Industrial Strategy

Lord Henley Excerpts

Monday 27th November 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley)]

My Lords, with the leave of the House, I shall now repeat a Statement made by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy:

“With permission, Mr Speaker, I would like to make a statement on the Industrial Strategy White Paper which we are publishing today. Today, at one of the most important, exciting and challenging times in our history, the future is unfolding before our eyes. New technology is creating new industries, changing existing ones and transforming the way we live our lives. We need to ensure that we are well prepared to prosper in this future. The decision to leave the European Union makes this even more important. More decisions about our economic future will be in our own hands to take, and it is vital that we take them well.

We start from a position of strength. We are an open, flexible economy, built on trade and engagement with the world. We have earned a reputation as a dependable and confident place to do business, thanks to our high standards, respected institutions and the rule of law. We have achieved higher levels of employment than ever before in our history. We are known for our innovation and discovery, with some of the best universities and research institutions in the world, which produce some of the most inventive people on earth. We have commercial and industrial sectors—from advanced manufacturing to financial services, and from life sciences to the creative industries—which are among the best in the world.

Our industrial strategy will build on these strengths, but it will also address weaknesses. We need to do more to make the most of our untapped potential. As the Chancellor said in last week’s Budget, although we are proud of our strong record of high employment, our average productivity—output per hour worked—is less than it could be. Productivity might not be the most exciting term, but what it does really matters. For people all around the UK, higher productivity means greater earning power and better-paid jobs, and for our country it means more money to spend on our public services.

Today’s Industrial Strategy White Paper starts with the five foundations of productivity: ideas; people’s skills; infrastructure; business environment; and the importance of every place in the country. For each, we are clear about the kind of economy we need to be. Our vision is that the UK will be the world’s most innovative economy, have good jobs and greater earning power for all our citizens, and make a major upgrade to our infrastructure, be the best place to start and grow a business and have prosperous communities all across the UK. It is a long-term strategy, working to make changes now but looking to the future, and we are taking action to realise it.

Take research and development. Our reputation is as one of the best countries in the world for science and research, but we cannot take that reputation for granted—we must reinforce it. So last week we announced an increase in public investment in R&D, with the aim of reaching a combined public-private spend up from 1.7% to 2.4% of GDP by 2027 and to 3% thereafter.

I strongly believe that there are few problems which cannot be solved by the innovation and ingenuity of British business and science. History has shown that partnerships between business and government can work, from outstanding collaborations in areas such as automotive and aerospace to recent partnerships on the creative industries.

Strategy has to be for the long term; a short-term strategy is, after all, a contradiction in terms. Other countries have benefited from establishing policies and institutions which can endure. That is why, through the consultation on the Green Paper, we have worked with business, industry bodies, investors, trade unions, universities, colleges, research institutions and many others to establish a shared commitment to the actions that we will take now and in the future.

After our consultation on the industrial strategy Green Paper, we saw an overwhelming response to the question we asked on whether we should pursue sector deals, as industries came forward with plans for their own future. Today, we have struck ambitious sector deals with four sectors—life sciences, construction, artificial intelligence and automotive—and I welcome the huge interest from other sectors coming forward with plans.

There are still those who hear the words ‘industrial strategy’ and associate them with the mistakes of the past, shielding incumbents and continuing the status quo. This is not the approach that we will take. Our modern industrial strategy is not about protecting the past; it is about taking control of our future.

So our industrial strategy sets out four ‘grand challenges’, identified on the advice of our leading scientists and technologists. They will be supported by investment from the industrial strategy challenge fund and matched by commercial investment. The challenges are: artificial intelligence and the data-driven economy; clean growth; the future of mobility; and meeting the needs of an aging society. Whether we like it or not, these challenges are sweeping the world. If we act now, we can lead them from the front, but if we wait and see, other countries will seize the initiative.

For each of these challenges, our industrial strategy sets out how we can seize the opportunity. From using artificial intelligence to raise productivity in all sectors to making energy-intensive industries competitive in the clean economy, and from supporting the transition to zero-emission vehicles to harnessing the power of big data to diagnose illnesses earlier, we can improve the quality of life for so many people in this country.

