Industrial Strategy - Motion to Take Note

– in the House of Lords am 4:25 pm ar 1 Chwefror 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Lord Watson of Wyre Forest:

Moved by Lord Watson of Wyre Forest

That this House takes note of the case for a comprehensive Industrial Strategy for the United Kingdom.

Photo of Lord Watson of Wyre Forest Lord Watson of Wyre Forest Llafur

My Lords, I draw attention to my entries in the register, particularly for UK Music and Windward Global.

This Motion would not be debated in the legislative assemblies of the major economies: not in Germany or the USA, nor France, Japan, China, South Korea, nor any other developed nation on earth. Why? Because as the manufacturing trade group Make UK says, the United Kingdom is unique among advanced economies in not having an overarching, comprehensive industrial strategy.

I know that the Minister will point to the Government’s plan for growth, introduced under the previous-but-one Prime Minister in March 2021. I suspect he will want to advance the argument that the plan for growth, with its specific focus on five areas of economic activity, constitutes a strategy. I am sure he will be keen to mention the £500 million per year that the Government have earmarked for 20,000 R&D businesses, along with £650 million for life sciences. Let me say at the start that these are all commendable initiatives, and worthwhile in their own right, but they do not yet form part of an overarching strategy. I know that because, in June 2023, the then Minister in the Lords said:

“I think noble Lords will agree that this is a time for specialisation rather than a single, overarching, broad strategy”.—[Official Report, 20/6/23; col. 93.]

I disagree with that assertion.

I do not think we are doing enough to make a decisive difference to the UK’s economic prospects, given our sluggish growth, flatlining wages, regional disparities and chronic underinvestment. I invite the Minister to cogitate on why it is that the UK is unique in not having an industrial strategy, while reminding colleagues that a plan is definitely not a strategy. We have had a plethora of announcements, initiatives and institutions since 2010 and a constantly changing cast list: those 13 years have seen 11 growth strategies, nine Business Secretaries and seven Chancellors. This is partly, I am sure, why Make UK has said that:

“A lack of a proper, planned, industrial strategy is the UK’s Achilles heel”.

Meanwhile, the Centre for Economic Policy Research reports on the renewed interest within our competitor nations in

“effective tools and strategies to promote economic development and address new challenges, from supply chain risks to national security and climate change”.

It further says that industrial policy has featured significantly in the world’s largest economies. Again, I ask the Minister: why is the UK the odd one out?

What then is the case for an industrial strategy? An industrial strategy would

“help young people develop the skills they need to do the high-paid, high-skilled jobs of the future. It backs our country for the long term: creating the conditions where successful businesses can emerge and grow, and helping them to invest in the future … it identifies the industries that are of strategic value to our economy and works to create a partnership between government and industry to nurture them … it will … propel Britain to global leadership of the industries of the future—from artificial intelligence and big data to clean energy and self-driving vehicles”.

Those are not my words; they are the words of the then Prime Minister, the right honourable Member for Maidenhead, in her foreword to her Government’s Industrial Strategy document in 2017. It is hard to disagree with that, and even harder to understand why the Government cancelled it so soon afterwards. It is quite a head-scratcher.

Ministers also abolished the Industrial Strategy Council in 2021. It included Andy Haldane from the Bank of England, the Community union’s Roy Rickhuss, and ceramicist Emma Bridgewater—all of them were given their marching orders. If you do not have an industrial strategy, you do not need an Industrial Strategy Council to guide it. The respected Institute for Government states:

“Weak productivity performance and regional imbalances have worried politicians for a long time, as has a sense that the UK does not make enough of its abundant strengths in science. These alone are important justifications for an industrial strategy”.

The case is overwhelming. It is why the cry has gone up from trade union leaders, former Conservative and Labour Cabinet Ministers, civic leaders, entrepreneurs and investors. It is no wonder that 99% of British manufacturers back the need for an industrial strategy, and yet we do not have one.

Thankfully, we have a lot to build on. On manufacturing, the Economist recently reported a survey of the public that asked respondents to state where they thought the country ranked in global manufacturing league tables. The median answer was 43rd, which was wrong. The latest comparable data makes Britain the world’s eighth-biggest manufacturer. The Economist said:

“Many manufacturers believe that the successes of recent years have come about despite rather than because of government policy”.

What would a new industrial strategy look like? My starting point is that an effective industrial strategy is not about picking winners or propping up losers, or meddling in markets when they work, and it is not about Ministers interfering in the business of business. It is about working in partnership with firms to identify problems and fix them; to see opportunities and seize them; to ask not why but why not.

The moon landing in 1969 needed a strategy that included not only aeronautics but electronics, nutrition, product design, computer software and engineering. The UK right now needs to define its moonshot equivalent. It could be fixing the climate crisis, although we know that is a global challenge. It could be that we are the first country in the world to have a sovereign quantum computing facility. It may be that we choose to build homes for everyone before they are 30, and orient things around that. My point is that there should be a small number of clearly understood and defined national goals where there is currently a vacuum. I am greatly influenced by the work of the economist Mariana Mazzucato, who said:

Industrial strategy thus holds a dual promise: helping to address climate change and revitalizing industry so that it can compete in the twenty-first century. We need not accept … a trade-off … The two can go hand in hand if green policies are deployed to fuel growth and innovation, and if sustainable practices are woven into the fabric of how we consume, move, invest, and build”.

A new industrial strategy would take full cognisance of the UK’s context. We have a growing and ageing population, and a huge wealth of talent and expertise in science, technology and manufacturing. We have world-class universities, and fantastic entrepreneurs and inventors. We are a global leader in creative industries—gaming, film and music—and native speakers of the English language. We are a great nation, straining at the leash to be allowed to get ahead. It would view climate change as both an existential threat as well as an opportunity for economic growth and technological advance, leading the way in carbon capture, renewable energy, and post-carbon manufacturing of everything from hydrogen to nuclear, and from electric vehicles to the next generation of batteries for our phones. It would negate the need for a Department for Levelling Up because it would promote economic activity and growth in every nation and region, not just the south-east and London.

It would provide a stable platform for long-term investment and sustained growth instead of political chopping and changing, which business always tells us is the drag anchor on its success. It would represent a true partnership with small and medium enterprises, growing companies, unicorns, long-established British businesses and government at every level of our devolved constitution. It would allow businesses to thrive, turn profits and create decent, well-paid jobs, and it would allow the state to invest these products of growth into our public realm and shared services. Without economic growth, we do not grow as a society. It would allow the next generation to grow tall.

In my peroration, I will highlight one area where the absurd absence of an industrial strategy is most keenly felt and where the price is most heavily paid: the steel industry. Unless we act soon, the UK will lose its ability to make primary, or virgin, steel forever—[Interruption.]

Photo of Baroness Williams of Trafford Baroness Williams of Trafford Captain of the Honourable Corps of Gentlemen-at-Arms (HM Household) (Chief Whip, House of Lords), Deputy Chairman of Committees

My Lords, I apologise for interrupting the noble Lord. I remind noble Lords that speaking on mobile phones is not permitted in the Chamber.

Photo of Lord Watson of Wyre Forest Lord Watson of Wyre Forest Llafur

We will be the only advanced nation unable to make steel, in a time of global turmoil and uncertainty. This would represent criminal negligence. I note the announcement that Tata will close the two blast furnaces at Port Talbot in a few months and install an electric arc furnace, which would cut productive capacity. This is mindless vandalism to our manufacturing base. The salt in the wounds is that the Government are throwing £500 million at Tata, to lose 3,000 jobs in steel manufacturing. British Steel in Scunthorpe is looking to close its blast furnaces. These twin actions will mean that we have to import primary steels, with huge costs to the environment.

The trade unions have a plan to transition to cleaner, greener steel production and safeguard local jobs. Community union and the GMB have a workable, serious plan. Is the Minister aware that Tata indicated that this plan is credible and viable but was rejected by the Government on the grounds of cost? Can he comment on the exact nature of the £500 million offered to Tata, and whether this is in any way related to Tata’s battery plant in Somerset? Does the Minister know that electric arc furnaces cannot produce the base steel that is needed for tin manufacture—yet 30% of Port Talbot’s output is for tin cans? It has the orders, but the means to fulfil them are being removed. Has he read the rescue plan?

