Industrial Strategy

Lord Willetts Excerpts

Monday 8th January 2018 Lords Chamber

[Lord Willetts (Con)]

My Lords, I declare the interests that appear in my entry in the register of this House. I refer particularly to my role on the board of UKRI, which allocates research and innovation funding.

It has been an excellent debate on industrial strategy, opened effectively by the Minister. One reason it has been such a good debate is that the White Paper we are debating is a substantial and comprehensive document which has had, broadly, a welcome from all sides of the House. Some omissions have been identified. The noble Baroness, Lady Coussins, made a good point about foreign languages and, more widely, education, a key British export service industry of the 21st century, is underplayed in the White Paper. Of course there are challenges to come, most notably delivering on the great ambitions in the White Paper. As we heard in several powerful interventions, that must involve genuinely cross-government working; it cannot simply be the responsibility of one department.

Perhaps I may briefly challenge some of the assumptions behind one of the most widely repeated assertions during this debate, coming from that fountainhead of constitutional knowledge, the noble Lord, Lord Hennessy, which is that we have had eight, nine or 10 industrial strategies. Behind that is a set of assumptions: we cannot do it in Britain, we are always chopping and changing, and nothing lasts. If we are to make the case for an industrial strategy, the assumption that since the war Britain has been incapable of pursuing an industrial strategy is really rather an important challenge. If eight or nine White Papers have come and gone without making any difference whatever, one is entitled to ask why it should be different this time. My view, however, is that the reference to eight, nine or 10 White Papers is not accurate. I do not know how many White Papers there have been on pensions policy or transport. Especially from the 1980s onwards, it seems pretty clear that in key industrial sectors Britain has had sustained industrial strategies that have delivered conspicuous results. I should like to give three or four examples.

The first example is that of the automotive industry. We saw the virtual collapse of the British automotive industry and, after years of trying to protect it, the disappearance of our indigenous, domestically owned automotive industry. In the early 1980s we embarked on a strategy to recreate an automotive industry in the UK. It involved a deliberate attempt to attract overseas investment, beginning with Japan and shifting to the US and then India. It involved exploiting the advantages provided by that great Thatcherite project, the single market, to promote manufacturing in the UK as part of Europe-wide supply chains. It involved the systematic use of financial incentives to attract overseas manufacturing facilities here. It also involved integrated skills training. All those assertions that we have no vocational or technical skills rest on another misunderstanding. We have a large amount of technical and vocational training, and a lot of it happens in universities. The Universities of Sunderland and Teesside are dedicated to training automotive engineers to work in the local Japanese car plants, just as not only Warwick University but also the Universities of Coventry and Hertfordshire are training automotive engineers to work in the Midlands engineering industry. As a result of that policy, sustained by successive Governments of different political persuasions, we have seen in 20 to 30 years Britain develop a very successful and large-scale automotive industry. This was the result of a sustained industrial strategy.

My second example is that of the life sciences. The UK has great strengths in the life sciences, although of course there are challenges. We have seen a combination of sustained funding from the Medical Research Council allied with enlightened policies from the leading medical charities. We have had smart policies specifically targeting investment in medical technologies where our American competitors are at a disadvantage. Because of the power of the evangelical Christian movement in the US, there are considerable constraints on public funding for research in cell therapies. Therefore we have put money particularly into cell therapies, where we have a comparative advantage as the result of a crass US regime. We were the leaders in discovering genetic sequencing technologies and we successfully ensured that the sequencing of the human genome became public property and is not something that can be commercialised exclusively by US entities. As a result we have two very large pharmaceutical companies and a dynamic life sciences sector. There certainly are problems in getting the NHS to adopt innovation and purchase from our innovative companies, but I would nevertheless regard UK medical research and life sciences as the second example of a successful industrial strategy.

