Industrial Strategy

Steve Baker Excerpts

Thursday 20th October 2016 Commons Chamber

[Mr Steve Baker (Wycombe) (Con)]

It is with considerable trepidation that I rise to speak in a debate led by my hon. Friend the Member for Warwick and Leamington (Chris White). The last time I did so, I think I persuaded the Government to accept only the first clause of his three-clause social value Bill, but he kindly asked me to serve on the Bill Committee, by which time the civil service had vastly expanded it into something of a Christmas tree Bill. I very much hope that on this occasion there will be a different outcome, but it was of course a great pleasure to serve on that Committee.

Competition on the merits is a perfectly reasonable industrial strategy for the Government to adopt. It is the one that creates the most wealth and it has been proven to lift people out of poverty. I encourage any Member and anyone listening to have a look at the website HumanProgress.org and its Twitter feed for bite-sized snippets that illustrate just how well entrepreneurship, strong property rights and freedom to contract in a market economy not only facilitate production but engage other social forces that are healthy. It is social co-operation through the mechanism of competition in the market. Other mechanisms have always brought about poverty and misery. The goal of the Government’s domestic policy should be to lower anti-competitive market distortions, and it is on that concept that I wish to focus my remarks.

Anti-competitive market distortions adversely affect economies and contribute to high costs. If we reduce distortions in both the UK and the world we could, according to the Legatum Institute’s productivity simulator, see a significant increase in productivity and public welfare. One of the great problems with domestic suggestions is that they increase the level of ACMDs, which can lead to higher costs and push more people into poverty.

I would like to offer a taxonomy of ACMDs from a paper in the competition law journal, Concurrences— No. 4 of 2014—entitled, “The effect of anticompetitive market distortions (ACMDs) on global markets” by Singham et al. The authors classify those distortions into six areas, and I offer them not as a menu from which interventionists might pluck their preferred action, but as a description of areas in which Governments take policy choices that push people into poverty by prejudicing competition.

The first and most obvious is the type 1 distortion, described as

“government laws, regulations or practices that eliminate competition completely. Examples might include a local content regulation that eliminates foreign production from competition, or a capital adequacy regulation set so high that some banks are forced to exit the market.”

That produces monopoly or oligopoly.

Type 2 distortions are

“government laws, regulations or practices that lessen competition. These are laws, regulations or practices that make markets less competitive, but do not necessarily foreclose competitors from the market entirely.”

Those distortions

“elevate the costs of certain companies.”

[George Kerevan]

I thank my colleague on the Treasury Committee for giving way. Does he accept that there is a middle way whereby Government can encourage competition, as we have seen with the superb Catapult centres, which are an example of an industrial strategy that works? By offering prizes for competitive solutions to technical problems, it is possible to create the ecology that the hon. Gentleman seeks.

[Mr Baker]

Well of course, the great prize in a free market should be a profit, which one is allowed to keep and invest in further production. I do not wish to bore the hon. Gentleman or the House, but by the time I get to point 5, he will see that I will turn to competition authorities.

I was saying that type 2 distortions that lessen competition create dead-weight costs in the economy. Examples would include distribution laws that increase costs for certain suppliers. Types 2a and 2b can be split up—[Interruption]—but I shall not go through them all. The hon. Gentleman has generously indicated that reading from this fascinating paper is perhaps not the most engaging speech for him, so I shall cut some of it down.

Type 3 distortions

“apply different rules to different firms”.

One would have thought that in a society governed by the rule of law, no one would stoop so low, yet they do. Other countries around the world—particularly, I am afraid, India and the Philippines—have such regulations.

Type 4 distortions

“are largely caused by state-owned enterprises”,

which include “government privileges in licensing” and distortions relating to the pricing practices of state-owned enterprises and to “abuse of regulatory process”; while type 5 are

“largely due to action or inaction by competition agencies”.

I will happily share with the hon. Gentleman some of the detail on how competition authorities, either by acts of omission or commission, fail properly to promote competition.

Type 6 distortions are

“caused by anticompetitive state aid or support”

whereby firms are given

“subsidies and other subventions that may or may not be anticompetitive”.

The point is that it is now well known in academic literature that various categories of Government interventions make us poorer. They can be subjected to a taxonomy, and their costs can be estimated—[Interruption.] I apologise if the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) does not like me using a particular word.

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[George Kerevan]

He’s read his Adam Smith.

[Mr Baker]

I have; I am grateful to the hon. Gentleman, my colleague on the Treasury Committee, for saying that. I absolutely have, but perhaps not the same extent that he has. I certainly cannot quote the passage that I know he has in mind.