I do not want to make the case just for saving jobs in this part of Wales, nor focus on the bitter human cost that will be paid by working people and their families in these proud communities. I do not want to point out just that 20,000 jobs in the supply chain rely on this plant. I am sure others will want to point out the similarities with the destruction of our manufacturing base in the 1980s, with the price paid by miners, steel-workers and skilled engineers and their families in that dark decade of deindustrialisation and demoralisation of whole towns and cities. I want to link what is going on with steel today with my central argument for the need for an industrial strategy.

An industrial strategy must seek answers to the central questions of our age: our negotiation with rapid technological change, our need to decarbonise, our desperate need for growth and the big shifts in our society. An industrial strategy can mitigate the risks, manage the transition and soften the hammer-blows that rapid change can bring. This is not top-down statism, but not free-market fundamentalism either; it is a true partnership with communities, companies, industries and government.

An industrial strategy must view the steel industry as part of a bigger landscape of manufacturing, and manufacturing as part of a bigger landscape of economic activity. It must view economic activity as the basis of our society, culture, well-being and national character. All the moving parts interact and interrelate, just as all humans do. What happens in Port Talbot, in Scunthorpe, in the long-ignored corners of our country and in the left-behind towns and estates happens to us all. This is an essential truth that the Government seem to have missed. I beg to move.

Photo of Baroness Donaghy Baroness Donaghy Llafur 4:39, 1 Chwefror 2024

I thank my noble friend Lord Watson for initiating this debate and look forward to the maiden speech by the noble Lord, Lord Rosenfield.

It is not that long ago that the Government had an industrial strategy. When the noble Lord, Lord Henley, was Minister at the Department for Business, Energy and Industrial Strategy, he referred to it more than 300 times, including Written Answers, between 2017 and 2019. Described as a modern industrial strategy, it covered the Good Work Plan, the environment, safeguarding the post office network, life sciences, productivity and skills training. In a major debate in January 2018, the noble Lord, Lord Henley, referred to contributions by

“the grandfather of industrial strategies”,

the noble Lord, Lord Heseltine, and

“the godfather of industrial strategies”,—[Official Report, 8/1/18; col. 105.] my noble friend Lord Mandelson. He also referred to contributions by my noble friends Lord Eatwell and Lord Chandos. Perhaps they were slightly less optimistic about the Government’s White Paper and he thought their contributions were “Eeyoreish”—difficult to say—but it was clearly central to government strategy, so what happened?

Theresa May went to the Back Benches; the noble Lord, Lord Henley, went to the Back Benches; industrial strategy disappeared from the title of the government department. Andy Haldane, who had been appointed chair of the independent Industrial Strategy Council to oversee the Government’s industrial strategy, commented on its subsequent abolition and the closure of the industrial strategy directorate in the department, saying:

“In the UK, industrial strategy is dead”.

He was lukewarm about the substitute policy, the plan for growth.

Make UK, the body representing the manufacturing industry, has claimed that the lack of a formal strategy is damaging to the UK, regionally and internationally, and called for, as my noble friend Lord Watson said, a long-term national manufacturing plan similar to those in Germany, China and the US. This has been backed up by research from the CEPR and the OECD. Why is the UK the only major economy not to have an industrial strategy? Does the Minister agree with the CBI that “the clock is ticking” for the UK to publish an industrial strategy that can rival other markets in fast-growing green economy sectors?

Photo of Lord Kakkar Lord Kakkar Crossbench 4:42, 1 Chwefror 2024

My Lords, I join other noble Lords in thanking the noble Lord, Lord Watson, for having secured this debate and in welcoming the opportunity to listen to the maiden speech of the noble Lord, Lord Rosenfield. I will confine my comments to the life sciences sector and in so doing draw noble Lords’ attention to my registered interests, in particular the fact that I am chairman of the Office for Strategic Coordination of Health Research and King’s Health Partners and actively engaged, outside this House, in biomedical research.

It is often argued that it is difficult to find a true position for an industrial strategy, as we have heard, that does not define a top-down impact by government and the state on what ultimately needs to be entrepreneurial activity to drive opportunity, growth and innovation in many sectors. But in a sector as complicated as the life sciences, where we need to bring together the universities, our health service, the commercial sector, big pharma, biotech, health tech and medtech, commercial sectors, entrepreneurs, financiers and legal and other professionals, it is essential that a framework exists so that government intervention can facilitate the creation, for instance, of a highly skilled workforce, the environment in which science can be delivered at scale and pace, a health service that can make an appropriate contribution to the delivery of life sciences and, indeed, the appropriate data infrastructure to ensure that a life sciences strategy and its broader contribution to our economy can be delivered.

Is the Minister content that His Majesty’s Government’s strategies, over many iterations, such as Life Sciences Vision and other commitments over the last 10 to 12 years, are actually delivering what has been anticipated? This sector is vital to our economy. It is estimated that some 250,000 highly skilled jobs attend the life sciences sector currently, contributing over £80 billion to our economy and sustaining some 63,000 organisations. It is anticipated that if the life sciences vision can be fully implemented over the next 30 years, there will be a further £68 billion contributing to our GDP, and there will be a 40% reduction in attributable burden of disease—not only wealth creation but health gain.

Regrettably, many of the indicators suggest that we are not sustaining our position. Is the Minister content that we are doing enough to ensure that we remain globally competitive?

Photo of Lord Rosenfield Lord Rosenfield Ceidwadwyr 4:46, 1 Chwefror 2024

My Lords, as I rise in this place for the first time, may I say what a pleasure it is to follow the noble Lord, Lord Kakkar? I thank him and all Members for the warm welcome I have had so far. I also take a moment to thank the excellent staff, especially the doorkeepers for their kind and assured guidance as I find my way in this place.

After over a decade as a civil servant in His Majesty’s Treasury, it is especially pleasing—and somewhat daunting—to see so many familiar faces, friends and former political masters in this place. If I may, I would like especially to pay tribute to one of my former bosses, Lord Darling of Roulanish, whom I served as principal private secretary and who passed last year, sadly. He was an outstanding public servant, and a man of real depth and values, who I will miss dearly.

I also thank the former Prime Minister, Boris Johnson, for luring me back into public service after over a decade in the private sector, and for giving me the opportunity to serve my country and my Government at a time of real challenge.

Much of my career, both in public service and the private sector, has been take up with questions of economic policy, investment and growth. There is one theme that has struck me time and again, a theme that the noble Lord, Lord Watson, touched on briefly. It is the huge opportunity that we in the UK have to boost prosperity, if only we can find the right approach to address the stark regional and geographic disparities in productivity and economic performance. From regional development agencies to the northern powerhouse to levelling up, there have been many attempts and some good progress. No more so than in Manchester, my hometown, which I have seen recover from its post-industrial slump to thrive in a services-led economy, and have the sorts of jobs, skills and investments that any city in the world would envy. I wish only that it would also envy the leading football team in Manchester—that is, the red one—but that may be too much to wish for right now.

Yet there is much more to do, and the UK remains one of the most geographically unequal countries in the OECD. As this House considers the need for a comprehensive industrial strategy, I would argue that an essential ingredient is government working in tandem with the private sector to unlock the huge potential of those towns and areas that have not yet seen the sort of economic success of Manchester, let alone London and the south-east.

I would also observe the impact of such disparity, coupled with the phenomena of geographic disparity, on social mobility. Speaking personally, if I may, I feel truly lucky to be born into the British Jewish community, and I celebrate the multitude of fantastic personal stories in that community; for instance, families finding personal and economic success within a generation of arriving in this country with only the possessions in their suitcase, something my own father experienced as a second-generation immigrant. He became the first of the Rosenfield family to attend a grammar school and university and to take up a profession.

Does the Minister agree that a credible industrial strategy must seek to address those geographic disparities, not through short-term subsidies but through long-term investment in infrastructure, education and skills, and a stable framework to support growth and empower the private sector?

Photo of Lord Willetts Lord Willetts Ceidwadwyr 4:50, 1 Chwefror 2024

My Lords, it is a great pleasure to welcome the maiden speech from the noble Lord, Lord Rosenfield, to congratulate him on the points that he made and to welcome him to this House. By happy accident I follow him in this debate, and I realised that there were some rather significant career parallels. We both began our careers as Treasury officials and both then moved to 10 Downing Street. He worked for Boris Johnson; I worked for Margaret Thatcher. I am now here on the Tory Benches and he is a Cross-Bencher, which may tell us something about the particular qualities of bipartisanship that he will bring to this Chamber and which I am sure will lead to many interventions in the months to come.

