Unveiling the Untapped Potential: Unleashing Britain’s Industrial Strategy

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Jeremy Hunt claims that Britain’s industrial strategy is still intact, but it seems he forgot to communicate what it actually entails.

This statement by the chancellor in an interview with the Financial Times surprised and amused sectors such as manufacturing and energy. Some responses included: “If there is one, they’ve kept it quiet.”

However, the situation turned from humor to despair when Prime Minister Rishi Sunak weakened some important green policies. The green industries are among the government’s targeted areas for economic growth. However, policies like the 2030 ban on the sale of new petrol and diesel cars faced opposition from within the Conservative party.

Even before this recent development, companies were already confused about Britain’s industrial goals. Last year, the government abandoned an industrial strategy formulated under former prime minister Theresa May, with Business Secretary Kwasi Kwarteng dismissing it as having no clear focus. A report by manufacturing group Make UK highlighted how this lack of strategy puts the UK at a disadvantage compared to other countries.

Make UK makes a valid point, especially when other countries like the US already have clear industrial strategies in place.

“UK industrial policy has lacked consistency in recent years, and we are starting to see the consequences in terms of investment appetite,” said Simon Virley, head of energy and natural resources at KPMG in the UK.

Admittedly, there has been some recent support for specific industries. The government provided subsidies amounting to £500 million to secure the future of the Port Talbot steel works and production of electric Minis in Oxford. The government also helped secure Tata’s £4 billion electric vehicle battery facility in Somerset.

However, the failure to attract offshore wind developers in a renewable energy contract auction puzzled many clean energy investors. Companies like Vattenfall and Ørsted had warned the government for months that starting auction prices were unrealistic, but their concerns were ignored.

There is also a lack of clarity in other growth areas targeted by the government, such as digital technology, life sciences, creative industries, and advanced manufacturing. Verity Davidge, director of policy at Make UK, highlighted doubts about the definition of advanced manufacturing.

The chancellor is expected to outline details of a new industrial strategy in his Autumn Statement. He has already announced a review by Lord Harrington on how to attract foreign direct investment. However, he has made it clear that he does not plan to adopt America’s subsidy-heavy approach.

While few industrial leaders expect the UK to match the US, clarity on the strategy would greatly help investor confidence. Hunt needs to address how the government plans to tackle the failure in the offshore wind auction this month.

Ministers should also specify which sectors will be eligible for subsidies, as demonstrated by the case of Port Talbot. Additionally, the government should accelerate funding mechanisms for hydrogen production and carbon capture and storage facilities.

Keith Anderson, CEO of ScottishPower, believes that the UK cannot outspend the US, so it must focus on being smarter and faster.

Industrial companies often criticize short-term tax incentives and suggest that they should align with the longer-term stimulus measures implemented abroad. For instance, the UK’s super deduction capital allowance introduced in 2021 expired in March.

“We prefer short-term, sector-specific deals in this country. However, the IRA provides a decade of policy clarity with minimal bureaucracy once tax credits are received,” said Ben Westerman, director of energy and net zero at consultancy Henham Strategy.

While the phrase “Businesses like long-term certainty” might induce eye-rolls in the City of London, it is clear that the UK government needs to pay attention to it when it comes to industrial policy.