Britain needs to be a leader, not a follower—a country which is ahead of the curve, not behind the times. So let us rally around this industrial strategy, raise our productivity and build a country which is fit for the future. I commend this Statement to the House”.

My Lords, that concludes the Statement.

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[Lord Fox (LD)]

My Lords, I draw attention to the interests registered in my name. Like the noble Lord who has just spoken, I am pleased that the words “industrial strategy” are coming from the Government’s lips. In the life-cycle of an industrial strategy, we are perhaps at the most optimistic bit before cynicism and despair begin to set in. I shall try not to hasten us down that curve but there are some points that we should perhaps bring out today. It behoves me most of all to point out that the reference to Brexit, made as an aside in the Statement, clearly indicates the effect that the Government believe it will have on our industrial capability—and it is not positive.

This should be set into the context of the OBR’s recent forecast which downgraded GDP by £45 billion by 2021. That is around £700 per person. We would have valued a sense of urgency in the report but there has not been any. It has been a long time in the making. The Minister pointed out that we have been through a long consultation and a long Green Paper, which was almost a year in the cooking. I acknowledge that we need a long-term strategy but, because it is a long-term strategy, that does not mean it needs such a long-term gestation.

For us, the most important part in this—it has received few column inches despite the font size and photographs, as pointed out earlier—is the implementation side. Without implementation, this is just another brochure; another tour of the industrial landscape. It is right that it falls to a Cabinet committee, chaired by the PM, to drive this issue forward. I would welcome the Minister’s comments on how often the committee meets, how much energy we can expect from it and how often Parliament will receive a progress report from it.

Like the previous speaker, we also welcome the establishment of the industrial strategy council—or we think we do because there is so little detail it is almost impossible to know what it is, what it is for, how it will be resourced, how it will be staffed and to whom it will be answerable. Like the previous speaker, we would welcome answers to those questions.

Then we come to the grand challenge. There are noble Lords on many Benches who think this is a rehash of picking winners. I know the Statement went out of its way to decry that view but, however one looks at it, there is an element of picking sectors that we think are needed and can be successful, and investing in them. One can call that something else or picking winners. I urge the Minister to ensure that we are not cutting out funding into the wider exploration and seeking of knowledge because, without investment in that kind of research, graphene would never have been discovered. We still need to seek out the unknown unknowns in order to advance our science and keep us moving forward.

Perhaps I may add another warning on DARPA. This is not a DARPA process for one important reason—there is not the money that DARPA has to throw at these challenges. There is not the huge industrial military complex that sits behind it, which has itself enormous US Government funding for these initiatives. We should be careful when we bandy the word DARPA around.

That said, overall the topics that have been chosen for the challenge are broadly welcome. I note the inclusion of clean growth, which was hardly mentioned in the Green Paper and not at all in the consultation. It was mentioned extensively in the Lib Dem response to the consultation so I shall claim that as a Lib Dem win. However, the Government’s record casts doubt on their commitment to clean growth. They have scrapped subsidies for solar and offshore wind and cut funding for carbon capture and storage—even though we know that kind of support works—and, further, they have sold off the Green Investment Bank. This announcement is either a damascene conversion or just more paper.

I have just one question on the life sciences strategy. The Government commit the NHS to its role in the life sciences strategy: what extra resources will be given to the NHS in order for it to take up the research role it has been set?

The Government want to increase research and development spending to 2.4% of GDP by 2027. That of course is only the average, as has been pointed out, and a more ambitious target would be more sensible. However, there is not very much new money. If you do the maths, you will find that it is about £0.4 billion on top of what has already been announced. Certainly that is what has been said in the other place. The £2.5 billion investment fund to be created by the British Business Bank was not costed in the Red Book, raising questions of where the money will come from. Perhaps the Minister can enlighten us. These commitments are inadequate compared to what is being lost—the £2 billion provided by the European Investment Fund for start-ups and the €3.6 from Horizon 2020, which will disappear after that time.

