Industrial Strategy

Lord Fox Excerpts

Monday 27th November 2017 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I draw attention to my interests as listed in the register.

I thank the Minister for repeating the Statement and I give a warm welcome to much of the industrial strategy White Paper, the warmest welcome being for its existence. There is much in it to be applauded and many important aspects. It is, like the Green Paper, quite a compendium of what we are familiar with and what we have already heard, but there are some very useful illustrations of collaboration across government, business, trade unions and science. The test is whether, joined together, it has the capacity to make a powerful difference.

The White Paper encompasses the old, the current and the new. The old—that is, what is already established—has been addressed through the sector deals. What is most welcome is that much, although not all, of what has been drifting now has a process to come to a conclusion. The present is in the grand challenges, but we also have to address the more chronic problems of regional imbalances, low wage growth, service sector imbalances and weakness in skills, as well as competition, markets and finance. The ONS statistics published last week show a stinging decline in capital stock, which shows that businesses are relying on cheap labour rather than investing in system upgrades to improve efficiency.

I had noticed that the Green Paper was 132 pages long, whereas the White Paper weighs in at 254. It is so much larger that it has already started to be part of the growth story of the industrial strategy. However, given that the font size is up by around 25%, with more pictures, tables and illustrations than the Green Paper, that is in and of itself a good way to start evaluating whether it is more productive.

Reading the previous Government’s press release launching the effort to help to reposition the UK’s independent capability in the post-Brexit world, the word “productivity” did not even get a mention. However, it got a mention from one trade body, which said that it hoped that the strategy could help with productivity in its sector.

Today, the White Paper is all about productivity. This is different from the post-Brexit world and, I think, weaker for it; nevertheless, it is essential that we address it. Performance over the last decade has been the worst for any decade since the 19th century. In fact, since the predecessor document on the productivity plan was launched in 2015, we have seen the worst quarter performance recorded in the last 200 years. So this may not equip us over the horizon that we originally looked at but, as the OBR report illustrated, this is a pressing target now.

There are now five drivers of productivity and four grand challenges—nine items, not 10. By my reckoning, the last 10 pillars could probably fall into the first five and the challenges have been elevated to grand challenges. To my mind, these are more matters of presentation, so I would like to ask some questions on three major areas which I think are fundamental.

The first concerns institutions. The report announces the establishment of the industrial strategy council. This is to be welcomed and it comes in a section which has my favourite phrase of the entire report. It says that the strategy,

“needs to combine agility with patience”,

and that the industrial strategy council will be there to help consistency and adaptability. However, we will be concerned if it becomes the same as the OBR. Will the Minister confirm that its make-up will demonstrate independence and what that might be? What independent powers will it have? Will it be able to talk to departments outside the Treasury? Will it have to take the political assumptions of Ministers and departments for its measurements? Will it publish independently of ministerial and departmental input, especially the Budget? Will it be accountable to Parliament, and will its head have to go through a confirmation process? Without those assurances, it may not have the necessary long-term cross-party support that this sort of strategy needs in order to succeed.

The White Paper adds some extra institutions and has a welcome review of SME productivity, but it does not address institutions such as NESTA which look like they are in need of a refresh, or even the newly established Small Business Commissioner, who, if he could unlock the problem of late payments, would create the recycling and velocity of cash that makes a measurable and meaningful difference to output per worker.

We do not address the weaknesses of our venture capital sector, which is much more reliant—despite our tax arrangements for VC through the SEIS and the British Business Bank—on the European Investment Fund than we are prepared to face up to. So is there a wider review of all the agencies and current arrangements, and will they too be considered over time within the context of the industrial strategy report?

Secondly, there is the crucial question of funding. The White Paper indicates that we are going to try to do more with less. I am a great fan of efficiency but surely additional investment is required. Why is Germany streets ahead of us in preparation for the so-called fourth Industrial Revolution? It is because it has a €40 billion agency. Why did a small country such as Israel steal a march on us in the volume of VC tech and cybersecurity investment? It was because it established a well-funded agency called Yozma and dedicated 8% of all government IT departments’ expenditure to it.

So will the Minister please tell us how much new—not previously announced—money there is in here or in the sector deals? Of the money that has already been announced, such as the Industrial Strategy Challenge Fund and all other announcements, how much is left unallocated?

I have always given great credit to the Government for increasing R&D spend, although much now has to go to make up for the loss that we face from Brexit. I welcomed the first place that R&D received in the Green Paper but I am not sure that it is there with the same force now. There is much to welcome but we are still aiming to be behind the OECD average and well behind all the pace-setter nations, even when we hit 2.4%. Can the Minister assure us that this is not the end of the science story in the UK’s industrial strategy?

Finally, the report remains weak on identifiable, quantifiable and operable ambition and targets. DARPA, which is cited in the report, is clear about its mission and objectives. It is essentially and critically to ensure that the US military maintains overwhelming technological superiority over any rival. The clarity of the mission makes it clear how its challenges and structure can be overcome. The industrial strategy challenge fund needs to be similarly clear. Can the Minister provide us with what he considers to be the most concrete objectives, targets and outcomes we can measure it against; and what specific goals any of the measures are set to achieve?

I would have preferred a stronger call to action. It is said that you have to set goals that are almost out of reach. If you set a goal that is attainable without too much work or thought, you are stuck with something below your true talent and potential. Discipline is the bridge between goals and accomplishment. Without that, as good as this White Paper is, it can never truly be great.

[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.