Industrial Strategy: a positive start

Industrial Strategy Sparks Grinding Industry Manufacturing UK Manufacturers Stock Image Pixbay
Tax incentives such as R&D tax relief and the Patent Box regime are particularly valuable in supporting innovation.

The Prime Minister’s Industrial Strategy is a step in the right direction towards a more collaborative future in which government will be working hand-in-hand with British industry to support their long-term interests. However, proof of its efficacy will lie in its delivery, as Caroline Milton explains.

Britain already has a hugely successful knowledge economy, which delivers significant revenue in areas such as the high-value automotive, aerospace and defence industries. As we move towards Brexit, the challenge for government is how to build on this success by encouraging innovators in other knowledge-rich sectors to not just undertake R&D here, but to stay and manufacture goods in the UK too.

Caroline Milton, partner & head of the manufacturing group, Menzies LLP.
Caroline Milton, partner & head of the manufacturing group, Menzies LLP.

The government’s Industrial Strategy appears to recognise the importance of the contribution from SMEs that provide 59.9% of employment and 47.4% of revenue (BEIS Business Population estimates 2016) and contains several themes that, if delivered, will be welcomed by these businesses.

In particular, the references to developing STEM skills and supporting businesses in a more ‘active’ way – for example, by being prepared to step in to amend regulations allowing businesses in emerging sectors to develop and drive export activity – will appeal directly to SMEs.

To make a difference the Industrial Strategy will need to work closely together with the wider business community; responding to its needs and helping to bridge challenges as they arise.

It is especially pleasing to see that ‘developing skills’ made it into the government’s 10-pillar plan. However, UK manufacturers will need to know more about how this will work in practice. The current Apprenticeship Scheme is considered prohibitive to many SMEs and with the Apprenticeship Levy coming in April. the levy is seen as nothing more than an additional tax on many larger SME employers.

Government intervention to address the skills shortage is now imperative to prevent growing businesses from stalling and missing out on opportunities. The £170m investment pledge seems far too low to ensure that new institutes of technology are successful and consideration is needed to help create clear pathways that lead students into apprenticeships and other skills-based learning.

There are existing building blocks that are available to support our industry, but these would benefit from wider communication, coordination and simplification. For example, Innovate UK offers valuable support, including grant funding and catapult centres, but SMEs are often unaware of these sources of support and better communication will be crucial to the implementation of a successful Industrial Strategy.

Tax incentives such as R&D tax relief and the Patent Box regime are particularly valuable in supporting innovation, but even HMRC’s statistics suggest only a small proportion of qualifying businesses are utilising these reliefs. Increased simplification and support would help accelerate UK business growth. By paying attention to such details, the government could signal its commitment to positioning Britain as a leading destination for manufacturers to innovate and produce.

Positive interventions must be backed up by solid investment too of course. According to the OECD, Britain is currently investing 1.7% of UK GDP in R&D activity – however, this is too low and proportionally trails many other countries of the world. The government’s decision to pump an extra £4.7bn of investment into R&D for smart energy technologies, artificial intelligence, robotics and 5G indicates an understanding that to secure a strong trading position in the future, UK-based manufacturers will need to invest in cutting-edge technologies, which are capable of driving efficiencies.