On day seven of our 12 Days of Giving, our gift to you is our concise round-up of the Government's must-read Industrial Strategy White Paper that landed at the end of November.
Indeed, the length of the document, and the range of measures covered, made the strategy pretty hard to approach for even the most interested reader. One journalist called the IoD’s press office with the plaintive query – “I’ve got to file my story soon, how do I tell what’s important in here?”
Even if it hadn’t been launched on the same day as the announcement of a royal engagement, the Government’s wide-ranging plan to tackle some of the UK’s long-standing economic issues was perhaps always doomed to draw only the most top-line reporting. This is a shame, because the strategy could be the first step towards solving the UK’s now-infamous ‘productivity puzzle’.
A term normally mainly of interest to economists, productivity has been elevated to become an obsession among politicians. When you strip away all of the tax and spending measures announced by Philip Hammond in his recent Budget (as many as in any budget produced by George Osborne, a famously hyper-active Chancellor), the underlying message is that if we don’t get productivity growth back to where it was before the financial crisis, we are in big trouble.
The Office for Budget Responsibility, the official spending watchdog, finds it hard to forecast with any certainty the impact Brexit may have on the public finances. They are absolutely clear, however, that unless British companies can become more efficient with how they use their resources, we will be doomed to slow growth, and that means lower wages, public discontent and political pressure for more redistributive taxes – dividing up a smaller economic pie.
So how will the Industrial Strategy help? Firstly, the Government has got the analysis of the problem right. International comparisons suggest serious investment is needed in infrastructure, skills and R&D. The UK comes 24th in the World Economic Forum’s ranking for overall quality of infrastructure, behind key competitors (France is 8th and Germany 13th). We also don’t perform very well in education, failing to make the top 10 in reading, science or maths in the Pisa rankings, the best-known set of international tests.
Let’s be clear, the UK has some definite strengths. The economy may have recovered slowly from the 2008 recession, but has since turned into a job-creating machine. Unemployment is now at historic lows, below 5 per cent. GDP growth has held up reasonably well since the EU referendum. We have world-class universities, a global language, strong institutions and an impressive recent record of new companies starting. Overall, the UK comes in at 7th on WEF’s global competitiveness index.
So there’s no need to panic but, in the words of Greg Clark, the Business Secretary, we do need to make sure that Britain is ‘fit for the future’. Brexit should force us re-evaluate where we want the economy to be in 10 or 20 years’ time, and we also need to prepare for the developing trends of automation, artificial automation and more flexible business and working practices.
You’ve probably heard these ideas flung around quite a bit recently, and it is sometimes difficult to sift the hype from the things that are really relevant to business. There is real money in the Industrial Strategy – a £2.5bn investment fund for the Government’s British Business Bank, £406m to address the STEM skills gap, £200m for local fibre broadband networks. Within the confines of tight public finances, the amounts the Government has found shouldn’t be sniffed at.
The Business Department has also committed to following through on the recommendations of the Taylor Review into modern working practices. The IoD firmly believes that new business
es models, including platforms that connect consumers and providers of services like transport or accommodation, can be a very positive development, offering choice and great value.
But we have to accept that regulation now looks hopelessly out-of-date with technology, particularly when it comes to defining employment rights and obligations. IoD members for their part want clearer definitions of what separates an employee from a self-employed worker. This is just one of the areas where the Industrial Strategy makes a good start, but there’s lots of work to do yet, and business will ultimately judge success on the basis of whether competition and innovation are increased, rather than curtailed.
The same is true on skills, where the formation of a National Retraining Scheme is welcome, but only the beginning of a solution to the UK’s long-term skills problem. The IoD has in addition called for tax breaks to make it easier for individuals to invest in their own training, particularly if they want to switch job or industry.
All-in-all, the Government has made a decisive step forward by bringing together all of the levers at its disposal to address the UK’s economic sticking points. It is just a first step, but now we’re on this journey, there’s no telling how far we can go.
Edwin Morgan, Interim Head of Policy, IoD
Edwin Morgan is Interim Head of Policy at the Institute of Directors. He joined the IoD shortly after the 2010 General Election.
He has represented the interests of the Institute’s 30,000 members through the ups and downs of the Coalition Government. Alongside the IoD’s team of policy experts, Edwin is responsible for making the case in the media for competitive markets and a business environment which enables job creation and economic growth.