I say to the hon. Member for Newcastle upon Tyne Central that I certainly did not suggest that a lack of competition is due only to the Government. I think she has applied her own ideas about what I stand for in order to come to that conclusion. I shall certainly read Hansard very closely tomorrow to see whether I suggested that. What I am suggesting is that in a taxonomy of six different categories of anti-competitive market distortion set out in a serious journal of competition law, two sub-categories of one category relate to mistakes that can provably be seen to be made by competition authorities. They are not perfect; no human institution is perfect, including competition authorities.

We are undergoing a process of becoming more open to trade, as indeed we should—seeking comparative advantage, seeking to supply new markets, and seeking to buy from new markets in order to drive down prices. However, the experience of trade negotiators whom I have consulted is that if we go and talk to nations in which the largest segment of the economy is agriculture, we find that we cannot do a deal with them if we take agriculture off the table. Why? Because of the extent to which we subsidise it. We must ensure that agriculture is well looked after, within the expectations that the Government have set; we must ensure we can continue to supply food. What we must not do, though, is try to negotiate with other nations if we ourselves are substantially distorting our own domestic markets in such a way that they cannot hope to compete with us.

I want to impress on the Government—there is substantial literature about this issue—that it is conceivable that both domestic and global productivity could be radically improved for the long term by means of a productivity and consumer welfare Act, which would entrench the very best of competition policy in British law in order to eliminate anti-competitive market distortion.

[Peter Kyle (Hove) (Lab)]

It is good to serve under your chairmanship again, Mr Deputy Speaker. It is also good to follow the hon. Member for Wycombe (Mr Baker), because his was a very different speech from the one that I intend to make. I hope that the two will prove complementary in some way.

I begin by thanking the hon. Member for Warwick and Leamington (Chris White). It was good of him to initiate the debate, and very generous of him to invite me to co-sponsor it and accompany him to the Backbench Business Committee to make the pitch for it. It is extremely timely, and his opening speech served the tone of the ensuing discussion very well indeed.

“Industrial strategy” is a contested term, and one with which some Members on both sides of the House struggle, because almost every post-war Government who have tried to implement such a strategy have come up against one difficulty or another. However, I think it is quite simple if we focus on the strategy side of what needs to be delivered and what business needs. That is the bit that many businesses want the most, and it is the bit that the Government, in various different ways, have often failed to deliver.

“Strategy” means, quite simply, identifying with clarity where we are, spelling out with clarity where we want to go, and being aware of the bridge that links the two together. If the hon. Member for Bedford (Richard Fuller) were still in the Chamber, he would, I hope, have noticed that I did not use the words “long term”. In fact, it is always a mistake to spell out exactly how long a journey of this kind will take, because different parts of the strategy will take different periods of time.

Business needs clarity and consistency. I think the House will be informed if I give two examples from Governments—not just this Government but a previous one as well—that involve both clarity and consistency. Sadly, they are not good examples from which we can learn, but examples that we need to avoid in the future. I begin, unfortunately, with a contemporary example. In the past week, members of the Business, Energy and Industrial Strategy Committee have received a letter from the Secretary of State for BIS. I apologise to the Minister; I still call it BIS, because I think the new title, BEIS, sounds a bit like a kitchenware product. At the moment it seems be a gadget that does something with a wet lettuce, but we will see how it goes.

This is what the Secretary of State wrote in his letter about the industrial strategy that he will unfold and lead:

“Many of the key components of our industrial strategy will not be about particular industries or sectors, but will be cross-cutting. It will be relevant to people and businesses across the UK—for people as consumers and employees, and for businesses as investors and drivers of growth. It will also respond to and seize the opportunities presented by the transformations we are faced with in 2016—both domestically in our exit from the European Union, and in wider global trends.”

I am sorry, Minister, but that is a mission statement. It is not a strategy. It encompasses consumers and domestic, nationwide, international and global businesses. There will be a strategy for every aspect of business. Every business—from the self-employed right the way up—will be encompassed in one strategy. The Minister is nodding to say that it will be delivered; I think it will be wonderful, and I look forward to seeing how all that can be encompassed in one strategy. I support the notion of an industrial strategy, and I hope that it can be delivered. However, from that starting point, I start to have sympathy with the scepticism of the hon. Member for Bedford. I would never have imagined that.

I turn to the position of the last few Governments. The industrial partnership approach was introduced by Vince Cable in 2014 when he was Secretary of State. In 2014, his Department in the coalition Government introduced—I quote from the website at the time: “An industrial partnership” that

“brings together employers across an industry sector to lead the development of skills, with a focus on growth and competitiveness. There are currently 8 partnerships covering the aerospace, automotive, creative, nuclear, digital, energy & efficiency, science and tunnelling (construction) industries.”

It went on to say that all those partnerships would be

“funded up to March 2017”.