Catapults are important and I am pleased they have been mentioned. I have two points. The paper mentions that there are poorly performing catapults. Can the Minister enlighten us as to how many are performing well and how many are not? Secondly, I note that the highly-regarded CEO of Innovate has just stepped down. Perhaps we can hear what that is about.

We on these Benches have said before that we will need the right people to implement this strategy. There has to be a joined-up national skills strategy.

[Lord Henley]

I thank the noble Lords, Lord Fox and Lord Mendelsohn, for what I take to be their general welcome of the industrial strategy. The noble Lord, Lord Fox, claimed that parts of it were in response to comments from the Liberal Democrats in their response to the Green Paper. He claimed that there was a lack of urgency, but when one publishes a Green Paper in January, as we did, to produce a response of this kind by December is doing pretty well. If we had produced it any faster, the noble Lord would accuse the Government of hurrying their response. He cannot have it both ways and my right honourable friend has got it just right. I am grateful that I joined the department only four weeks ago, so came in at the tail end of the development of this response, but I can assure the noble Lord that we have been busy these last four weeks going through draft after draft of the White Paper to produce this document, which went to the printers only last night.

The noble Lord, Lord Mendelsohn, worried what the size of the document compared to the Green Paper indicated about productivity gains. He noted that it was so many pages longer than the original Green Paper but then said that the font was larger, although he did not point out that the pages were smaller. I will have to take advice on whether there are more words in this document, when the pictures are taken out, than there were in the Green Paper. All I can say to both noble Lords is that it has been a very considered process with, as I say, some 2,000 responses that had to be carefully considered. We had to talk to many people and develop our policies, as well as take it the whole way around the Government.

I am grateful to the noble Lord, Lord Fox, for emphasising the role of the Prime Minister. It is important to make it clear that the Prime Minister is fully committed to the strategy, as are all members of the Government. If this was a Business, Energy and Industrial Strategy document coming merely from the department, it would be nothing. The fact is that it reaches out to all other departments, which have all played their part and helped to produce it. As we implement the ideas behind it, other departments will contribute, be they the Department of Health, as mentioned by the noble Lord, or education and so on. The point is to get beyond the siloisation that we have seen on many occasions in different Governments of all persuasions; we want to bring a truly cross-government feel to this.

Both noble Lords asked a number of questions, which I will try to address. I hope I can provide responses that will satisfy them, but if not, I will be more than happy to write in due course. The first point made by the noble Lord, Lord Mendelsohn, was that he felt that the White Paper does not deal with regional imbalances. I assure him that this matter is of great concern to me more than most. He will know how activity can vary a great deal across the regions. If he looks at the north and the Midlands, he will find that productivity can be 9% to 14% below the United Kingdom average. We had quite a few speakers from Wales earlier today; productivity in Wales can be around 19% lower than the United Kingdom average. We want to reach out to the regions, to Wales and to Scotland, to ensure that we bring them up to higher levels of productivity. If we fail in that, we will have failed in all other ways.

Both noble Lords also asked about the industrial strategy council and wanted assurances that it would be independent. I can give that assurance and that it will include business leaders and experts. We will be able to give further details about the council in the coming months.

I was asked about British Business Bank investments. I can give an assurance that £2.5 billion of new funding is on offer and that further announcements will be made in due course. I was also asked about what further investment was required and how much new money there is. I have given the figures for what we are seeking to do on research and development so that we get that up to at least the OECD average by 2027. Importantly, that is just the initial target; we would like to get it up to 3% in the longer term. Going back to the question about infrastructure as a whole, we are looking at £31 billion in the pipeline for the future.

The noble Lord, Lord Mendelsohn, asked about measuring our goals and how we will seek to assess the success of the industrial strategy in due course. At the highest level we have a set of goals relating to productivity. We believe that it will be for the industrial strategy council to assess progress on those goals and the others outlined in the strategy.

I am beginning to feel that I am using up time that I should not, but perhaps I may turn to one or two of the questions asked by the noble Lord, Lord Fox, particularly on NHS funding. I refer him to what the Chancellor announced in the Budget when he referred to new funds. The noble Lord also asked about clean growth and whether the Government are cutting funding for renewables. I assure him that we have particularly fast growth in renewables and that we are still committed to a further £557 million for new contracts for different renewables such as offshore wind. We are seeing growth in that area.