I register my interests, particularly as president of the Resolution Foundation and chair of Innovate Cambridge.

Industrial strategy is a very fraught concept, which is sometimes argued about too much. It has a very simple meaning. All of us believe that we can promote economic growth by horizontal policies that apply across the entire economy: a good tax system and an efficient planning system. Industrial strategy says that there also have to be vertical policies addressing particular sectors, particular places—as we just heard so eloquently—and particular technologies. I have observed many Ministers who arrive in government determined to have purely those general horizontal policies and find that they are brought into having to take decisions—where to make transport investment, exactly what kit to buy, how to spend a limited science and technology budget—and they need some criterion for reaching those decisions. That is why you need some kind of strategic framework.

I welcome the excellent opportunity of this debate and the opening speech. However, I quarrel with some of the terms in the Motion before us, such as “comprehensive”. There are some sectors that just want to be left alone; I think “comprehensive” may be too ambitious. It should be comprehensive where there is a need, certainly, but I am not so sure that you can have something as comprehensive as Labour’s National Plan of 1965. Similarly, “industrial” has rather a precise meaning. Our work at the Resolution Foundation in our recent economic inquiry showed that it was absolutely clear that Britain has a real comparative advantage in services, which is an area where we can do more. For me, with my interest in higher education, I think of higher education as a really important British export industry. Therefore, any kind of industrial strategy really has to cover services as well.

There are, of course, risks to industrial strategy, and it is just possible that in subsequent interventions we may have warnings of some of those risks. One risk is producer capture: big, powerful lobbying firms getting things for their advantage. One reason why I very much agree with the excellent points made by the noble Lord, Lord Kakkar, is that one of the arguments for investing in disruptive new technologies is that they rarely favour incumbents. They are a great way of shaking things up, hence the particular importance I attach to technologies being supported.

One of the reasons why I very much regret the Government’s decision to abolish the Industrial Strategy Council is that the real purpose of that council was not to write detailed plans but to keep industrial strategy honest by scrutinising what was being done, what was proving to be effective and should be grown, and what was ineffective and should be abandoned. I very much hope that it will be possible in the future to recreate something like that excellent body.

Photo of Lord Drayson Lord Drayson Llafur 4:54, 1 Chwefror 2024

It is a pleasure to follow the noble Lord, Lord Willetts, and to join him in congratulating the noble Lord, Lord Rosenfield, on an excellent maiden speech. We look forward to his contributions to this House in the future. I thank my noble friend for securing this debate. He will recall our time together as Ministers in the MoD and my enthusiasm then for industrial strategy for defence, and he will not be surprised that my belief in the importance of industrial strategy for our national wealth, our security and the challenging transition to net zero has not dimmed since. I draw the House’s attention to my entry in the register of interests.

History tells us that there is a clear dividing line between Conservative and Labour Governments when it comes to industrial strategy. Labour has consistently used industrial strategy as a core part of its policy framework, based on a commitment to set a long-term vision in partnership with industry, to help businesses grow, to create well-paid jobs across regions and to compete on a global stage, within a belief that it is part of the role of a responsible Government to have the courage to make choices that seek to build a fair, meritocratic and prosperous nation.

I shall concentrate in my time in this debate to offer eight principles based on my experience in government in developing and implementing industrial strategy that I believe are key to making sure that the implementation of industrial strategy works. There should be a commitment by the Prime Minister to ensure that the UK has an industrial strategy that will provide the long-term certainty that many noble Lords have mentioned, that commitment to work with industry, business, academia and local leaders to develop the strategy together; the full engagement across government of all the relevant government departments, particularly the Treasury, to ensure that the various levers that the departments have—be it regulation, procurement, skills or finance—are all brought to bear in a policy that helps to create synergy between them and prevent rivalry; the recruitment and development of a cadre of civil servants with the knowledge and experience to develop policies based on a sound understanding of the science, technology—as the noble Lord, Lord Willetts, mentioned—and, most importantly, the processes of innovation and wealth creation; painstaking leadership by a Minister in a powerful government department of the policy development process, with single-point accountability to the Prime Minister; active engagement to create that consensus, maintained over time, and a planning horizon that provides the certainty for industry needed beyond one Parliament; once the strategy has been developed, provision of the resources, oversight and ownership to ensure its implementation, ideally by the same Minister who led its development; and, finally, a biannual review to take stock, identify what is and is not working and make the necessary corrections.

None of this is rocket science, but it requires a new type of politics that goes beyond the soundbites and provides proper answers to complex questions—that delivers the how as well as the what. Whoever wins the next general election will face some major challenges—ones that can be managed if these principles are put into practice.

Photo of Lord Whitty Lord Whitty Llafur 4:58, 1 Chwefror 2024

My Lords, I offer congratulations to my noble friend Lord Watson on securing this debate, and a warm welcome to the noble Lord, Lord Rosenfield—I appreciated his speech.

Arguably, the biggest failure of the British economy over several decades now has been that we face a falling share of global investment in industry in its widest sense, including the service and digital industries. That means we have to have the confidence of investors—and by “investors” I mean everybody from the boards of multinational companies, those who run the great sovereign funds which decide where the money goes, those who run private equity firms and, indeed, those who run the more mundane pension schemes and the ordinary Joe who has a few shares. They all want to invest and they take the risk to invest, but one of the essential contradictions of capitalism—of which there are a few—is that those who earn their money by taking risks actually require a degree of certainty. That applies to investors of all sorts. I remember industrial policies, or whatever they were called at the time, from Harold Wilson onwards, and none of them lasted long enough, none of them was clear enough and none of them convinced the investors of the world that Britain was the place to invest. It was different in other countries, as my noble friend Lord Watson said.

Over the past 48 hours, I have met three sectors of business. All of them are operating under what may be a high-level industrial strategy: the pathway to net zero. Each told me the same thing, in effect. I met the nuclear industry, which has suffered over decades through changes to industrial policy when it needs a real, long-term environment. I met the automotive industry, which is now committed to moving away from fossil fuel-powered vehicles but sees the Government changing dates and not giving enough certainty there. And I met the new sector of carbon capture and storage, which will be another vital sector in delivering net zero but needs greater certainty from government; it has already had two false starts in developing technology where we could have been world leaders.

We need an industrial strategy that provides certainty both to investors and to the future workforce that we hope to recruit and benefit from. It needs to be a just and fair transition—fair to workers and to different parts of the country. That means it has to involve an effective medium-term to long-term policy for training, including the retraining of existing staff and the training of future generations. We will have to take the workforce, including the trade unions, on board in this; we will also have to take those who are in different parts of the country into consideration in developing the strategy.

But a long-term strategy is what we need. We have not had it properly and we need it even more desperately now.

Photo of Lord Mountevans Lord Mountevans Crossbench 5:01, 1 Chwefror 2024

My Lords, I thank the noble Lord, Lord Watson, and congratulate the noble Lord, Lord Rosenfield, on his excellent maiden speech.

I spoke in the debate on the Government’s industrial strategy White Paper in 2018. Sadly, the scope of the plan laid out then was not followed through. Since then, the Government have brought forward amended but less detailed strategies, in 2021 and 2023. There has been a lack of co-ordination and consistency in UK industrial policy. In my view, it would be immensely helpful to business if we could have a more comprehensive strategy—that is, a framework offering consistency. The strategy should set out a long-term vision for growth, skills and productivity, as well as increased competitiveness—and of course, innovation today is critical. Importantly, a long-term growth strategy needs to give investors confidence to make long-term decisions.

Noting priority sectors such as the life sciences, advanced manufacturing, the creative industries, digital and green is essential, but can we please not overlook the wider economy? Governments tend to be overly attracted to the obviously 21st-century sectors and do not pay enough attention to less eye-catching but vital sectors, for example financial and professional services and transport. The financial and professional services sector is one of the UK’s competitive strengths, supporting 2.5 million jobs and contributing £100 billion in taxes each year. London was recently ranked number one for the fourth successive year among leading international financial centres. A recent City and practitioner report recommended that a goal should be to anchor the UK as a leader in sustainable finance. It also called for a long-term strategy for a competitive financial and professional services sector to build support for

“the growth of potential areas of competitive advantage such as sustainable finance, and emerging technologies”.