Unfortunately, the funding for that programme was cut in September 2015. Not six months after Vince Cable left office, the funding for the flagship industrial strategy of that time was cut.

Just last week, I received a response to a parliamentary question. The question was:

“To ask the Secretary of State for Business, Energy and Industrial Strategy, what role Industrial Partnerships will play in delivering the Government’s Industrial Strategy.”

The response was:

“The Department for Business, Energy and Industrial Strategy indicated that it will not be possible to answer this question within the usual time period.”

That non-answer says more than many of the real answers that I have had from the Department. It is not prepared to implement the strategy as we see it at the moment. We do not know what the strategy is, or how it will go forward. We do not even know whether any strands of previous strategies will be taken forward.

What does that mean to businesses on the frontline? In the past two years, we have had a clear sectoral approach to business strategy by one Secretary of State, but six months later it was changed by a Government who had no industrial strategy and refused to use the words “industrial strategy”. Now we have a Department with “Industrial Strategy” in the name. That is all over two years. Businesses are having to respond to that profound change in a rapid space of time.

[Mr Baker]

Along with anti-competitive market distortion, regime uncertainty is a problem. Exactly the phenomenon that the hon. Gentleman outlines causes businesses to make less profit than they otherwise would. I am sure that he would agree that it would be better if the Government did less.

[Peter Kyle]

I am sure the hon. Gentleman would agree that we would both want the Government to do more of the right things. So why do I not have a stab at spelling out what the right things are? There needs to be a focus on what businesses that create growth and quality jobs and generate tax want. What do they need in order to support their business? Many do not need any help from Government, but all are affected by Government policy in one way or another, because every business uses this country’s infrastructure, whether that be the internet, the roads or other transport networks. Government policy has an impact on businesses, whatever those businesses are. Getting the strategy right and listening to the voice of business as that infrastructure unfolds is at the core of how we can go forward.

What do businesses want from Government? The one thing that links all the things they want—we could go through many of the issues that are mentioned to us by businesses and industry groups that helpfully contact us, such as the EEF—is skills. It is good to have the Skills Minister here responding on behalf of a Department that—

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[Joseph Johnson]

I thank the hon. Gentleman for his observations. I will take a look at the statistics that he mentions. The car industry is just one example of advanced manufacturing in which we excel at the moment.

[Mr Baker]

rose—

[Joseph Johnson]

I am going to make a tiny bit of progress and then I will give way.

[Mr Baker]

Can I help the Minister out?

[Joseph Johnson]

Okay.

[Mr Baker]

I hope that the Minister will join me in celebrating this country’s excellence in not only manufacturing, but research in Formula 1. We have a number of teams in the UK. We are also the world’s second biggest aerospace manufacturer after the mighty United States. We do tremendously well, and Opposition Members are far too downbeat.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I welcome interventions, but when Members see the speaking time drop down to five minutes, they will understand, won’t they?

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[Richard Fuller (Bedford) (Con)]

It is a great pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman) and to congratulate my hon. Friend the Member for Warwick and Leamington (Chris White) on securing the debate. May I apologise to you, Madam Deputy Speaker, and to other Members for not being here for a number of speeches? I hope I do not repeat what has been said.

[Mr Baker]

That is not likely.

[Richard Fuller]

I know that there is little chance of that.

George Brown, the noble Lord Heseltine, the noble Lord Mandelson, Vince Cable—to this hallowed series of greats we should now add the names of the Minister for Universities, Science, Research and Innovation and the Secretary of State as the people who will champion industrial strategy for our country. There are no two better minds in this House that we could apply to the task, but my concern is that we are sending our best brains in pursuit of a nonsense.

As the hon. Member for Aberdeen North has just said, we do not know what industrial strategy is—no one has defined it. When I heard earlier that the Minister had not yet published what the industrial strategy was, I raised my hands in prayer. As long as the Government continue not to define their industrial strategy, they will keep themselves out of a great deal of trouble. As soon as they define it, people will start to disagree with them, because the phrase “industrial strategy” is a wonderful grab bag of good ideas. There are loads of ideas in industrial strategy, every single one of them good. Ne’er a one is a bad idea, because a bad idea will not be allowed into the industrial strategy. In industrial strategy, all are winners, because no industrial strategy will pick a loser. The Minister will always say yes, because with an industrial strategy, one can never say no.