As my right honourable friend said in another place, in the Statement and in response to questions, the industrial strategy sets out the long-term strategy that we hope to see. We hope to see developments continue in the manner made clear by my right honourable friend. I thank the noble Lords, Lord Mendelsohn and Lord Fox, for what I think was their cautious welcome. I hope that, as the strategy develops and we continue to bring it forward, that welcome will also continue.

[Baroness Blackstone (Lab)]

My Lords, can the Minister address the question of skills? There is very little in the Statement about the urgent need for more skills training. I am sure he will agree that we will not achieve greater productivity, or be able to implement this industrial strategy, unless we can greatly improve the level of skills among the workforce. That is particularly the case in construction, where Brexit will certainly be damaging. We will have fewer European workers able to operate in this field in the UK, or indeed be likely to be willing to do so. We need some realisable targets, to use the expression of my noble friend Lord Mendelsohn, for skills. We also need a timetable, and some urgency should be attached to this. Unless that happens, all the Minister’s brave words about the desirability of an industrial strategy in the areas he has identified are unlikely to be implemented; nor will we address the housing crisis or achieve the investment in infrastructure that he has just referred to.

[Lord Henley]

The noble Baroness is quite right to address skills. I think she was my successor in the Department of Education many years ago, back in 1997. I refer her to the chapter on people, which starts on page 92. There she can see all we have to say about looking for further apprenticeship starts by 2020, along with the improvements we want to see to A-levels and the improvements we have been seeing. She will also see what we have to say about our approach to that. She will note the information about the new T-levels that are being introduced. We want to see a further 50% of our 16 to 19 year-olds increasing their training. There have been increases in the study of maths, again referred to by the Chancellor in the Budget. I could go on, but I refer her to the White Paper and the ideas behind it. The White Paper can be divided into five simple parts: ideas, people, infrastructure, the business environment and places. The part on people relates to skills. I think she will find it very good reading indeed.

[Lord Hennessy of Nympsfield (CB)]

My Lords, perhaps I may say how pleased I am to see the noble Lord back on the Government Front Bench, although I miss the noble Lord, Lord Prior, who was always so helpful when he was on the Front Bench. I also welcome the White Paper, which is so critical to the nation’s fortunes, and I hope it will find a very high level of consensus across the party Benches. In this period of continuous political gloom, as it often seems, it is a reason to be cheerful; it is Ian Dury country. I welcome the industrial strategy council, which is an idea that your Lordships’ Select Committee on Science and Technology pushed very hard for. I am very pleased that it is in there. I ask the noble Lord for his individual judgment on which section of the White Paper he thinks is critical to the success of the rest of it and which phrase he hopes will cling to the Velcro of collective memory.

[Lord Henley]

My Lords, I thank the noble Lord for his welcome and for his very kind words about my noble friend Lord Prior. I would be very grateful if my noble friend was still here doing this, because he played a much larger part in the development of the White Paper than I did. I came somewhat late to it.

If the noble Lord would like me to identify one area, I go back to the five principles that I iterated to the noble Baroness: ideas, people, infrastructure, business environment and places. When the White Paper was developed, I played a small part in its redrafting and in our vision as set out on page 13. I was rather anxious to get the first five points at the top of that page into short, easy, memorable sentences. That is why we talk about a vision for the world’s most innovative economy, good jobs and greater earning power for all, a major upgrade in the UK’s infrastructure, the best place to start and grow a business, and prosperous communities across the UK. I can assure the noble Lord that he will find the whole of the White Paper very good reading. I will have a word with him tomorrow or perhaps the day after and test him on it to make sure he has fully grasped all of it.

[Lord Wigley (PC)]

My Lords, I draw attention to my registered interests. The document is certainly strong in aspiration, which I welcome, but perhaps lacking in some of the detailed pathways to delivery. The Minister referred to Wales and Scotland. When will this be taken forward with the devolved Administrations? How will that happen with sector deals for the creative sector and the very welcome proposed food and drink sector, where so many of the responsibilities are devolved? Will the responsibility for their running be with the devolved Administrations? Will they have the resources to do the job?

