On the 27th November, the Government launched its new post-Brexit ‘industrial strategy’. This programme is designed to boost the UK’s economy, build on the country’s key strengths, and set out a plan for embracing rapid technological change. To do this, the strategy focuses on investment in infrastructure and skills, as well as vital support for existing industries. Arriving at a time of intense pressure on the Government and economy due to the ongoing and difficult Brexit process, another aim of the strategy is to improve productivity.
With the release of the 2017 Autumn Budget, the Office for Budget Responsibility (OBR) halved its forecast of the UK’s long term productivity trend to 1%. Afterwards, the Institute for Fiscal Studies said that forecasts slashing productivity, growth and earnings made for ‘grim reading’. But what does productivity mean and how is it useful for the British economy? In short, productivity measures the efficiency of the workforce. A more productive workforce means stronger growth and healthier public finances as more is being achieved in less time. In contrast, a less productive workforce signals weak growth and poor finances. Put simply, no improvements in productivity means no increase in wages or living standards.
How does the new industrial strategy answer these concerns? The strategy sets out to improve upon the UK’s current poor skills record by establishing a technical education system that stands alongside the already excellent higher education sector. In addition, it aims to rectify under-investment in infrastructure by increasing the National Productivity Investment fund to £31bn and outlining further funding for digital frameworks such as 5G. Critics argue that in order to improve the UK’s overall productivity, the regional economic disparity should be addressed and prosperity spread across the country. The strategy answers this suggestion by focusing on Local Industrial Strategies that build on community strengths, while the Business Secretary Greg Clark has supported proposals for an independent industrial strategy commission based on the OBR. This would help ensure that the strategy met all of its goals.
Does it do enough to solve the UK’s problems, however? Labour have criticised the strategy as ‘made up of re-announced policies and old spending commitments’, while business groups such as the Institute of Directors have praised the direction of the strategy but condemned its depth. The £725m earmarked for the Challenge Fund to boost innovation has been labelled as ‘inadequate’, and the Sector Deals at the heart of the strategy have been criticised for their lack of substance. This raises questions over the tangible impact of the policies contained in the strategy. Aside from concerns over detail and funding, one must argue that the focus on the increasingly important sectors of AI, new technology and cleaner growth is welcome.
The elephant in the room is of course, Brexit. The strategy is rich in post-Brexit optimism, yet aspects, including the view of the UK as the most desirable place in which to invest in Europe, appear to be based on pre-Brexit figures. Leaving the European Union without a trade deal remains a possibility, and would decimate the UK’s remaining manufacturing industry. Additionally, the strategy calls for ‘free trade with the whole world’, yet the likelihood of the UK genuinely competing with countries with much cheaper costs is poor. Ultimately then, it appears that while the strategy is effective at accurately diagnosing the symptoms of the UK’s productivity problem, it needs more work on the cure.