Industrial Strategy — House of Lords, 2017-11-27
Topic: Macroeconomics
Jonathan Mendelsohn (Labour, Centre-left): My Lords, I draw attention to my interests as listed in the register I thank the Minister for repeating the Statement and I give a warm welcome to much of the industrial strategy White Paper, the warmest welcome being for its existence. There is much in it to be applauded and many important aspects. It is, like the Green Paper, quite a compendium of what we are familiar with and what we have already heard, but there are some very useful illustrations of collaboration across government, business, trade unions and science. The test is whether, joined together, it has the capacity to make a powerful difference The White Paper encompasses the old, the current and the new. The old—that is, what is already established—has been addressed through the sector deals. What is most welcome is that much, although not all, of what has been drifting now has a process to come to a conclusion. The present is in the grand challenges, but we also have to address the more chronic problems of regional imbalances, low wage growth, service sector imbalances and weakness in skills, as well as competition, markets and finance. The ONS statistics published last week show a stinging decline in capital stock, which shows that businesses are relying on cheap labour rather than investing in system upgrades to improve efficiency I had noticed that the Green Paper was 132 pages long, whereas the White Paper weighs in at 254. It is so much larger that it has already started to be part of the growth story of the industrial strategy. However, given that the font size is up by around 25%, with more pictures, tables and illustrations than the Green Paper, that is in and of itself a good way to start evaluating whether it is more productive Reading the previous Government’s press release launching the effort to help to reposition the UK’s independent capability in the post-Brexit world, the word "productivity" did not even get a mention. However, it got a mention from one trade body, which said that it hoped that the strategy could help with productivity in its sector Today, the White Paper is all about productivity. This is different from the post-Brexit world and, I think, weaker for it; nevertheless, it is essential that we address it. Performance over the last decade has been the worst for any decade since the 19th century. In fact, since the predecessor document on the productivity plan was launched in 2015, we have seen the worst quarter performance recorded in the last 200 years. So this may not equip us over the horizon that we originally looked at but, as the OBR report illustrated, this is a pressing target now There are now five drivers of productivity and four grand challenges—nine items, not 10. By my reckoning, the last 10 pillars could probably fall into the first five and the challenges have been elevated to grand challenges. To my mind, these are more matters of presentation, so I would like to ask some questions on three major areas which I think are fundamental The first concerns institutions. The report announces the establishment of the industrial strategy council. This is to be welcomed and it comes in a section which has my favourite phrase of the entire report. It says that the strategy, "needs to combine agility with patience", and that the industrial strategy council will be there to help consistency and adaptability. However, we will be concerned if it becomes the same as the OBR. Will the Minister confirm that its make-up will demonstrate independence and what that might be? What independent powers will it have? Will it be able to talk to departments outside the Treasury? Will it have to take the political assumptions of Ministers and departments for its measurements? Will it publish independently of ministerial and departmental input, especially the Budget? Will it be accountable to Parliament, and will its head have to go through a confirmation process? Without those assurances, it may not have the necessary long-term cross-party support that this sort of strategy needs in order to succeed The White Paper adds some extra institutions and has a welcome review of SME productivity, but it does not address institutions such as NESTA which look like they are in need of a refresh, or even the newly established Small Business Commissioner, who, if he could unlock the problem of late payments, would create the recycling and velocity of cash that makes a measurable and meaningful difference to output per worker We do not address the weaknesses of our venture capital sector, which is much more reliant—despite our tax arrangements for VC through the SEIS and the British Business Bank—on the European Investment Fund than we are prepared to face up to. So is there a wider review of all the agencies and current arrangements, and will they too be considered over time within the context of the industrial strategy report Secondly, there is the crucial question of funding. The White Paper indicates that we are going to try to do more with less. I am a great fan of efficiency but surely additional investment is required. Why is Germany streets ahead of us in preparation for the so-called fourth Industrial Revolution? It is because it has a €40 billion agency. Why did a small country such as Israel steal a march on us in the volume of VC tech and cybersecurity investment? It was because it established a well-funded agency called Yozma and dedicated 8% of all government IT departments’ expenditure to it So will the Minister please tell us how much new—not previously announced—money there is in here or in the sector deals? Of the money that has already been announced, such as the Industrial Strategy Challenge Fund and all other announcements, how much is left unallocated I have always given great credit to the Government for increasing R&D spend, although much now has to go to make up for the loss that we face from Brexit. I welcomed the first place that R&D received in the Green Paper but I am not sure that it is there with the same force now. There is much to welcome but we are still aiming to be behind the OECD average and well behind all the pace-setter nations, even when we hit 2.4%. Can the Minister assure us that this is not the end of the science story in the UK’s industrial strategy Finally, the report remains weak on identifiable, quantifiable and operable ambition and targets. DARPA, which is cited in the report, is clear about its mission and objectives. It is essentially and critically to ensure that the US military maintains overwhelming technological superiority over any rival. The clarity of the mission makes it clear how its challenges and structure can be overcome. The industrial strategy challenge fund needs to be similarly clear. Can the Minister provide us with what he considers to be the most concrete objectives, targets and outcomes we can measure it against; and what specific goals any of the measures are set to achieve I would have preferred a stronger call to action. It is said that you have to set goals that are almost out of reach. If you set a goal that is attainable without too much work or thought, you are stuck with something below your true talent and potential. Discipline is the bridge between goals and accomplishment. Without that, as good as this White Paper is, it can never truly be great.