After the Rose Garden 3: Growth and Investment
Growth and investment make for a post which is easy to write, but tricky to realise. Consider: the UK has floundered economically for a century, squandering all too many of the benefits of postwar catch-up and technology on our toxic legacy of early industrialisation, by way of workplace bitterness and regional dysfunction. We’ve done ourselves no favours with home-grown foibles: on-again off-again nationalisations, ungainly healthcare, producer-led schooling. That’s without getting into our perennially butterfingered welfare regime or our equally perennial high-school pashes for one BFF or another.
Now comes Hurricane Trump, disrupting the postwar trade order, holding out the equivocal prospect of a US trade deal, and throwing us into the arms of whoever will join us in our latter-day lamentations. All of a sudden, our priorities have reverted to the narrowly economic. To be fair to Starmer, he instituted an industrial strategy last October, with the bromidic Invest 2035. This conspicuously failed to follow the wisdom of Pierre Mendès France, altogether declining choices. Now it is overtaken by events.
Industrial strategy?
This begs a larger question: do such plans have any point? In his elegant and incisive How industrial strategy killed British industry, my colleague, Sam Bidwell, points out that picking winners has never worked for HMG, though there may be a case for government-industry collaboration, particularly in infrastructure and security. Let us briefly explore some avenues along these lines.
What with Trump’s tariffs and the Scunthorpe fiasco, today’s theme is reshoring and reinforcing basic industry. We have new language to sweeten the pill: “sovereign industry”, signalling alignment with national security. Dr Johnson may have been too hard on patriotism, but it still makes sense to caution against failing CEOs wrapping the flag around campaigns for regulatory relief and subsidies, for all that such arrangements might help the country’s regions. All in all, better beware of the comfy sweater of industrial nostalgia and balance any such concessions with a proper regard for the industries of the future which will pay for them.
Key industries
What are those industries? Starmer’s paper identified eight in a catalogue best characterised as inclusive to a fault. It took in “advanced manufacturing, clean energy industries, creative industries, defence, digital & technologies (duh!), financial services, life sciences, and professional and business services”. This is a bit weird, with overlap between advanced manufacturing, defence and digital & technologies; one sector, creative industries, which absolutely does not need government intervention, lest it dry up or distort the imaginative process; another, defence, which couldn’t be more supported by public funds, to the detriment of business and technical effectiveness; and a third, clean energy, which qualifies for separate treatment below as a national dilemma. But let’s say tech stuff, pharma, and the financial and other services which feed off each other.
Tech needs regulation and taxation which is consistent, robust in the face of extra-territorial challenges from the EU and US, and which strikes a balance between the permissiveness which boosts innovation and a respect for property rights (scraping data) and dangers to consumers (addictive SM algorithms). On balance this is a time for policy to be “on-risk”.
Pharma needs NHS purchasing decisions which balance the national interest in value-for-money monopsony with reasonable returns on research. NICE could push things along with an accelerated approval regime, learning lessons from the Covid vaccine rollout; and an approach towards “indications”, ie, conditions qualifying for treatment, which joins with industry in taking a view of expected developments in biotechnology and demography. An accelerated programme to map human biochemical pathways lends itself to collaboration between government, industry and universities.
Financial etc services
It is tempting once again to call for more of an “on-risk” regime; and certainly the post ’08 arrangements (for ring-fencing and suchlike) were too restrictive. On the other hand, Trump is introducing sufficient turbulence for caution to be in order, particularly if rates come down. Specific moves would be promoting UK law (actually the law of England and Wales) for sovereign and even corporate bond issues, reducing or abolishing stamp duty on secondary market transactions, and providing tax-free wrappers for collective investment schemes for small savers from overseas. We will expand on this in pour forthcoming post on capital markets.
Energy policy is ever in tension between price, security and (of late) decarbonisation. Britain’s energy prices are notoriously crippling, making heavy industry uneconomic. Developments in Ukraine and the general uncertainty attaching to Trump call for prioritising security. Not everyone gets it: Ed Miliband continues to argue that Britain’s energy security is totally aligned with decarbonisation, which will also bring prices down. This is hard to credit and Starmer should slap him down, somehow reconciling this reverse to the Climate Change Act and his own zealots.
Elsewhere, as touched on in our last post, the government has the low-cost option of attracting participants in any brain-drain from US tech and universities, along the lines of the 1950s Hollywood scriptwriters fleeing McCarthy, while keeping a weather eye out for academics with loopy luggage. And how wonderful, if Starmer could bring himself to engineer the abandonment or amendment into innocuousness of the anti-growth Children's Wellbeing and Schools Bill, Employment Rights Bill and Renters' Rights Bill.
Conclusion
Growth and investment are like motherhood and apple pie: everyone is all for them. The comments above apply equally, whether Britain is seeking to assume liberal leadership or recast itself as Singapore on Thames, though arrangements to welcome brain-drain immigrants from the US may come up against freedom of movement issues with the EU and others.
Next post - fiscal balance.
Miles Saltiel