UK-based financial and professional services play a critical role in the domestic and global green finance ecosystem. London ranked first in the latest Global Green Finance Index, published last October. Time does not permit me to comment on transport, but it is an obvious case for greening and the march to net zero. Look how the sector delivered during the pandemic and, indeed, at all times—although perhaps I should leave railways out of that.

Moving to my close, I would personally warn against too prescriptive an approach in the strategy. A lighter touch seems appropriate. Being practical has always been a core UK strength. In my view, there is a need for any party hoping to win the next election to get cracking on industrial strategy. Suggestions of a royal commission risk taking too long.

Finally, it is essential to simplify and speed up the planning process while protecting our precious countryside: brownfield sites, please, wherever possible.

Photo of Baroness Blake of Leeds Baroness Blake of Leeds Shadow Spokesperson (Energy and Net Zero), Shadow Spokesperson (Business and Trade) 5:04, 1 Chwefror 2024

I add my congratulations to the noble Lord, Lord Rosenfield, on his maiden speech. I am grateful to my noble friend Lord Watson for securing this debate to allow discussion of this area, which is crucial for enabling future economic growth and prosperity across the UK.

The transition to net zero presents a great opportunity for the UK to realise its ambitions for economic growth, lower energy bills, energy security and jobs. A refreshed industrial strategy will be vital to keep investments on track, ensuring that the UK’s reputation as a global leader does not go further backwards and that essential investments flow into the UK and not just to our global competitors. Businesses are telling us that they need certainty, consistency and clarity as we go forward to deliver our objectives. It is my firm belief that a clear policy framework is essential to enable businesses to work with the Government to deliver the step change we need. Growth in our economy will depend on creating and developing partnerships between the public and private sectors, the unions, our communities, and local and regional governance bodies; these relationships must underpin any strategy approach. They will need to deliver major infrastructure schemes, provide the skilled workforce as required and ensure the supply chains are in place to enable development.

To deliver net zero, the UK will need to become a world leader in producing electric cars, developing hydrogen, and developing and creating further capacity in renewables, as well as delivering our nuclear power potential—and we have had many discussions on the need to invest in the national grid to achieve those ambitions. Analysis shows that many of the clusters of high-value green industries are outside of London and the south-east, which offers opportunities to tackle stubborn interregional inequalities. Developing clean power offers the potential to create good, well-paid jobs across the country to overcome the current piecemeal and fragmented approach that has blighted progress, especially over recent months, with inconsistent government policy announcements bringing despair and irritation to many business leaders. Developing a joined-up, inclusive industrial strategy is essential in tackling the perceived gap between aspiration and delivery, frequently mentioned by the Climate Change Committee and others.

The brilliant Library briefing gives us many examples of how important this is. The last formal industrial strategy was set out in 2017. The need for laying out a new one is obvious and overdue, and I look forward to hearing the Minister’s views on the current situation.

Photo of Lord Aberdare Lord Aberdare Crossbench 5:08, 1 Chwefror 2024

My Lords, I congratulate the noble Lord, Lord Watson, on obtaining this debate, and my new noble friend Lord Rosenfield on his excellent maiden speech.

I will talk about skills, which are central to the Government’s aims of becoming a science and technology superpower and leading the world in achieving net zero, and therefore central to industrial strategy. Digital skills are needed across the board, particularly as artificial intelligence grows ever more pervasive. Green skills are essential in the pursuit of net zero; creative skills are increasingly demanded by all sorts of employers, and are key to our success in the creative and cultural sectors; and the importance of technical skills is well presented by the new Technicians gallery at the Science Museum. The noble Lord, Lord Hague, pointed out in the Times last week that the current lack of craft and trade skills, including electricians, plumbers, bricklayers, plasterers and roofers, makes the target of building 300,000 new homes a year “at present ... a fantasy”, in his words. We also lack leadership and management skills.

Current skills policy seems far from being joined-up or comprehensive. What can the Minister tell us about progress in developing the nationwide local skills improvement plans required by the Skills and Post-16 Education Act 2022? Where in government does responsibility lie for ensuring that skills needs are fully addressed nationally and locally? Where is the big picture for skills strategy?

The recent report of the Lords Education for 11–16 Year Olds Committee, on which my noble friend Lord Mair and I served, emphasises the need for a better balance between academic and technical education in schools. The curriculum’s current overacademic bias fails to offer enough attractive technical or vocational pathways for the 50% of young people who do not aspire to university, especially the so-called forgotten third of pupils whose educational progress is stymied by not achieving pass grades in English and maths GCSEs. We should instead be opening their eyes to the wealth of opportunities for them to acquire the technical and practical skills that we so badly need.

Apprenticeships should also be central to any skills strategy, but the numbers of young apprentices aged between 16 and 25 are low and falling further. Employers almost universally complain that the apprenticeship levy is not flexible enough and that a significant proportion of levy funds is not being used to finance skills development at all, but reverts to the Treasury. Meanwhile, small employers are reluctant to take on apprentices because of the cost and bureaucratic complexity involved.

A culture change is needed to recognise the central importance of skills and to put in place appropriate policies across government to deliver the skills we need. No industrial strategy will work unless it includes development of the skills needed to deliver it. I hope the Minister tells us how the Government plan to address this key challenge for the achievement of their strategic industrial goals.

Photo of Lord Frost Lord Frost Minister of State (Cabinet Office) 5:11, 1 Chwefror 2024

My Lords, I congratulate my former Downing Street colleague, the noble Lord, Lord Rosenfield, on an excellent maiden speech. I thank the noble Lord, Lord Watson, for securing this debate today.

Perhaps not for the first time, I am a bit out of sync with the thrust of the debate in the Chamber so far. I am a little sceptical of industrial strategy. The case for it is that decision-making by Governments and officials produces a pattern of economic activity of industries that would be better than that which would otherwise develop in the market. Perhaps even less plausibly, it is that the industries that we must support for strategic reasons are also, by total coincidence, those that are better for growth too, even though we still cannot rely on the market to provide them. My simple question to all this is: says who? How do you know? Where does the Government get the information they need to shape the economy through tax, subsidy and—apparently soon—tariffs in the form of CBAMs?

Proponents of industrial strategy say that they know better than the market, but you cannot just say that; it has to be proved. That is literally impossible. The only reliable source of economic information in a market economy is prices, yet the proponents of industrial strategy say that market prices are wrong because the allocation of resources that the prices create is inferior to the one that their industrial policy would create. They cannot then use market prices of the future to justify the claim that their new industrial structure is better than the unknown alternative. You cannot have it both ways.

The second problem with industrial strategy is regulatory capture. We all know about that: it is the tendency for economic decision-making to be captured by Governments, who find it hard to admit failure, or firms that benefit from incumbent positions.

The final problem with industrial strategy is epistemological. Nobody knows the future. No one knows that “the industries of the future” actually are the industries of the future. Of course, if you spend enough money on them, they become the industries of the future—at least, if any competition can be squeezed out—but that does not mean that they were the best use of our resources. It is especially unlikely that they were if the outcomes are shaped by Governments spending other people’s money, rather than firms and entrepreneurs risking their own.

Of course, it is possible to make a case for industrial strategy on different grounds, such as by saying that we need, for example, a windmill industry for climate change reasons or a steel industry for national security reasons, and that although doing that is not the best use of resources and will harm growth, we must do it anyway. It would still fall foul of the inability to know the future, but at least we would be honest in debate.

To conclude, I commend the Government for their at least partial reluctance to go down the money-wasting road of industrial strategy. My policy proposal to the Minister is to end all the subsidies, use a bit of the money to buy for every Minister and official a copy of Hayek’s essay The Use of Knowledge in Society, and then sit back and let the market work.

Photo of Lord Davies of Brixton Lord Davies of Brixton Llafur 5:15, 1 Chwefror 2024

My Lords, I welcome the noble Lord, Lord Rosenfield, to the House, and I thank my noble friend Lord Watson of Wyre Forest for introducing this important debate and for his powerful speech in support of the need for a comprehensive industrial strategy. To my mind, it should really go without saying. What is more contentious, and perhaps highlighted by the previous speech, is what goes into a comprehensive strategy. I emphasise that the bedrock of an industrial strategy for this country must be a green prosperity fund, maybe costing £28 billion. The arguments for such a fund are straightforward: it is for our children’s and grandchildren’s future, stretching into the 22nd century. There must and will be a transition to a decarbonised economy—that is coming—which means, as a matter of urgency, Britain needs rebuilding for a greener future, which means more investment, not less. We need to do it now. We cannot afford to wait.

