May Industrial Strategy Seeks to Pick Winning Areas for U.K.

  • Ministers seek sectoral deals to boost individual industries
  • Government announcing industrial plan to boost productivity

Will May's Industrial Strategy Get U.K. Economy Firing?

The U.K. government will pick winning areas in the economy to champion as part of an industrial strategy aimed at boosting Britain’s productivity as the country prepares to leave the European Union.

Announcing the long-promised plan on Monday, Prime Minister Theresa May said she wanted to see “sector deals” to identify and address barriers to expansion in different industries. The government also aims to target areas where it thinks the U.K. could excel in the future, including biotechnology, artificial intelligence, and mobile networking. Ministers will hold a cabinet meeting in northwest England to emphasize their desire to help parts of the country that have sometimes been left behind by industrial shifts.

Theresa May arrives in Runcorn, Jan. 23.

Photographer: Stefan Rousseau/AFP via Getty Images

The strategy “will be underpinned by a new approach to government, not just stepping back but stepping up to a new, active role that backs business and ensures more people in all corners of the country share in the benefits of its success,” May said in an e-mailed statement.

May has placed the industrial strategy at the heart of her effort to define her government beyond Brexit. The plan, subject to a public consultation, aims to draw together policies on transport, education, telecommunications, energy and construction to ensure businesses have the skills, links and access to supplies needed to expand and diversify into new and growing industries such as renewable energy and robotics.

Future Economy

The strategy is “about the economy of the future, it’s about ensuring that business can grow and is encouraged to grow in the U.K.,” May said on Thursday in a television interview with Bloomberg News Editor-in-Chief John Micklethwait. “It’s also about ensuring that the benefits of prosperity are available across the whole country, we see that economic growth and prosperity for everyone.”

While pulling out of the European Union might let the U.K. sidestep the bloc’s tough rules on state aid, favoring certain sectors could complicate May’s plan to strike free-trade deals with the EU and other countries, said Len Shackleton, professor of economics at the University of Buckingham in an interview. Such agreements often preclude government support.

“I think what they’re trying to do here is contradictory to some of the trade deals the prime minister is trying to negotiate,” he said. “Whatever you think of the EU as a whole it did keep a lid on special favors.”

The government could try to work around that hurdle by targeting aid at research and education rather than providing direct handouts to individual companies. May will announce 170 million pounds ($212 million) for new institutes, teaching science, technology, engineering and math, that will provide high-school graduates with the skills demanded by local employers. The prime minister also aims to boost teaching of those subjects in universities, as well as math in high schools.

“We know we’re going to have to compete and have the chance to compete with countries around the world,”  Business Secretary Greg Clark said on Monday in a BBC television interview. “It’s an increasingly competitive world. You get no quarter if you’re not productive.”

May’s focus on technical education is likely to please businesses. A survey released Saturday of 800 members of the Institute of Directors, a business lobbying group, found that their top policy priority is a long-term skills strategy, with three-quarters of companies saying it’s “very important.” Infrastructure improvements and better broadband were their second and third choices.

Single Market

May signaled on Tuesday that she aims to pull Britain out of the EU’s single market and customs union as part of a two-year divorce process she plans to trigger by the end of March. The industrial plan and the stated desire to forge new trade deals with countries from the U.S. to China are part of government efforts to demonstrate Britain is open for business and investment, even as it cuts ties with its closest neighbors.

Chancellor of the Exchequer Philip Hammond has already outlined spending on roads and broadband as well as a 23 billion-pound National Productivity Fund designed to spur growth. The nation’s economic output per hour has effectively stagnated for a decade, only returning to its pre-recession levels in October.

An industrial strategy is an “overdue and good idea,” said Angus Armstrong, director of macroeconomics at the National Institute of Economic and Social Research, but money needs to be allocated carefully because the U.K. will face a budgetary squeeze if Brexit slows growth.

“There is no such thing as a free lunch here,” he said in an interview.

While the payoff from training and research funding might not be felt for many years, adjusting levers like taxation might provide more of a boost in the near term, University of Buckingham professor Shackleton said. Shopkeepers, for example, say rising business rates, a form of property taxes, make operating retail stores more expensive and put them at a disadvantage against online retailers.

Britain hasn’t had an explicit industrial strategy of the kind envisaged by May since Margaret Thatcher was in power in the 1980s. When she stood for leadership in July, May said her aim was to create “a proper industrial strategy to get the whole economy firing.” One of her first acts as leader was to unite the business and energy departments into a new Department for Business, Energy and Industrial Strategy.

— With assistance by Eric Pfanner, John Ainger, and David Hellier

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