Industrial Strategy

Lord Evans of Rainow Excerpts

Thursday 1st February 2024 Lords Chamber

[Lord Evans of Rainow (Con)]

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.

[Lord Watson of Wyre Forest (Lab)]

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?

[Lord Evans of Rainow (Con)]

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.