Having said what I want to see, I will highlight what I do not want to see, and I turn to the financial services industry—I take a broad view of what counts as an industry for these purposes. The danger here is captured in the term “overfinancialisation”. This is where the financial sector becomes too large or dominant within an economy, at the expense of other sectors. London’s status as a global financial hub means that the financial services industry plays a significant role in the national economy. This has brought wealth and employment, but overreliance on finance can lead to several problems, such as economic volatility exposing the economy to risk of financial crises; resource misallocation, starving other industries and regions outside London of innovation, investment, and growth in productivity; and making income inequality worse, as the wealth generated by financial services is not evenly distributed across the population and the country. Ultimately, we end up with what is called the resource curse. Also known as the paradox of plenty, the resource curse refers to the paradox that countries with an abundance of natural resources, such as oil or minerals, tend to have less economic growth and worse development outcomes than countries with fewer. Overdevelopment of financial services leads to the same bad outcomes.

In ‘summary, we need to be concerned about the risks of overreliance on a single sector, whether finance or natural resources, and the importance of pursuing a balanced and diversified economic strategy.

Photo of Earl Russell Earl Russell Liberal Democrat Lords Spokesperson (Energy and Climate Change) 5:18, 1 Chwefror 2024

My Lords, I also congratulate the noble Lord, Lord Rosenfield, on his maiden speech and the noble Lord, Lord Watson of Wyre Forest, on bringing this debate.

Our economy is largely stagnant, and productivity remains poor. This is harming living standards. The UK does not have a coherent industrial strategy. Lots of changes have caused uncertainty. We need a green industrial strategy to support the future green economy. Markets need certainty in political outlook and an industrial strategy to have confidence to invest, and we need huge levels of private investment.

On green issues, Rishi’s change of course has been hugely damaging to our place as a green world leader and to UK plc. Industry is now wondering if we are still a safe partner for large-scale green investments. Ministers tell me that this is the greenest Government ever. I recognise the scale of the ambition but, time and time again, their plans for implementation are not happening at speed and to scale.

The anti-green rhetoric grows ever louder as we approach the election—a convenient stick to beat the Labour Party with but not necessarily good for the UK. Labour responds by putting up its flagship £28 billion green pledge as a sacrificial lamb almost daily. We need to stop playing politics with the environment. The next industrial revolution, if there is to be one at all, must be green.

The UK is near the bottom of the table in the G7 for investment and the outlook is bleak. We are predicted to see a decline in investment from 2.6% of GDP in 2023-24 to a predicted 1.8% in 2028-29.

The EU, America and China have all made huge green investments. China developed more solar power last year than the rest of the world did in the whole of 2022. Instead of investing £78 billion in burning more fossil fuels, as we have been with the price cap and other measures over the last two years, we could have invested in renewables, creating long-term energy security and jobs. We must also invest in energy efficiency. Our interconnectors are out of date, we have a lack of storage and our homes are not fit for purpose in terms of energy.

The transition to a green economy is an opportunity to enhance productivity and create new growth, jobs and private investment. Jürgen Maier, the former UK head of Siemens, said yesterday that massive investment is needed to rebuild the UK economy and make it fit for the future, and that it should concentrate on low-carbon energy, transport, and industry. He said:

“These are the growth areas of the future”.

Photo of Viscount Hanworth Viscount Hanworth Llafur 5:21, 1 Chwefror 2024

My Lords, Britain is in decline. To avert that decline, we need a comprehensive and sustained strategy for encouraging investment in our publicly owned social infrastructure and in our economic infrastructure, which is predominantly in private and corporate ownership.

We need to spend money to revive the social infrastructure and the services that it sustains. This raises the question of where the money should come from. The answer is that it must come from taxes. This is a truth that becomes increasingly difficult for political parties to acknowledge as an election approaches.

The revival of public infrastructure will not be enough to restore our economic prosperity. Private industry must also meet the challenge of investing in new technology and new factories. There has been a dire lack of industrial investment over many years.

The hope is entertained that this deficit can be overcome by dint of foreign investment in the UK. A recent report by the noble Lord, Lord Harrington, extolled the virtues of this recourse while regretting that, in consequence of Brexit, there has been a modest decline in the value of such capital inflows. The assertion that such investment is unequivocally favourable to our economy must be challenged. Direct foreign investment is virtually synonymous with the sale of our assets to foreign owners.

The large inward capital flows we have experienced over the years have had the effect of easing our balance of payments deficits. They have also been immensely profitable to the City of London, which has mediated them. They have also had the effect of sustaining the demand for sterling in the international markets, and of elevating its value. This has been one of the prime causes of our economic distress. Our goods have become too expensive to compete in foreign markets and our industries have wilted in consequence of a lack of demand for our exports.

Steps should be taken to reduce the value of the pound in the currency markets. This can be achieved by purchasing foreign currencies when the value of the pound exceeds certain levels. The effect would be to make British goods more attractive abroad. This would stimulate our industrial sector by increasing our exports. The process of recovery will be protracted. It might have the same duration as the processes of industrial decline that we have experience since the 1960s.

Photo of Lord Mair Lord Mair Crossbench 5:24, 1 Chwefror 2024

My Lords, I thank the noble Lord, Lord Watson, for securing this debate, and I congratulate the noble Lord, Lord Rosenfield on his excellent maiden speech. I will make two points: the first on the timescale and continuity of government funding for any sort of industrial strategy or growth plan, and the second on the acute national shortage of engineering skills, limiting the success of such plans.

First, in November the Government announced £4.5 billion of funding for the manufacturing sector. Eight key sectors have been identified: automotive, aerospace, and life sciences, and five sectors in the all-important clean energy industry—carbon capture, utilisation and storage; electricity networks; hydrogen; nuclear and offshore wind. These are undoubtedly all key sectors for our economy, and such funding is of course very welcome. To harness the all-important underpinning science and technology most effectively, the UK requires a robust and consistent strategy for industry.

However, at the same time it was also announced that this funding for manufacturing would be available from 2025 for only five years. Without a commitment to a longer pipeline of funding, this does not constitute an industrial strategy; it is surely no more than a temporary fix. As has been pointed out in this debate, Make UK, a body representing the manufacturing industries, has emphasised that

“Every other major economy, from Germany, to China, to the US, has a long-term national manufacturing plan”.

“Long-term” in this context means beyond five-year political cycles; it means longer-term budgets and durable institutions. It means a stable pipeline to enable the UK’s world-renowned research and innovation system to deliver and provide confidence for businesses to thrive.

Secondly, there is a huge importance of the need for engineering skills. Here I declare an interest as an engineer, both in practice and in academia, over the past 50 years. In its recent report, Engineering Economy and Place, the Royal Academy of Engineering finds that the total engineering economy contributes up to an estimated £646 billion of direct GVA annually to the UK economy—over 30% of total economic output.

Of the eight million people working in the engineering economy, 70% are engineers, yet there remains an acute shortage of engineering skills, which must be addressed. A recent report led by the Institution of Engineering and Technology

“estimated there is a shortfall of over 173,000 workers in the STEM sector”.

It called on the Government to help to tackle the UK’s engineering skills shortage by embedding engineering into the current school curriculum. As mentioned by my noble friend Lord Aberdare, this is consistent with the findings of the recent inquiry of this House’s Committee on Education for 11 to 16 year-olds. There is a substantial untapped resource of future engineers and engineering apprentices in our schools. We need to address this urgently and plug the skills gap.

In summary, any strategic support of manufacturing must resist any quick-fix approach and instead focus on a long-term pipeline. We need a planned industrial strategy and, to be effective, it must address the acute shortage of engineering skills.

Photo of The Earl of Effingham The Earl of Effingham Ceidwadwyr 5:27, 1 Chwefror 2024

My Lords, I thank the noble Lord, Lord Watson, for raising this debate and congratulate the noble Lord, Lord Rosenfield, on his maiden speech.

