Industrial strategy: why Boris shouldn’t intervene before breakfast, lunch and dinner

Michael Heseltine, the Conservative peer and former Cabinet minister, once said he would intervene in business before breakfast, lunch and dinner” if required. Lord Heseltine hasn’t changed his view. In scrapping its industrial strategy, the Government’s approach to business is chaotic” and incoherent”, he says.

Echoing Lord Heseltine’s view, the Business, Energy and Industrial Strategy (BEIS) Select Committee has warned that levelling up” has been put at risk by the Government’s short-termist” decision to scrap the strategy. 

Just last week on 15 July, in a policy-light speech, Boris Johnson outlined how government investment in transport, skills and businesses would level up” the country, addressing regional disparities. While the details of the Prime Minister’s flagship levelling up” policy are not expected until September, he should know that both Lord Heseltine and the BEIS Select Committee are wrong. 

This Government — any government — shouldn’t try to pick winners.  Boris Johnson’s flagship policy shouldn’t aim to direct regional growth centrally. Instead, the best way to boost growth and jobs across the whole of the UK is for the Government to create the right environment for enterprise to thrive by getting out of its way.  

An industrial strategy means that the Government promotes certain economic sectors, technologies or even individual businesses, in pursuit of a strategic national goal, through tax, regulation, subsidies or trade policy. The UK’s strategy, introduced in 2017, backed specific industries and technologies such as aerospace, AI and life sciences, through a series of sector-specific deals. 

Many in favour of the plan cite examples of Asian economies which developed rapidly and increased growth through a series of industrial plans and state subsidies. Others also point to the UK’s persistently sluggish productivity over the last 10 years as a rationale for the need for an industrial strategy.  Market sceptics say this is a market failure and so the Government must intervene.  

When viewed against this backdrop, it seems easy to support an industrial strategy.  But that would be to take the context at face value. None of the Asian success stories already had the huge fiscal deficit or the highly developed service-based economy that the UK does.

One of the causes of the UK’s low productivity, and huge disparities in growth and productivity across its regions, is the high number of businesses that haven’t invested in technology and skills. These businesses are often small, dispersed across a range of industries and across the UK. So the UK’s productivity puzzle won’t be solved by state intervention in one sector or one region over another. 

History shows that government intervention does not lead to an efficient allocation of people, capital or resources. Just look at the EU’s Common Agricultural Policy, which has led to huge amounts of food waste, increased pollution and higher food prices for consumers. 

In 2017, in examining government intervention in the UK energy market, the House of Lords concluded that state subsidies for renewable energy projects had increased prices for consumers by 58 per cent in 15 years. One of the lessons of the past year is that those running our public services, despite their best intentions, do not always do as well as they might wish.

The Prime Minister should remember these lessons when setting out the detail of his plan to level up the country in September. He should choose a free market vision for levelling up, not the state-directed alternative. But what does a free market vision for levelling up look like? 

There are four areas the Government should consider.

The first is promoting proper localism.  Boris Johnson’s levelling up speech talked a good talk on devolving power to towns and cities. But the only way to truly devolve power is to give local councils more financial clout.  For instance, VAT could become a local sales tax that councils could use to regenerate areas and promote enterprise. 

Second, levelling up should mean reducing the regulatory burden for all firms and putting a moratorium on any new regulations.  This is especially important when many businesses are already struggling to cope with reopening. 

Third, the UK’s complicated tax code, which runs to many thousands of pages, should be simplified. This is especially important for start-up and scale-up businesses.  It is these firms that will be creating the majority of the new jobs. 

Fourth, as the economy begins to reopen, the Government should end Covid support from the taxpayer as soon as possible. For instance, ending the furlough scheme will ensure that productive firms can hire the people they need.

As the pandemic recedes, ensuring the economy returns to good health is the Government’s priority. But to level up the country, Boris Johnson needs to leave it to the hundreds of thousands of entrepreneurs and business owners to do what they do best.  To build, grow and create new jobs across the whole of the UK. By resisting the urge to intervene before breakfast, lunch and dinner, he will help millions to ensure that their own families are well-off enough to eat out without being helped out by the Government.

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