An industrial strategy, detailed by Business Secretary Vince Cable on Wednesday, identifies five main areas in which government action could boost economic growth.
Dr Cable used the automotive and aerospace industries as examples of thriving sectors which had benefited from some government assistance and collaboration.
He said that a co-ordinated industrial strategy would bring “substantial rewards over a long period”, and cited Britain’s success in the Olympic and Paralympic Games as an example of long term planning and graft producing a big return on investment.
More a collation and linking-up of several existing initiatives and programmes, with some new projects, than a single brand new strategy, the industrial strategy has five key pillars:
1. Business bank
The strategy includes plans to set up a state-backed lending institution which would allow businesses easier access to loans at more preferential rates. The creation of this bank is an urgent focus as statistics from the SME Finance Monitor showed that 33% of businesses who applied for a loan in the last 12-months had been rejected.
This new ‘business bank’ would be provided by alternative providers, such as the new challenger banks like Handelsbanken, the Co-Op and Aldermore, or non-bank lenders. Handelsbanken recently opened more offices in the UK, the Co-Op is part of the UK’s largest consumer co-operative which reached a deal to take over 632 Lloyd’s branches in July and Aldermore was set up in 2009 with a focus on providing finance to small and medium-sized businesses (SMEs).
The creation of this institution, government says, would increase diversity in the supply of finance and help companies to invest in capital and fund expansion, ultimately leading to more new jobs.
The proposal of a state-backed bank has long been proposed by businesspeople and lobbyists, and would see Britain follow Germany’s lead, where Germay has a state investment bank, KfW, and regional retail banks, the Sparkassen.
The scale and the modus operandi of the business bank still needs to be explained. Cable’s strategy highlighted the existing £1.2bn Business Finance Partnership, which was announced at the 2012 Budget, and £2.5bn Business Growth Fund, launched in May in conjunction with the British Bankers’ Association, as ways the where the Government is working to tackle access to finance. Critics say only a small proportion of the BGF has been tapped to date.
The Government says it will create “a series of collaborative but challenging sector strategies in advanced manufacturing, knowledge-intensive traded industries, and the enabling industries”.
Vince Cable highlighted the aerospace, automotive and life sciences sectors as examples where the state will focus its efforts. But he emphasised that the list was not exclusive to these. He cited the Prime Minister’s recent visits to leading food producers as ways the Government will support other industries.
Despite attempts at involving other sectors, the strategy places advanced manufacturing as its top priority, followed by the knowledge-intensive services, which now account for over 12% of GDP. Cable denied that this would constitute ‘picking winners’, insisting that the strategy would place government emphasis on high growth sectors which warranted a longer term partnership.
The Department for Business, Innovation and Skills published a report yesterday highlighting the areas where government support will be focused, taking into account factors such as historic performance, drivers of future growth and potential barriers to that growth.
Next year, BIS plans to deliver strategies for non-health life sciences, nuclear, oil and gas, and renewable energy. It then hopes to build on the success of TechCity with a focus on IT, followed by education exports, then construction and finally professional business services later in the year.
Cable emphasised the need for a flexible and market-led strategy, one that would be “ready to respond to help specific needs ad hoc.”
According to Dr Cable, the development of new “nascent disruptive technologies” in the UK is often too risky or resource intensive for a single company to nurture on its own and therefore government must assist.
Science Minister David Willetts has asked the Government Office for Science to update its Foresight Report on Technology and Innovation Futures. Dr Cable says this will provide a fresh look at technologies which have the potential to “support sustained economic growth in the UK over the next 20 years”.
Technologies identified so far include synthetic biology, graphene, intelligent sensor networks, service robotics and energy harvesting.
The Technology Strategy Board (TSB) has identified three areas of focus and has announced three funding competitions, to launch on October 8: £6.5m for synthetic biology; £1.25m for energy efficient computing; and £1m energy harvesting for autonomous sensing.
Cable reminded us that £200m has been spent to set up the Catapult centres for supporting the development of high value manufacturing, cell therapies, offshore renewable energy and satellite applications. In addition the TSB will set up an Innovation and Knowledge Centre in Synthetic Biology, one of its target nascent disruptive technologies.
Other investments made by the Government in the technology pillar include: £60m to create a new UK Aerodynamics centre; £50m to support the commercialisation of graphene; £145m to invest in software, data storage and wide bandwidth networks; and £180m in an integrated translation programme.
The Government has focused much of its skills strategy to date on apprenticeships. This resulted in a 63% increase in apprenticeships in 2010/11 and nearly 400,000 new starts in the first three quarters of 2011/12. Crucially, recent changes have made an apprenticeship needing to last a minimum of 12-months to qualify for this list.
Yesterday Dr Cable announced the first round of winners of the £250m Employer Ownership Pilot scheme, which include Siemens, Sembcorp, Nissan, Arla Foods UK and BAE Systems.
All these companies are large, while the scheme originally explicitly stated that it intends to help small firms with their skills needs.
In total 34 businesses will receive £67m of investment from the Government in addition to £98m of private funding. Round Two funding begins now.
The final pillar is procurement. £1 in every £7 spent in the economy is spent by the Government, on everything from trains to toilet rolls. Cranfield University says that 39% of all manufacturing companies in the UK have some portion of their business in government contracts, and many people in industry have questioned whether the existing procurement regime rewards foreign companies with a disproportionate amount of government work.
Procurement rules are set by the European Union, and government claims that it is pressing for changes to the rules. But meanwhile, the strategy intends to publish large government contracts earlier – beginning in April, when the Government published £70bn of future contracts in 13 sectors over the next five years.
One example of clearer procurement is the rail sector, where Dr Cable said a recent discussion revealed big holes in the UK’s tunnelling capability. Crossrail has launched a tunnelling academy to train specific skills in this area. “We are collaborating with industry to identify other areas – an early candidate that was identified is high voltage cabling, and we are seeking others,” said Dr Cable.
After being vilified for awarding the lucrative Thames Link rail contract to Germany’s Siemens and not Bombardier, with a factory in Derby, and seeking an “off-the-shelf” (albeit a modified-off-the-shelf) approach to defence procurement, Cable’s department has a mountain to climb to persuade industry that a tweaked procurement strategy can make a meaningful difference to orders for UK firms.
More details of the TSB funding competitions and round two of the Employer Ownership Pilot scheme, will be reported on themanufacturer.com as they break.