foresee. But we need agility, not ideology.

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