I spent 20 years advising and winning business from over a third of the companies in the FTSE 100, and I now try to help SMEs. I refer the House to my entry in the register of interests. During my time with the multinational corporates, I enjoyed many trips to Derby to see Rolls-Royce, Farnborough to see BAE and Coventry to see Jaguar Land Rover. I now travel to different parts of the country to see SMEs, but whether it is Lichfield, Exeter or Portsmouth, it is striking that wherever I go, the enthusiasm and the commitment of the workforce is the rock that allows these companies to thrive. All over this country, we have a truly amazing industrial and manufacturing sector. We should be doing everything that we can to help it.

I will therefore focus on SMEs and exports as part of a wider industrial strategy. I will give noble Lords a crucially important statistic. If you were to go to Companies House today, you would find around 5.4 million firms registered. However, of those, only 8.8% export at all. UK exports are now at the highest level we have seen in our history, and it is clear that we have a very experienced and successful team at UK Export Finance. None of that is in doubt but, taking a purely objective view, 8.8% appears to be at the low end of expectations. Will the Minister say why he believes that number to be where it is and how he believes we can help it to flourish and grow? Is it a case of allocating more resource to UK Export Finance so it can visit more companies? Do we need more material to deliver the message that exporters are more productive, diversify their risk and drive their own growth? Should the Government be working with the big banks to laser focus on promoting the benefits of exporting to those companies which are best placed to benefit from an export strategy?

Another of the companies I did business with was ARM, the chip maker and one of our great UK success stories. However, it is listed in the US, not the UK. When our brilliant companies grow and think about raising capital they should, one would think, look to list in London. However, the FTSE Small Cap index is seeing its constituents decline as well as its market capitalisation, which materially impacts the investor funds available to support our businesses which want to borrow money to expand. What steps are the Government taking as part of an industrial strategy to encourage investment in UK small caps and make the sector great again?

Photo of Lord Rooker Lord Rooker Llafur 5:30, 1 Chwefror 2024

I was pleased to endorse the Policy Exchange paper published last week entitled Where now for UK Industrial Policy? by Geoffrey Owen, the former editor of the Financial Times. I encourage Ministers and shadow Ministers to study the paper and, above all, to listen to Owen and his contacts, as they themselves will have no direct experience of his lessons from the past, and from other countries.

There are warnings such as,

“the picking winners … of the 1960s and 1970s” and the “apparent success” of Biden’s programmes. Of course, we should look at recent US and European experience, but we need to look deeper to see whether they are relevant to the UK. Owen gives an indication that the lurches in UK industrial policy can be assessed by the 18 changes in titles and responsibilities of the UK departments that have been the principal link between Whitehall and industry since 1970.

Previous policies have failed. I shall give a brief outline of Owen’s conclusions: do not imitate the EU; have government investment in R&D; and

“the UK’s newest funder, the Advanced Research and Investment Agency … ARIA is charged with supporting high-risk projects” to have

“a transformative effect on the economy. But these will be calculated risks with a clearly defined objective, and the project will be terminated if not enough progress being made”.

When this occurs, there is a need to ignore the inevitable lobbying that will take place to create open-ended government support. Projects should not be made difficult to abandon. Do not enter a subsidy race with other nations. Do not use the term “strategic investment” for any sector without explaining in clear terms why one sector is more strategic than another. Furthermore, it is crucial to channel government support,

“on a competitive basis, allowing scope for new entrants as well as established producers”.

After his first stint at the Financial Times, Owen worked at the Industrial Reorganisation Corporation and British Leyland for the short period from 1969 to 1972. His report indicates some successes, but the story overall is not good. Manufacturing is not the same as in my early experience between 1957 and 1971—I am the oldest, most out-of-date chartered engineer still paying his subs in the House. It is vital, as my successor as MP for Perry Barr, Khalid Mahmood, says in his endorsement of the paper that we have a,

“consistent and predictable policy environment”

It is also vital that the tent is big enough and that Ministers and shadow Ministers are big enough to accept things invented by others. In this respect, the legacy of Dominic Cummings is the Advanced Research and Invention Agency, and this should be embraced and, I hope, allowed to flourish.

Photo of Lord McNicol of West Kilbride Lord McNicol of West Kilbride Shadow Spokesperson (Business and Trade), Shadow Spokesperson (Scotland) 5:33, 1 Chwefror 2024

My Lords, I thank my noble friend Lord Watson of Wyre Forest, not just for securing this debate, but for a fantastic introduction. He is absolutely right. As we have heard from across your Lordships’ House, the case for a new industrial strategy, one that works in partnership with business, unions and government, is overwhelming.

I too congratulate the noble Lord, Lord Rosenfield, on his maiden speech. I agree with him that there is huge opportunity across the UK, not just in London and the south-east, to develop an industrial strategy. I echo his warm words about Alistair Darling, a mutual friend of many of us on this side, and his family. I thank him for that. I hope he enjoys his many years in your Lordships’ House.

We are a country full of talented people and businesses, with ingenuity and ideas in every town and city, but we cannot meet our vast challenges alone, as individuals or businesses. It requires a national focus and effort that has been sorely lacking over recent years. We have some key economic strengths across the UK: our world-class universities, our thriving life sciences sector—as the noble Lord, Lord Kakkar, who is not in his place, talked about—advanced manufacturing clusters, creative industries, and many more.

Yet, despite our enormous potential, the UK is set to have the lowest growth in the G7, having suffered years of low investment relative to our neighbours. Our productivity levels remain stubbornly low and, as a result, workers have seen no growth in real pay since 2010, leaving families exposed to the current cost of living crisis. A country such as Britain should not be looking at a future of low growth and poor productivity. The defining mission of the next Labour Government will be to restore that growth.

A co-ordinated, cross-sectoral approach, with policy consistency so that businesses and individuals can make long-term decisions and invest, is vital. The emphasis must lie on unpacking and refining an industrial strategy within a comprehensive framework, as the title of this debate sets out. This Government said that they would achieve their plan through a focus on policies across three core pillars of growth: infrastructure, skills and innovation. These Benches agree, but it is time to transit from words into action. If we have the opportunity to serve and govern after the next election, we will foster community collaboration to drive positive change across Britain’s industrial landscape.

An industrial strategy can play a crucial role in supporting the broader fabric of British society. Under the coalition Government, Vince Cable continued some of the work that new Labour had put in motion, but this was jettisoned after the 2015 general election. As my noble friend Lady Donaghy said, in 2017 Theresa May’s Government published an industrial strategy and established the Industrial Strategy Council. However, since 2019 there has been little serious attempt at any industrial strategy; the 2017 industrial strategy was set aside and the council disbanded. The challenges and opportunities ahead make it essential that Labour reverses this inconsistency and pursues a serious and strategic approach. Our lack of progress as a nation has encountered serious challenges, with the impact of Brexit in particular serving as a major obstacle.

At the core of implementing Labour’s industrial plans is a commitment to make Brexit work by re-establishing connection and engagement with the EU to support UK industry. The last Labour Government’s early intervention in renewable energy technologies supported large-scale renewable electricity generation and led to the expansion of wind-generated power. Labour’s cultivation of the life sciences sector when we were last in government was crucial to ensuring that it is now one of the leading industries. Just two days ago, the Labour Front Bench launched a new plan for the future of life sciences. This underscores the urgency of re-evaluating our industrial strategy to foster sustainable growth.

Jonathan Reynolds, Labour’s shadow Secretary of State, when presenting Labour’s industrial strategy, said that fostering collaboration with small businesses and adopting a national government approach representing smaller and larger businesses is critical. Such inclusive measures can contribute to a more comprehensive and effective approach to advancing the nation’s industrial landscape. Labour will provide policy consistency by placing an industrial strategy council on a statutory footing. This would help to end the farce of long-term plans that do not survive the political cycle, as we have heard, and which make it difficult for businesses to take strategic decisions about their future direction. It would instead offer the certainty needed to increase investment in British business, people and places.

Labour has based its industrial strategy on four missions: delivering clean power by 2030; harnessing data for public good; caring for the future; and building a more resilient economy. Collaborating with organisations such as the British Business Bank can effectively support entrepreneurs and business owners. Addressing disparities by strategically targeting areas in need of industrialisation, such as empty high streets, can play a key role. This includes investing in areas to transform them, with thriving businesses and creative, vibrant communities. In creating an industrial strategy for Britain, considering environmental outcomes is paramount, as my noble friend Lord Davies and a number of other noble Lords have said. We are currently facing one of the worst G7 economic growth rates. The Labour Party aims not only to revitalise the industry but to prioritise climate change and environmental concerns.

