Countries that are serious about manufacturing have industrial strategies. The US and China have one. So do Germany and France.
Britain does not have an industrial strategy. Rishi Sunak talks about turning the UK into a “science and technology superpower” but that’s all it is: talk. It is a PR strategy masquerading as an industrial strategy.
Faced with the challenge presented by Joe Biden’s inflation reduction act (IRA), the government says it has no need to respond to the package of green subsidies being provided by Washington because Britain has already established a thriving renewables sector and the Americans are playing catch-up. The complacency is staggering.
Andy Haldane, once chief economist of the Bank of England and now chief executive of the Royal Society of Arts, had this to say last week. “The world is facing right now an arms race in re-industrialisation. And I think we’re at risk of falling behind in that arms race unless we give it the giddy-up.”
China, Haldane added, has been focusing on green technology for many, many years and had forged ahead in tech such as solar and batteries. “The west has belatedly woken up. The IRA is throwing cash to the wall on that. The cost of that [is] almost certainly north of half a trillion dollars. Possibly north of a trillion. The EU is now playing catch-up, [and] the UK currently is not really in the race at any kind of scale.”
A quick glance at the latest trade figures shows that Britain has some way to go before it can be considered a manufacturing “superpower”. That was true once, but no longer. Manufacturing’s share of the economy shrunk from more than 30% to less than 10% of national output during Queen Elizabeth II’s reign. The goods deficit, which has not been in surplus since the early 1980s, stood at £55bn in the first three months of 2023, with imports more than 50% higher than exports. A £40bn quarterly surplus in services was not enough to close the trade gap.
Those who supported Brexit say the UK now has the freedom to export more to those parts of the world economy that are growing faster. Those who opposed Brexit say exporting to the EU has become more burdensome. Both are right, but both are missing the point. Before Britain can take advantage of export opportunities, it has to have stuff to export. The fact is the UK is no longer a first-rank manufacturing economy and hasn’t been for decades.
The recent announcement by Dyson that it will build a new battery factory in Singapore is a perfect illustration of the challenge facing the UK. There was never the remotest possibility that the plant would be in the UK, owing to what its founder James Dyson, a prominent supporter of Brexit, called in a letter to the Times the “scandalous neglect” of science and technology businesses.
Only part of the company’s reluctance to manufacture in the UK is due to the recent jump in corporation tax, although the increase in the budget wipes out any benefit from tax breaks for research and development. It is also the planning system, the lack of enough trained engineers, the disdain shown for science and technology, and government interference in the way businesses are run.
Dyson is unhappy about plans to make it possible for new recruits to request to work from home from day one of their employment, something which is incompatible with the hands-on, learning-on-the-job approach required by a high-end manufacturing business.
The company says the UK will remain a key centre for R&D, and will invest £100m in a new tech centre in Bristol for software and AI research. But the idea that Britain can do all the clever, high-value-added, brainpower stuff while other countries do the production is an illusion. Increasingly, Dyson’s R&D is happening in Singapore – where it has its global HQ – and in the Philippines.
Dyson is by no means alone. A report by the lobby group Make UK found that six in 10 manufacturers thought government had never had a long-term vision for manufacturing, while eight in 10 considered the absence of a strategy put their company at a competitive disadvantage compared with other manufacturing countries.
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It is no surprise that AstraZeneca recently announced it was building its new factory in Ireland.
Stephen Phipson, Make UK’s CEO, said last week the US was spending 1.5% of national output on the IRA. The equivalent sum in the UK would be £33bn. It is not just the money, though.
“A lack of a proper, planned, industrial strategy is the UK’s achilles heel,” Phipson added. “Every other major economy, from Germany, to China, to the US, has a long-term national manufacturing plan, underlying the importance of an industrial base to the success of its wider economy. The UK is the only country to not have one. If we are to not only tackle our regional inequality, but also compete on a global stage, we need a national industrial strategy as a matter of urgency.”
One option is to treat manufacturing as a niche sector and concentrate instead on sectors where it does have global clout: financial and business services, for example. In that case, the pretence has to stop that levelling up will be delivered by spanking new factories turning out world-beating products. The government can either make Britain an attractive place for manufacturing companies to invest or it can decide not to compete. Judged by its actions rather than by its rhetoric, it seems to have chosen the latter option.
Haldane, Dyson and Phipson are right. There is no plan and there is no strategy. There is just industrial-strength bullshit.
