Industrial Strategy

Lord Davies of Brixton Excerpts

Thursday 1st February 2024 Lords Chamber

[Lord Davies of Brixton (Lab)]

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.