The war in Ukraine has driven up energy prices, leaving the UK set to have the highest inflation in the G7. As part of our mission, we plan to boost offshore wind capacity by investing in key ports on the Forth, Tay, Humber and in the north-east of Scotland. This commitment to clean power not only aligns with environmental goals but has the potential to create well-paid nationwide jobs. As we have heard a few times this afternoon, Labour’s commitment on the UK’s broader digital economy underscores our focus on fostering collaboration and inclusivity.

The lack of resilience in the economy can have widespread consequences. The current cost of living crisis highlights the importance of developing more resilient supply chains to mitigate the impact of such challenges on industry and the lives of individuals. Our nations need a Government who can provide certainty and clarity. Achieving prosperity through partnership is key to our economic revival. I look forward to the Minister’s response.

Photo of Lord Evans of Rainow Lord Evans of Rainow Lord in Waiting (HM Household) (Whip) 5:44, 1 Chwefror 2024

My Lords, I am grateful to all noble Lords for their insight and remarks in this important debate. I welcome their views, especially from the engineers in this House, on how the Government can best ensure clear direction as we drive towards economic growth and progress. In recognising its importance, so too should we recognise that different approaches are favoured by different countries, depending on what works for each economic context. Each has benefits, of course, but this Government favour a more targeted approach to industrial policy, focused on a set of clear priorities.

If I may, I will answer directly the noble Lords, Lord Watson, Lord Mountevans, Lord Davies and Lord McNicol, and the noble Baronesses, Lady Donaghy and Lady Blake. Industrial strategy is a philosophy that is very much bandied about; we are not in favour of such things. It is favoured by a command-and-control approach to economics that is particularly well loved by large countries such as the US, China, India and, in the EU, Germany and France. Our approach—our plan for growth—is that ideologically, as the noble Lord, Lord Watson, said, as a small country we do not try to pick individual winners, as many noble Lords have said. Instead, we invest behind clusters of excellence. As a small country, we will never match the pure dollar muscle of the US, China, India or the EU. But we can be nimble, smart, proactive, entrepreneurial and open as a country to doing business.

First, I thought I should consider where the UK sits in the global economy. The latest official figures from the IMF show that the UK is the sixth-largest economy in the world and fourth in the G7, behind the US, Japan and Germany. Since 2010, the UK has seen the third-highest rate of growth in the G7—faster than Japan, Germany, France and Italy—and the IMF projects the UK to have the third-fastest cumulative growth in the G7 over the period 2024-28. Indeed, the ONS has revised up its earlier assessments of GDP, showing that we surpassed pre-pandemic levels of GDP by the end of 2021, while PWC’s economic outlook states on growth that

“the UK will … outperform France, Japan and Germany with real GDP around 2.7% higher in 2024 on average relative to 2019 levels.”

The UK was also the fifth-biggest exporter in the world in 2022 and achieved £870 billion of exports in the 12 months to November 2023. We are the second-largest exporter of financial services globally and our service exports to the EU are now at a record high, reaching £169 billion in the 12 months to September 2023, with key sectors such as professional business services and telecoms, computer and information services driving growth.

We also perform strongly on innovation. The recent WIPO Global Innovation Index 2023 shows that the UK economy is more innovative than our European neighbours such as Germany, France and the Netherlands, and technology powerhouses such as Israel, Japan and South Korea. Indeed, we have the second highest number of Nobel prize-winners in the world, above Germany, France, Sweden and Japan.

From a labour market perspective, according to the new ONS experimental series, the number of people in employment is now at 33 million. With an unemployment rate of 4.2% in the three months to August 2022, our unemployment rate hit its lowest point in nearly 50 years. While we are by no means complacent, we are pleased that the latest estimate from the ONS shows that the UK’s inactivity rate has fallen since its record high in September 2022.

Brexit is also offering great opportunities to the UK. Because of Brexit, the UK now has more trade agreements in effect than any other sovereign independent country in the world. We have secured trade agreements with 73 countries, plus our comprehensive deal with the EU. We have also been able to negotiate brand new trade deals with Australia and New Zealand, creating opportunities for British businesses to break into new markets by eliminating tariffs on 100% of UK exports and securing unprecedented access for the UK’s world-class services industry. We have also signed the accession protocol to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. This brings new opportunities for UK businesses, with 99% of current UK goods exports eligible for zero tariffs in dynamic economies across the Asia-Pacific, as well as the reduction of other barriers to trade across four continents.

We will leverage our strong global economic position to drive forward growth. Our approach is not to pick individual winners; instead, we invest behind clusters of excellence. The Government are therefore continuing to deliver an ambitious plan for growth and prosperity, as set out in the Autumn Statement. At that time, the Chancellor outlined the Government’s plan to unlock growth and productivity, laying out 110 growth measures, including removing red tape, speeding up access to the national grid, supporting entrepreneurs raising capital, unlocking foreign direct investment, and cutting business taxes.

The noble Lord, Lord Davies, talked about reliance on the single market. It is clear that delivering growth across the whole of the UK is a top government priority, and the Government have identified five key growth sectors for the UK. The first is advanced manufacturing, with an aim to make the UK the best place in the world to start, scale up and invest in manufacturing, as outlined in the Advanced Manufacturing Plan. The second sector is green industries, in line with our commitment to achieve net zero by 2050. Thirdly, as outlined in our Life Sciences Vision, are the life sciences, which were mentioned by the noble Lord, Lord Kakkar. The fourth and fifth are the creative industries, in line with the creative industries sector vision, and digital technology, as outlined in the Government’s digital strategy. I am most grateful to the noble Lord, Lord Frost, for his suggestion of removing all subsidies, but the Government are keen to support those five key growth sectors.

First, on advanced manufacturing, we published our Advanced Manufacturing Plan and the UK’s first ever battery strategy in the autumn. This includes a £4.5 billion package of funding to 2030, tax reliefs, and business environment measures aimed at making the UK the best place to start, scale up and invest in manufacturing. As part of this, the Government are working to drive growth in the UK’s automotive industry with a £2 billion support package, giving long-term certainty to industry to continue to invest in UK manufacture of zero-emission vehicles, batteries and supply chains. The Government have also committed an additional £975 million to the aerospace industry through the Aerospace Technology Institute programme to help secure the UK’s role as a hub for the next generation of ultra-efficient aircraft and wings.

We are also helping small and medium manufacturers to adopt digital technologies by extending the reach of the Made Smarter programme. Our approach here is already working, with recent successes including: Tata Group’s announcement of a new gigafactory that will produce 40 gigawatt hours of batteries per year; Nissan’s £2 billion investment in Sunderland to produce two new electric models; and Boeing’s £80 million investment in South Yorkshire’s advanced manufacturing investment zone.

Secondly, on green industries, the Chancellor and Energy Security Secretary have already announced £960 million for a green industries growth accelerator, which will drive forward advanced manufacturing capacity in key net-zero sectors—including offshore wind networks; carbon capture, usage and storage; hydrogen; and nuclear —to support the expansion of resilient, homegrown, clean energy supply chains across the UK.

This builds on our existing plans to speed up grid connections and make reforms to the planning system, making sure that the UK has the right conditions for further investment and growth. As a result of the UK’s global leadership in clean technologies, including the flagship contracts for difference scheme and the £20 billion recently committed to develop carbon capture, usage and storage, the UK has attracted £200 billion since 2010. A further £100 billion is expected by 2030, which will support up to 480,000 skilled jobs across the country.

On life sciences, our 10-year strategy, developed jointly with the NHS and industry, focuses on creating a business environment in which the UK can maintain a global advantage in areas such as genomics and health data. I am grateful to the noble Lord, Lord Kakkar, for raising these important points and for everything he does in this sector. It will help build resilience for future health emergencies and capitalise on the UK’s R&D strengths. The Chancellor announced a £520 million life sciences support package at the Autumn Statement. This builds on our existing £650 million war chest announced in May last year, designed to fire up the UK’s life sciences sector.

