The United Kingdom is determined to benefit from the opportunities of technological change. By investing in education, research and development, infrastructure, and business environment, Britain seeks to increase its national productivity and create greater earning power for all.
The British government published a new Industrial Strategy in November, 2017. The strategy sets out how the government intends to build “a Britain fit for the future”. The strategy is designed to help businesses create better, higher-paying jobs with investments in the skills, industries and infrastructure of the future – to boost productivity and earning power across the country. The strategy was prepared in broad consultation with businesses, other stakeholders and the public, which provided over 2000 contributions to it, over a period of 16 months. The 255 page document is a loose framework that compiles new and already existing policies. The strategy is meant to be looked at as a work in progress.
The strategy focuses on five foundations: ideas, people, infrastructure, business environment and places. It identifies the four focus areas in which Britain wants to be a world leader: artificial intelligence (AI) and big data, clean growth, the future of mobility, and meeting the needs of the ageing society. These so called Grand Challenges are fought with support from an Industrial Strategy Challenge Fund and by commercial investment.
Productivity gap with peer nations has been a persistent problem for Britain for years, despite the country’s flexible labour laws and attractiveness as a destination for overseas investment. Britain’s productivity is still some 20 per cent below the pre-financial crisis level. The strategy attempts to improve productivity by focusing on further strengthening Britain’s strong areas such as flexible labour market, high levels of employment, high quality education and research, competitive environment for businesses and a dependable rule of law. By improving productivity while keeping employment high, Britain seeks to earn more – in order to raise living standards, support public services and improve the quality of life of all British citizens.
The strategy seeks to address Britain’s key challenges, weaknesses that keep it from achieving its full potential. Challenges include the on-going technological revolution that disrupts nearly every sector, and significant global trends such as ageing populations, and the need for new ways to generate and use energy. Also, Britain needs to work out its role in the world after it has left the European Union.
The first foundation of the strategy is ideas. Britain seeks to take a leading role in the new industrial revolution. To achieve that, the government will be investing in research and development (R&D) that eventually turn ideas into strong commercial products and services. Key policies include raising the total R&D investment to 2.4 per cent of GDP by 2027, increasing the rate of R&D tax credit from 11 per cent to 12 per cent, and investing £725m in new Industrial Strategy Challenge Fund programmes to capture the value of innovation.
Britain lacks skilled people in science, technology, engineering and maths (STEM). The plan is to narrow disparities between communities in skills and education, and remove barriers faced by workers from under-represented groups in realising their potential. Technical education will be on the same footing as academic education. This will be done through investing in apprenticeships and T-levels.
Investments in infrastructure are seen as essential for Britain’s future growth and prosperity. The strategy outlines that infrastructure choices need to support long-term productivity, provide greater certainty and a clear strategic direction. The focus is on transportation, housing and digital infrastructure. Britain’s National Infrastructure and Construction Pipeline is worth around £600bn. Key policies include various investments and support for digital infrastructure such as electric vehicles with charging infrastructure and plug-ins for cars, full-fibre networks, and 5G testing.
The fourth foundation, business environment, aims at making Britain “the best place in the world to start and grow a business”. One of the key policies is launching and rolling out of so called sector deals. Sector deals are partnerships between the government and industries that aim at increasing sector productivity. The first four sector deals have been launched in life sciences, construction, AI and the automotive sector. Separate policy papers will be published on each sector. Discussions about other sector deals are on-going between the government and potential industries.
The UK has greater disparities in regional productivity than most other European countries. Yet there is a lot of potential for businesses across the country. Therefore the fifth foundation focuses on places. To enhance productivity the government needs to ensure nationwide good transport links, as well as housing and skills availability. New Local Industrial Strategies ought to build on local strengths and deliver on economic opportunities. New investments are directed in improving connections within city regions and setting up a new pilot for high-quality teaching in areas that have fallen behind.
Lack of investments in R&D is seen as holding back the productivity of public services and businesses in the UK. To boost productivity, government is raising the total R&D investment to an ambitious 2.4 per cent of GDP by 2027, and 3 per cent of GDP in the longer term. This could increase public and private R&D investment by £80bn over the next 10 years.
To achieve the target, a new organisation, UK Research and Innovation, has been set up and will be investing around £8bn per annum by 2020 in the highest-quality research and innovation across the UK. New investments will be made through a new Industrial Strategy Challenge Fund that intends to find solutions to the Grand Challenges with £725m over the next four years. Investments will be made in clean growth, AI and data, and ageing society. More accurately, the clean growth program focuses on transforming construction with a budget of £90m, prospering from the energy revolution with £246m, and transforming food production with £90m.The AI and data program focuses on audience for the future with up to £33m and next generation services with up to £20m. The ageing society program focuses on data for early diagnosis and precision medicine with up to £210m and in healthy ageing with a budget of £98m.