[Lord Henley]

When a similar question was put to my right honourable friend in another place, he made it clear that he had very recently spoken to his opposite number in Wales. That process will continue in Wales and Scotland. My right honourable friend and other Ministers, as appropriate, depending on who is where at any given time, will talk to all Ministers in the devolved Administrations in Wales, Scotland and Northern Ireland. I will certainly play my part as much as possible in that. There will also be adequate resources for the devolved Administrations from their own budgets to do this as appropriate. Whether the noble Lord will consider that adequate is obviously another matter, because no doubt he will be screaming for more—but then he would say that, wouldn’t he?

We will continue to talk with our opposite numbers in the three devolved Administrations. I am sure they will want to make a success of this just as much as we do. That is why I pointed out that we have problems with productivity imbalances between our UK averages and those of other parts of the United Kingdom. It would be right to try to address those imbalances.

[Lord Blunkett (Lab)]

My Lords, I draw attention to my registered interests related to education, skills and employment. I welcome this substantive document, not least because Friedrich von Hayek will be turning in his grave due to government being part of the solution, rather than always being the problem.

Will the Minister be willing to have a word with his opposite numbers in the Department for Education? Following on from my noble friend’s question, I am deeply concerned about the capacity to meet the apprenticeships and skills challenge and to provide the wherewithal to match the desirable input into employment. Because he is new to his post the Minister will not know that, following the Green Paper and a meeting earlier this year of representatives of all the major infrastructure projects, the decision was taken to make a joint submission drawing attention to the need to map where skill shortages will occur and how they could be met by putting forward passportable skills, and to ensure we draw people back into the labour market. Will he ask his ministerial friends in the Department for Education to kindly invite representatives of those major infrastructure projects to what is being described as a skills summit on Thursday, so we can get it right for the future?

[Lord Henley]

My Lords, I am fully aware that a great many noble Lords want to come in with questions on this Statement, so I will try to keep my answers short. I am aware of what the noble Lord had to say, and I am certainly aware of the need to make sure we continue to talk to our colleagues in the Department for Education. I am also aware that those colleagues were present when the Statement was made in another place, as were colleagues from other departments. We will certainly make sure that they are aware of the noble Lord’s concerns and that they take appropriate action.

[Lord Prior of Brampton (Con)]

My Lords, the reports after the Budget by the IFS, the Resolution Foundation and the OBR posited or forecast stagnant productivity for the next 10 years, following the stagnation of the last 10 years, which is a truly frightening prospect. Only one other country in the world, Japan, has been able to cope with that level of stagnation for so long, and it has a very different society from ours. The industrial strategy should be seen in that context. If we do not move the dial on productivity, the implications for our society and the kind of democracy we have will be profound. In that context, does my noble friend agree that the four grand challenges we have identified are fundamental to getting ahead in the fourth industrial revolution? If we fail to do that, we will fail to address this underlying productivity problem. Does he agree that the DARPA-lite approach we are taking to these four grand challenges is fundamental?

[Lord Henley]

I am most grateful to my noble friend, who played a considerable part in helping to put this industrial strategy together. I am grateful to him for reminding the House of the need to move the dial on productivity, as he puts it, and for underlining the fundamental nature of those four grand challenges. That is repeated again and again in the White Paper, and the Government are committed to it.

[Lord Shipley (LD)]

My Lords, I welcome the industrial strategy, which, like my noble friend Lord Fox, I think is extremely helpful in the most part. I want to ask the Minister about inclusive growth. One of the foundations of the industrial strategy is places. What consideration has been given to the level of intervention required for large towns, as opposed to cities, that have very low productivity rates, often because they have no university nearby? How local will the local industrial strategies be? I hope they will not simply be at the level of the local enterprise partnerships, which often cover a very large geographical area.

