In 2011, George Osborne used his second budget speech to promise a “Britain carried aloft by the march of the makers”. The UK manufacturing sector, cut off at the knees during the accelerated deindustrialisation of the 1980s, was to rise up and make a triumphant comeback. Britain was going to make stuff again.
It didn’t happen of course. By 2016, Mr Osborne’s ideological commitment to a smaller state and austerity had contributed to a steel crisis, falling orders in construction, and a crisis of confidence in the private sector. In the absence of a proactive government setting strategic goals, and using its spending power to direct investment towards them, the march of the makers shuddered to a halt amid a needlessly prolonged recession. Brexit, by decoupling Britain from the mass market on its doorstep, then introduced a whole new world of pain for manufacturers.
Six chancellors later, Britain still lacks a proper industrial strategy and the country’s manufacturing base remains underpowered and undersized. Last week, an exasperated report from Make UK – which represents 20,000 manufacturers across the country – pleaded for a coherent plan, before the sector is left behind in an era shaped by the green transition and new technologies. Speaking at the launch of the report, the former Bank of England chief economist Andrew Haldane described a new “arms race” as countries vied to establish themselves in the industries of the future. The UK, said Mr Haldane, “was not really in the race at any kind of scale”.
A step-change is required in Whitehall. But a government that remains wedded to laissez-faire assumptions appears unwilling to recognise that the economic zeitgeist has shifted. Supply-chain crises during the pandemic, a rethinking of relations with China, the war in Ukraine and net zero targets have all brought the strategic state back into fashion. Governments are using their economic heft to promote innovation, drive investment and shape national markets.
Through the Inflation Reduction Act, Joe Biden’s administration is using $369bn (£295bn) of federal money to deliver American industry an advantage in the global green transition. The European Union is responding with a “green industrial plan” that will relax state aid rules, and intends to set up an EU sovereignty fund in the summer. According to the CEO of one British carmaker, the incentives being offered to investors on both sides of the Atlantic are “an order of magnitude more attractive than the UK”.
As the policy consensus shifts towards proactive government intervention, Britain risks falling further behind by standing still. It may already be too late to build a substantial battery manufacturing base, which means an uncertain future for the domestic electric car industry. The lure of US subsidies also risks scuppering the prospects of Britain’s fledgling green hydrogen sector.
Make UK have called for a royal commission to develop a long-term industrial strategy for the country. That is a suggestion which should be followed up. But in the shorter term, the government and the chancellor, Jeremy Hunt, need to read the economic signs of the times far better. A thriving, supported manufacturing sector can play a crucial part in reducing regional inequalities and creating new, skilled jobs across the country. Unassisted, the private sector will not deliver this. Last month, Mr Haldane joined Mr Hunt’s council of economic advisers. His expertise should be heeded.