The 2017 General Election marks a pivotal stage in preparing the UK’s economy for life outside of the European Union. Cut adrift from Europe, we have to put into place strategies which will ensure that the UK, with a mere 1 per cent of the world’s population, can remain competitive with countries of hundreds of millions of people.
The longest lasting periods of economic growth in our history have been driven by innovation. The mass production system, electrification and the microchip are examples of new technologies becoming the dominant driver for long-term growth. In the UK, as in every other developed economy, innovation will be the key driver for economic growth for the next generation and longer.
This May, I wrote to the Secretary of State for Business, Energy and Industrial Strategy setting out the conclusions of the House of Lords Science and Technology Committee, after taking evidence from a range of witnesses on what would be the essential components of a coherent national industrial strategy.
We can build on some key national assets. We have a strong science base, a powerful finance industry and some world beating technological and engineering skills. An effective industrial strategy would need to build on those national advantages. Science and innovation must be at the heart of any such strategy. The Green Paper Building on Industrial Strategy, published this January, promoted the concept of reshaping the relationship between government, business and universities with the creation of UK Research and Innovation (UKRI) and with a welcomed increased public investment in science and innovation. What was missing was the vision needed to develop an industrial strategy that is fit for purpose, with clear goals as to its intended economic outcomes and which can be implemented and monitored effectively.
The Green Paper did not set out how many sector deals the Government aspired to or whether it aimed to make deals with every sector. It failed to explain how industries of the future, which cannot be mapped onto existing sectors, will be promoted. The government must use UKRI to help develop ways to support research and businesses which do not fit easily into existing sectors.
We must put in place a coherent approach to tax and regulation for industry and science.
Brexit presents opportunities for businesses in the UK to gain competitive advantage from reforms to taxation and regulation that were previously not possible as part of the EU framework. Innovate UK has a good record of supporting the early transition of research out of universities, but it is the next stage, the scale up stage, where much larger and longer-term funds are required.
One model can be shown to be world beating, that of Wall Street and its investment in Silicon Valley technology. Whilst London has a leading stock exchange, we do not have an investment culture within the fund management industry which is prepared to embrace the needs for long-term capital, particularly for emerging science-based firms with the potential to grow significantly.
Sovereign wealth funds and US venture capital funds have recognised that gap in the UK and are taking advantage of the opportunity, to the detriment to our economy. The government needs to recognise its responsibilities for improving the availability of such long-term finance from UK funds.
The Government presented the Green Paper as a vision for the whole UK. Policy and delivery responsibilities for key features are devolved to administrations in Scotland, Wales and Northern Ireland, including skills, higher education, economic development and areas of procurement and infrastructure. It is not evident how great a role the devolved administrations played in writing the Green Paper. An industrial strategy, which successfully embraces the opportunities and needs of the whole UK, must be based on extensive consultation and collaboration with all devolved governments.
Over the coming months, much parliamentary scrutiny will be needed to help identify which polices are most likely to deliver economic growth for the next generation. I am confident that the House of Lords Science and Technology Committee will play its part.