Why is the government killing off its industrial strategy?

Boris Johnson’s government is unashamedly interventionist. Yet it is scrapping its Industrial Strategy Council and may be moving away from industrial strategy altogether. What’s going on? Ben Chu investigates

Business secretary Kwasi Kwarteng’s decision has drawn criticism (Reuters)

Kwasi Kwarteng, the business secretary, is disbanding the UK’s Industrial Strategy Council, which was established during Theresa May’s period as prime minister in 2018.

The council’s mandate was to provide “impartial and expert evaluation” of the government’s progress in delivering the aims of its industrial strategy.

And the strategy itself was defined as aiming “to boost productivity by backing businesses to create good jobs and increase the earning power of people throughout the UK with investment in skills, industries and infrastructure”.

The council is led by Andy Haldane, the Bank of England’s chief economist and includes many distinguished names from business and policy making including former senior executives at Siemens, John Lewis and Virgin Money.

The Business Department’s rationale for the move is not clear. In his letter to the council’s chair, Andy Haldane, Kwarteng wrote that “the government has decided to mark a departure from the Industrial Strategy brand”, which suggests it is more of a rebadging exercise than a policy shift.

On the other hand, Kwarteng’s letter suggested that Brexit, the coronavirus pandemic and the net-zero emissions agenda have created a “totally different economic situation” in the UK, implying the Industrial Strategy Council is somehow obsolete.

Matthew Taylor, the chief executive of the Royal Society of Arts, is one of those council members whose services are being dispensed with as a result of the decision.

He wrote on Twitter than decision was “sad and bad” and suggested that there was a mixture of motives from the government, including a traditional “neoliberal” distaste among some in the Conservative Party for any state intervention in the economy, a dislike for an institution that predates Boris Johnson’s premiership, and a Whitehall power grab by the Treasury at the expense of the Business Department.

Business groups are alarmed by the move and the recent decision to scrap a white paper to update the 2017 industrial strategy.

Stephen Phipson, the head of the manufacturers’ organisation Make UK, has written to Kwarteng to convey “significant concern and frustration within manufacturers of all sizes across the UK” at the decision to scrap the council.

Adam Marshall of the British Chambers of Commerce has called the move away from industrial strategy a “short-sighted step that ministers will come to regret”.

And Labour has picked up those concerns. On Tuesday the shadow business secretary Ed Miliband said that: “At a time when we need to be strengthening our industrial strategy and make it work, the government decides we don’t need one.”

Industrial strategy dramatically fell out of favour during the Margaret Thatcher and Tony Blair years, when it was associated with wasting taxpayers’ money propping up failing companies such as British Leyland for the sake of preserving jobs.

In the decades after 1980 the emphasis was on market forces, rather than Whitehall investment and support.

But industrial policy was resurrected during the financial crisis of 2008 when minister found they had no choice but to prop up parts of the private sector.

The spectacular failure of finance during that crisis also helped to persuade UK ministers that they had put too much emphasis on financial services as a driver of UK prosperity and neglected industry relative to peer economies in France and Germany.

Thus industrial strategy was resurrected as a policy tool, first by Peter Mandeslon under the Gordon Brown administration, then by Vince Cable during the Liberal Democrat-Conservative coalition years .

When Theresa May entered Downing Street she promised a “proper industrial strategy”, which is what the council was supposed to oversee indefinitely.

Despite claims the current government is Thatcherite or neoliberal, the Johnson administration does not, in fact, seem ideologically anti-interventionist when it comes to the private sector.

It has lent billions to keep small firms afloat in the coronavirus pandemic.

And it recently, in the face of civil service value-for-money warnings, spent £400m propping up bankrupt satellite company OneWeb.

It is establishing an Advanced Research & Invention Agency (Aria) which will be tasked with funding high-risk research.

The Budget last week confirmed a new government-owned UK Infrastructure Bank, not dissimilar to the National Investment Bank proposed by Labour under Jeremy Corbyn in 2019.

This new institution, capitalised by £12bn of government equity, will be based in Leeds to support Boris Johnson’s “building back better”and “green industrial revolution” plans.

But what the government does seem averse to is external scrutiny of its interventions and spending.

It is making Aria immune from freedom of information requests.

The government claims this will somehow “protect Britain’s competitive advantage”.

But the suspicion is that the intention is to protect the government from embarrassing information about poor investments being made public, or perhaps details of projects in which there is a potential conflict of interest for ministers, of the sort that have bedevilled its emergency PPE sourcing programme during the pandemic.

The real value of the Industrial Strategy Council was its independence and expertise – it would hold ministers to account for their delivery of industrial policy, saying when it thought they were getting something wrong, telling them what they did not necessarily want to hear.

Giles Wilkes of the Institute for Government, who was involved in setting up Theresa May’s industrial strategy, says the scrapping of the council and the apparent drift away from a defined strategy for industrial interventions by the government is “disappointing”.

“There’s a real risk of sheer ad hocery – a lot more OneWebs and Arias and glitzy things but no uniting principle,” he says.

“One doesn’t need to be hung up on [names] but you still need the underlying sentiment which is towards institutions rather than ministerial voice,” says Wilkes.

And the grave danger – just as in failed industrial interventions which gave industrial strategy a bad name in the 1970s – is that politicians’ short-term political interests will take precedence over hard-headed economic realism.