My third example is mobile phones. The rise of Vodafone as Europe’s leading mobile phone operator would not have been possible without a smart, carefully considered industrial strategy, notably through the EU writing regulations for mobile phone telephony that favoured the UK company Vodafone, which was not obvious in the early 1980s. It required sustained engagement in international standard-setting bodies, and then using European standards to access a global market, combined with a very enlightened regime from Ofcom. When we look at what gives us a comparative advantage in our industrial strategy today, a trusted, effective and nimble regulator is one of the best advantages we have. Moreover, the UK is fortunate in having several such regulators, which is why the ambitions in the White Paper for the UK to play a leading role in 5G and the internet of things are not absurd if Ofcom is as skilled in writing the regulations for those technologies as it was in writing the regulations for mobile phones.

Finally, the most conspicuous example, though we may all now be ambivalent about it, is the sustained support for the financial services industry—a deliberate decision that this was an area where we had a comparative advantage that we would invest in, where the regulations would favour it and the standard setting in Europe would be influenced heavily by us so as to favour it. Even the physical infrastructure—the extension of the Jubilee line to Canary Wharf—was done to favour this key sector.

So we should not go around saying that Britain cannot do industrial strategy, that we have never done industrial strategy and that it is always chopping and changing. Those are four examples of sustained, successful industrial strategy. We can do it. We have done it partly because the strategies were sustained across Governments of different persuasions. We have had powerful interventions in this House from a Labour former Secretary of State and from a Conservative former Secretary of State—two people who undoubtedly drove industrial strategy. It was a privilege for me to work alongside a Liberal Democrat Secretary of State. These policies have been sustained and delivered. We should not beat up on the British political system as being incapable of doing this. It is perfectly capable of doing it, but you have to look behind the flow of White Papers to observe sustained, coherent understanding of what you need to promote a technology or a sector.

There are challenges for the future. Although we have this extraordinary achievement of raising the growth rate of a mature industrial economy between about 1980 and the financial crash—a 25 to 30-year project in which all three political parties played a role—we now have challenges at both the top and the bottom ends. At the top end we need to do more to extract value from our high-quality research base. Again, we have had several references to the quality of this research and the golden triangle of Oxford, Cambridge and London. The golden triangle is not some happy accident or some bit of historical chance we happen to have. We have a golden triangle that is rivalled only by the US west and east coasts because of sustained public policy: the way research assessment exercises have been conducted to drive improvements in research performance, the way our research councils allocate funding, and the planning regime. This is not an accident; this is partly the consequence of sustained policies on a cross-party basis.

However, we need to do more and better. We have too many small companies emerging from universities too soon, often either vulnerable and insufficiently funded to survive or sold far too early to the US. That is certainly a British problem. Some of it is to do with our public funding having tended to be for upstream research and there not having been sufficient funding for the application of this research in big general-purpose technologies. That is an area where the industrial strategy White Paper signals that there will be significantly more effort, but we have Innovate UK, previously the TSB—an entity created by the previous Labour Government—which has now functioned for more than a decade and is plugging that gap very successfully. Of course, in the White Paper, although I do not believe it has been much referred to, there is this extraordinary commitment to move to 2.4% of GDP going into R&D and, beyond that, 3%, which would be transformational. Very large amounts and very large increases in public funding are already being delivered.

That is the challenge of the top end. The challenge at the bottom end is the underperforming tail that several noble Lords have referred to. Too many of our businesses underperform. Again, there is increasing evidence of what the problem is: managers who are insufficiently trained and educated to run a business successfully; hereditary companies, where owner-managers from a second or third generation tend to be associated with very low levels of productivity; and a set of rules on infrastructure investment that rewards places that already have economic activity and do enormous damage to places that do not. So there is a model of cost-benefit analysis that says that if you already have it there will be high returns for more infrastructure investment. That is at last being changed with amendments to the Treasury rules, so that we can take a strategic view of places that need infrastructure investment, even if they currently have low levels of economic activity.

Of course there are challenges, which the White Paper tries to address, but it would be a mistake for us to think that these are challenges that will defeat us because they have defeated British Governments in the past. We should take rather more pride in our historic achievements over the past 30 years than has been in evidence so far in the debate.