Moving on to the creative industries, it is evident that we are world leaders. Indeed, the sector grew at over one and a half times the rate of the wider economy between 2010 and 2019. But we want to go further. In June 2023, we published a sector vision that set ambitions to grow the creative industries sector by £50 billion and deliver a creative careers promise to support a million more jobs by 2030. This included £77 million in new government spending, bringing the total announced since the 2021 spending review to £310 million.

Finally, on digital, the UK continues to lead the European tech ecosystem, with over 150 unicorns—tech companies valued at over $1 billion. That is more than France, Germany and the Netherlands combined. The overall value of the UK tech sector reached $1.1 trillion in 2023, up from $640 billion in 2012, making us the third country in the world to pass the $1 trillion milestone, after the US and China. We are also playing a world-leading role in developing technologies of the future, such as artificial intelligence and quantum computing, ensuring that the UK is at the forefront of shaping how technology transforms lives for the better.

Our approach is working. At November’s Global Investment Summit, the Government announced nearly £30 billion in private investment commitments, backing some of the fastest growing and most innovative sectors in the UK, including projects in tech, the life sciences, infrastructure, housing and renewable energy. Our visions for the key sectors identified by the Chancellor are further supported by our export strategy, which aims to support business to access export opportunities, and our clear investor road maps for hydrogen, carbon capture and storage, and automotive industries, which help business to support government priorities.

The Department for Business and Trade continues to deliver a wide range of business support schemes, with over 40 offers that help businesses start, grow and export. This includes the work of UK Export Finance, which champions SMEs by unlocking finance for viable exporters, helping to make global markets accessible. In the 2022-23 financial year alone, UK Export Finance delivered £6.5 billion in new direct support through loans, guarantees and insurance policies, supporting 55,000 UK jobs. This included direct product support to 251 companies, of which 84% are SMEs and 82% are based outside London. As we move forward, we will continually improve our offer to help businesses across the UK access the finance and support they need, improve their skills and remove barriers to export.

I am grateful to my noble friend Lord Harrington for his report on increasing foreign direct investment, which has been warmly received by the Government. We have already taken significant steps to improve our ability to attract the most strategically important investments to the UK over the last couple of years, including establishing the Office for Investment and ensuring that we focus on securing the highest-value and highest-impact investments. I reaffirm our commitment to the noble Lord that the Government continue to drive forward implementation of the recommendations in line with our response, and that the Department for Business and Trade and His Majesty’s Treasury are working jointly to deliver a clear cross-government approach to securing and retaining investments.

I will respond to some specific questions. On the support for Tata Steel employees, I say to the noble Lord, Lord Watson, that we are determined to secure a sustainable and competitive future for the UK steel sector. On 15 September 2023, we announced that Tata Steel is investing £1.25 billion, including a UK Government grant worth up to £500 million, in a new electric arc furnace. This will not only modernise production but ensure that steel-making in south Wales can continue for generations to come. Without this major investment, Port Talbot would be under serious threat and Tata Steel’s operation in the UK, which employs 8,000 people, would be at risk. This support is expected to save at least 5,000 jobs within the company.

My noble friend Lord Willetts and the noble Lord, Lord Watson, asked about the industrial strategy shutdown. The Government decided that we would no longer monitor the impact of the former industrial strategy, following its transition to the plan for growth. We continue to engage closely with businesses across all sectors, representative organisations, trade associations and investors through dedicated forums such as the Prime Minister’s Business Council.

I have answered the question from the noble Lord, Lord Kakkar. Since the vision was first published, we have seen strong growth in the life sciences sector, which saw £24 billion in exports in 2022. As a result of this, the sector supports more than 300,000 jobs across the UK. We will continue supporting this important and innovative sector with a sector-specific approach.

The noble Lord, Lord Aberdare, asked about the skills improvement plan. Skills are very important across all sectors. The Government support manufacturing through a high-quality skills offer, including our flagship apprenticeship programme, skills bootcamps and higher technical qualifications through institutes of technology delivering manufacturing skills in areas such as clean energy, renewable energy, industry and transport.

To answer the noble Lord, Lord Mountevans, our teams in the Department for Business and Trade work across government, with business and investors in all sectors to drive growth. Indeed, in the Autumn Statement, we focused on building a stronger and more resilient economy. The Chancellor set out a plan to unlock growth and productivity by working with business, investing £20 billion a year getting more people into work, increasing the working population of 29 million. To answer the noble Lord, Lord Mair, the Government support manufacturing and engineering through a high-quality skills offer, flagship apprenticeship programmes, skills bootcamps and technical qualifications through institutes of technology.

I conclude by grounding this debate in a higher purpose. The Government must always be focused on how to build prosperity for our country, our people and our communities. It is right, in the context of heightened global competition, that the UK must be smarter and more strategic by maintaining a highly attractive business environment, prioritising areas of strength and focusing efforts on the biggest growth opportunities. Through this approach, we can be more agile in response to change, and more effective at delivering economic growth and enabling everyone to participate in economic growth and prosperity. Under our vision for key growth sectors, the Government will continue to ensure we capitalise on our strong partnership with business and make the most of UK’s underlying economic advantages to keep the economy growing.

These clusters of excellence have the great benefit of being accessible in every part of the country, whether it be working to deliver space ports in Scotland; pioneering the development and commercialisation of semiconductors in Wales; supporting Northern Ireland’s dynamic and rapidly evolving aerospace ecosystem; building on Coventry and Warwickshire’s unique automotive supply chain to develop new enabling technologies for automotive transportation; continuing to capitalise on our thriving financial services capabilities in London; or building our offshore supply chains and gigafactory capabilities in the north-east. It is through our targeted approach towards our five key growth sectors that we can be more effective in delivering the direction for growth and prosperity in the UK. We continue to take the long-term decisions to deliver a transformational step change and strengthen the UK economy as a whole. It is this co-ordinated and targeted approach that will continue to boost investment and deliver for the country: that is what is called levelling up.

Photo of Lord Watson of Wyre Forest Lord Watson of Wyre Forest Llafur 6:03, 1 Chwefror 2024

My Lords, I thank all contributors to today’s debate. I thought it was both interesting and thoughtful and set the terms of future discussions that we will be having in the years ahead in this House. In particular, I thank the noble Lord, Lord Rosenfield, for his considered contribution and welcome him to the House. Like him, I felt very nostalgic when he described working at No. 10. I have very fond memories of working there myself, and I know that his experience in the Treasury and in No. 10 will ensure that his contributions to this House really make a difference.

The nostalgia did not stop there. Is it really over 30 years since I shared a flat with my noble friend Lord McNicol and was so infuriated when I was reading the seminal work of the noble Lord, Lord Willetts, Modern Conservatism, page by page? I am grateful and relieved, of course, that both of their thinking has moved on in the last 30 years, on the basis of their contributions today.

But the nostalgia does not stop even there. It is 40 years since I was appointed as the photocopy kid in the library at Labour Party headquarters, where the general secretary, my noble friend Lord Whitty, as he is now, used to tell me about how he worked for the Ministry of Technology under Harold Wilson—we all know that Harold knew how to back a winner and was very good at industrial strategies.

Then it reminded me that I am just getting on a bit. Indeed, my noble friend Lord Rooker reminded me in his contribution that he was the first MP I ever met, at the age of seven years old, which gives me the right to say to him that, this month, I believe, we will see his 50 years of unbroken service to the Houses of Parliament, both in the Commons and the Lords. It has been a genuine pleasure to see his contributions in both Houses during those years, and I am delighted and honoured that I can say that while wrapping up this debate.

An industrial strategy sets a longer-term higher order of direction for a country to take, perhaps even more than markets can predict, with goals like technological leadership or sustainable development. I was particularly entertained, amused and impressed by the contribution of the noble Lord, Lord Frost. I will just remind him by way of conclusion that the company of his fellow Hayekian anarchist, Elon Musk, the boss of Tesla, had a market capitalisation of $588 billion the last time I checked. He must be very grateful for the $465 million he got as a loan guarantee from the American Government because they had an industrial strategy. Would it not be great if we could have the same in this country?

Photo of Lord Evans of Rainow Lord Evans of Rainow Lord in Waiting (HM Household) (Whip)

My Lords, please forgive me: I forgot to mention the excellent speech of the noble Lord, Lord Rosenfield. Coming from Manchester, he is most welcome to the House, and I look forward to working with him and finding out if he is a blue or a red.

Motion agreed.

House adjourned at 6.06 pm.