I hope that the Minister will maintain his rather reticent approach to industrial strategy so that he can continue to be friends with all Members across the Chamber and not upset anyone. In the phrase “industrial strategy” it is, first of all, hard for him to define industry. Is financial services an industry? The word “industry”, as my hon. Friend the Member for Warwick and Leamington conjured up in his opening speech, is about manufacturing. What is strategy? Strategy is the pursuit of a goal, but what is the goal for an entire economy and, if there is a goal, how on earth is it the Government’s role to tell everyone what it is? That went out in the 1940s and ’50s with Soviet planning. I know that my friend the Minister has no interest in returning to those days, but unfortunately he may unwittingly, in his endeavours, encourage Opposition Members to think that the good old days of centralised socialism are back. He would not wish to be a fellow traveller on that journey to despair.

Industrial strategy, we are told, is positive because it enables us to think about the long term, but that is what shareholders do. We think about the news cycle and we think about the election cycle. We have to make sure that, in five years, we are re-elected. When we talk about consensus in other countries, we have to recognise that consensus in this country is built differently; it comes from the competition of ideas, and from one set of new ideas being subsequently accepted by the opposing party. The promotion by the Conservative party under Margaret Thatcher of a reduction in the power of trade unions and a liberalisation of markets was accepted by the subsequent Labour Government. The Labour Government’s introduction of the national minimum wage and regulation against discrimination in the workplace was accepted by the coalition Government. That is how we build consensus, and that is not compatible with the expectation that one can set an industrial strategy that stands for all time. The Minister will be here, I am sure, until he gets promoted, but at some stage—perhaps in 20 years’ time—the Opposition will get ready to take over power, at which point the long-term plan may be picked apart.

To be slightly more helpful to the Minister, I will point to some areas that he and his colleagues might like to look at. Although I would not call these things an industrial strategy, they might be good ideas. If we are to be successful, as my hon. Friend the Member for Havant (Mr Mak) mentioned, we have to promote innovation. Innovation is promoted by lowering taxes, ensuring that our markets are flexible, and looking carefully at regulatory sunsets to ensure that incumbents cannot use regulation to defend themselves against insurgents. Corporate governance also needs to be looked at seriously, as we discussed in the previous debate.

I commend my right hon. Friend the Member for Tatton (Mr Osborne) for his productivity plan, not because it was about projects, but because it for the first time concentrated on what the Government can do regarding strategy, which is the implementation of things that are helpful, particularly for infrastructure. We need only look at the difficulties with the expansion of airport capacity in the south-east to see that we are very poor at implementing the decisions we make. I commend the productivity plan to the Minister for him to look at again.

The Prime Minister has rightly said that the United Kingdom is at the forefront of free trade. That is something on which the Minister and I clearly agree. Free trade is what the United Kingdom does best. We need to make sure we have appropriate protection against dumping, but we also need to be on the front foot in lowering our tariffs.

We are leaving the European Union, which is a major event for the whole of our economy. I understand that the Government want to form a view on that and know what actions they should take in the short term to assist us through this transition to a better and stronger future. However, each of these are things that the Government would do anyway. We do not need a Department for industrial strategy to do them; we do not need such a Department to improve our skills. We do not need one to change the law regarding the governance of our boards, although I agree with the hon. Member for Livingston (Hannah Bardell) that the Government should do that. We do not need the phrase “industrial strategy”. I am worried for the Minister in that, as he pursues it, he will set the Government up for a fall. I, for one, want to support the Government in their endeavours so that that does not happen.

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[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

What a pleasure it is to follow my hon. Friend the Member for East Lothian (George Kerevan). As he was talking, I wrote down the following: “Until I read my hon. Friend’s book, I will remain in some sympathy with the hon. Member for Bedford (Richard Fuller) and my hon. Friend the Member for Aberdeen North (Kirsty Blackman).” One problem, as I see it, with nearly every other contribution, except that of my hon. Friend the Member for Edinburgh West (Michelle Thomson) is that no one has mentioned what, to me, is critical in anything that calls itself a strategy—namely, what its purpose is.

What is the purpose of this thing we call an industrial strategy? Since we all have our own ideas to share, I am assuming that at the end of the day its purpose would be to help propel economic growth to support people’s wellbeing. That assumption might not be shared by everyone in the Chamber—I do not know whether it is shared even by my hon. Friend the Member for East Lothian—but I will frame my few remarks around it.

I enjoyed the opening remarks of the hon. Member for Warwick and Leamington (Chris White). He led the debate with a bit of a historical review of past efforts at industrial strategies. He also pleaded for us to look to the future in our new context. In that historical light, I was also interested to hear the hon. Member for Wycombe (Mr Baker) indicate that he had read the works of Adam Smith. Since my constituency, Kirkcaldy and Cowdenbeath, is the home of Adam Smith, I feel compelled to venture a few thoughts to continue the hon. Gentleman’s education.

[Mr Baker]

Adam Smith was catastrophically wrong about the labour theory of value and has much to answer for, but I look forward to hearing the hon. Gentleman’s remarks.