It’s Friday, the sun is shining and a bank holiday awaits a grateful nation. But before we go, let’s briefly discuss industrial policy.
The chancellor committed news this morning, when he essentially said the quiet part out loud, that sometimes a recession is necessary to bring inflation down. That comment, while certainly noteworthy, drew attention away from a potentially much more consequential announcement.
The Treasury has revealed a life sciences package worth £650m which it hopes will boost the sector, one of the UK’s most successful, worth more than £94bn to the economy in 2021. Whisper it quietly, but is this the return of industrial policy (at least, beyond the five ‘e’s, whatever they are?)
People sometimes hear that phrase and either instantly switch off or conjure up images of the bad old days of the 1970s, with grey-scale ministers in tired suits picking winners with disastrous results. Indeed Kwasi Kwarteng, one of Britain’s chancellors in 2022, abolished the industrial strategy he inherited from Theresa May’s government, curiously calling it “a pudding without a theme.” This decision caused consternation among business groups that post-Brexit, the UK still didn’t appear to have – or even want to have – a plan.
The idea behind investment in life sciences is not revolutionary. It is based on the tried and trusted concept that countries ought to look at the things they do well and do more of it. And the UK is good at life sciences. It is no coincidence that one of the major Covid-19 vaccines, one that saved millions of lives during the pandemic, was developed in the south of England.
The question for the government is what kind of industrial policy do they want (beyond lots of R&D) and will they stump up the cash pay to make it happen? Because Britain risks being caught in a pincer movement between the European Union and United States, the latter of which has just turbocharged its clean energy subsidy regime, spraying hundreds of billions of dollars in the process. Hunt has previously said that Britain would not be joining a global subsidy arms race, but one got the impression that was more because he decided we couldn’t afford to.
This makes the government’s decision (to borrow a phrase) to do whatever it takes to ensure the Tata Group, which owns Jaguar Land Rover, builds a major electric car battery factory in Britain rather than Spain quite interesting. The UK’s automotive sector needs a gigafactory, but this will require substantial subsidy. And there are suggestions the deal could cost the taxpayer as much as £500m. That figure represents 50 per cent of the total funds put aside for the UK’s Automotive Transformation Fund. Go big or go home without an electric vehicle industry, I suppose.
The irony is that America, perceived as a paragon of limited government and free market capitalism, has often been rather activist. And now, with the rise of China and the return of great power competition, it seems to view national champions as key to remaining number one.
I keep meaning to refer to this awesome graphic from a report by the Apollo Program for Biodefense outlining the history of what it calls US “Grand Programs”. Most recently, there was Operation Wharp Speed, at a cost of $12.5bn, which provided funding for the development of Covid-19 vaccines. But going back 100 years, we can point to the construction of the Panama Canal (cost: $11bn in today’s money) the Manhattan Project ($23bn) the National Highway System ($500bn), the Global Positioning System ($23bn) and the International Space Station ($255bn).
Technological breakthroughs with commercial applications are not going out of fashion. Of course, the US has the scale, the venture capital and lower energy costs Britain will simply never be able to compete with. But comparison is the thief of joy, and American exceptionalism is no excuse for British fatalism.
The UK economy retains real strengths. We have a highly-educated population and solid institutions. Beyond life sciences, there is financial and professional services, universities and creative industries. A credible plan to double down on these high-value sectors won’t prevent the next recession or halve inflation by Christmas, but it is our best bet for making the 2030s a much more enjoyable decade than either the 2010s or 2020s.
In the comment pages, Emily Sheffield says admit it: you’re addicted to fast fashion — but it doesn’t have to be this way. Paul Flynn reflects on how a house is not always a home, as Succession is showing us. While Simon English lets rip on the Bank of England and the sorry state of the fight against inflation.
And finally, check out our curated list of what to eat, drink and see this bank holiday weekend.
Have a good one.
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