[Lord Henley]

My Lords, the noble Lord speaks with great knowledge of the north-east, I believe. I know the north-west—or rather, the north-north-west—pretty well, and I know the sort of problems he is talking about, not just in the cities but in the large towns. We see them in my part of the world in west Cumberland, in Workington and Whitehaven. We certainly need to look at what we can do. The noble Lord also spoke about LEPs and the role they can play, and on some occasions it is more than what the LEP can do. I hope that the noble Lord, in welcoming the White Paper, will accept that the important point is that one of the five ideas behind it is identifying the importance of place. That is why, particularly in relation to productivity, again, I wanted to re-emphasise the fact that there are regional imbalances and that they need to be addressed. LEPs can play a very valuable part, but there will be more that can be done, and I hope that the industrial strategy sets that out.

[Lord Birt (CB)]

My Lords, the UK’s poor record on productivity is not a new discovery. We have lagged behind our major industrial competitors for many decades. There are many reasons for that. Some have been mentioned already. One is skills, and another is infrastructure. We led the world in infrastructure in the 19th century, but in the 20th century we spent a smaller proportion of our GDP on infrastructure than any other major industrial country. We have overcongested roads; noble Lords should try going from Liverpool to Leeds on a slow train; and why is it taking us so long to sort out Heathrow? On that particular matter, has the Minister anything to tell us about when a decision on Heathrow will finally be made?

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[Lord Henley]

My Lords, I will not be tempted on that final question to make an announcement on Heathrow. The noble Lord mentioned our poor record on productivity. I accept that we have a poor record on productivity, but against that one should remember that we have a good record on employment. If one looks at countries that sometimes have a better record than us on productivity but a worse record on employment, I think most people would prefer to be employed rather than unemployed in that respect. It is worth remembering that those who are not employed are not going to figure in productivity. So there are swings and balances in this respect. All I can say to the noble Lord at this stage is that we have recognised our poor record on productivity, and that is why the White Paper seeks to address it and puts it as one of the fundamental things we have got to do. We have a poor record not only on productivity but on the imbalance in productivity across the regions.

[Lord Lea of Crondall (Lab)]

My Lords, the Minister has just made a very interesting point about the interaction between employment levels and productivity levels. In a static world, you could have more employment, very low levels of pay and very low levels of productivity. In a macroeconomic sense, the measure of productivity is simply the output of the economy divided by the number of people at work. Within the firm, how—unless I have missed something—are the Government proposing to engage workers’ representatives in improving their world market share? There are targets—such an unfashionable word now, it is almost the same as saying Gosplan—but are we not missing out on some notion that we have to raise our sights in terms of targets for world market share and targets within the firm? The only targets there seem to be in the firm at the moment are to increase the share price and the distance between the board of directors and the average worker. Will the Minister say a little more about how he sees improved consultation and decision-making and joint work between the management, senior boards and shop-floor workers, whether in manufacturing, services or any other part of the economy?

[Lord Henley]

I am glad the noble Lord recognises the success of our policies in encouraging improved employment levels. That is very important. I was stressing the importance of improved employment levels only in relation to productivity. As the noble Lord will recognise, the simple fact is that we could have higher productivity but higher unemployment. One of the downsides of our growth in employment has been that weakening in productivity. We are seeking to address that. That is what the White Paper is all about. As regards relations between employers and management, that is a matter for companies themselves to look at in their own light.

[Lord Elystan-Morgan (CB)]

My Lords, the Minister may be aware of a discussion between Her Majesty’s Government and a Minister in the Welsh Government on the massive disparity between productivity in Wales and the United Kingdom average. I would like to probe a little on this matter. How meaningful a discussion was there? Was an agenda drawn up? Were minutes of that meeting kept? Was there a meeting of minds at all or was it something utterly cursory and cosmetic, as has happened so often in the relationship between Her Majesty’s Government and the devolved Administrations?

[Lord Henley]

My Lords, I simply reject the noble Lord’s allegation that discussions between Ministers of this Government and the devolved Administrations are in the manner that he described. I pointed out earlier in answer to another question from across the Floor that there have been discussions between my right honourable friend and Ministers in the Welsh Government because my right honourable friend mentioned that in another place only this afternoon. There will continue to be discussions between Ministers within the department, Ministers throughout government and Ministers in the devolved Administrations in relation to this White Paper.