To support the private sector to invest more in R&D, the government decided to increase the rate of the R&D expenditure credit for large businesses from 11 per cent to 12 per cent.
Britain pursues to establish a technical education system that rivals the best in the world. This requires improvements in the quality and the reputation of technical education. To achieve this, the key policies include establishing a new technical education system, investing an additional £406m in maths, digital and technical education, and helping to address the shortage of science, technology, engineering and maths (STEM) skills. According to a new Skills Plan the government is committed to creating 15 new technical education routes (T-levels). New T-levels are supposed to be backed by over £500m annually by the time the programme is fully rolled out. In addition, the government announced in its Spring Statement 2018 that it is giving another £500m to T-levels.
Furthermore, the government wants to support adults to up-skill and re-skill by creating a new National Retraining Scheme beginning with £64m in investments in digital and construction training. In addition, the government is committed to delivering three million apprenticeships starting by 2020.
The UK is falling behind in investing in infrastructure compared to other G7 countries. Infrastructure is a vital factor when increasing productivity. Improvements are one of the top priorities in the new Industrial Strategy. The strategy talks about £600bn worth public and private investments over the next ten years. The strategy highlights improvements that need to be made in transport, housing and digital infrastructure. The government has allocated until 2022/23 £4.9bn for transport, £11.5bn for housing, £0.7bn for digital infrastructure and £7.1bn for R&D through the National Productivity Invest Fund.
The major transport projects include the new £14bn Crossrail and the £56bn High Speed 2 (HS2) rail connections that will connect people to jobs and opportunities. Britain is in need of affordable and sustainable housing. New rails will help Britain to tackle its housing problem by creating an opportunity to build new homes along the new rail connections and possibly bring down prices. The government has set a policy to raise the housing supply by 300 000 new homes per year and in the Spring Statement 2018 allocated an additional £1.7bn for housing to London only. The government also supports households and businesses to look for carbon neutral heating solutions with £4.5bn. The strategy notes the government will use all tools available to support innovation in low carbon economy including market design, taxation and regulation. The government has established a Clean Growth Strategy through which by 2021 it invests £2.5bn in low carbon innovations.
The government aims to build a Britain that lives on the digital frontier, with full-fibre broadband, new 5G networks and smart technologies, like on-street and wireless charging, with a total public investment of £1bn.
The government’s plan is to maintain a business environment that is shaped by competition and contestability in which the best businesses of all sizes can thrive. Britain’s investment rate is the lowest in G7, and it has been recognized that the environment needs to be attractive for businesses in order to get investments to Britain and to achieve the goal of increasing national productivity. The UK is proud of its corporation tax of 19 per cent, which is the lowest among G20 countries. Having a supportive regulation and taxation, the government is also committed to supporting innovative businesses to achieve their potential by investments worth £20bn over the next ten years. There will be a new £2.5bn investment fund incubated in the British Business Bank together with co-investment with the private sector total of £7.5bn that helps businesses get access to the capital they need.
New sector deals have been launched to tide partnerships between government and industry on Britain’s areas of strengths such as automotive, aerospace, financial and professional services, creative industries and life sciences. Other fields the strategy highlights are food industry, construction, AI and nuclear. The deals are to boost the sector’s productivity through greater investment in innovation and skills that create new and well-paid jobs and maximize the sector’s export potential.
The government has for example set up a new Food and Drink Sector Council that, after the UK has left the EU, aims to secure the UK’s position as a global leader in sustainable, affordable, safe and high-quality food and drink. In automotive the government wants to maximize opportunities in the transition to electric, connected and autonomous vehicles. Industry-led proposals for a Nuclear Sector Deal focus on how, working with the government, substantial cost reductions can be achieved across the UK’s new build and decommissioning programmes. Also, the government is establishing a new Future Sectors team that concentrates on future businesses and new technologies.
In order to increase productivity across the country, different policies need to be applied in different places so that local issues can be addressed. Notable issues that the strategy addresses are housing, transportation, poor local leadership, skills shortages and variance in the quality of teaching.
Strong local leadership is needed to boost productivity. The government will support Mayoral Combined Authorities with a £12m fund for 2018/2019 to boost the new mayors’ capacity and recourses. The government is also focusing on making improvements to the Local Enterprise Partnerships that are supposed to lead projects and local growth along with the Mayoral Combined Authorities. By March 2019 the government is to launch new Local Industrial Strategies that focus on locally required improvements.
Because the quality of teaching varies across the country the government is to launch a new £42m Teacher Development Premium pilot to help areas that are falling behind. The government wants to ensure opportunities are available or within reach to everyone wherever they live, and is eager to improve transport links across the country also in order to alleviate skills shortages in the regions. A new Transforming Cities fund will provide £1.7bn for intra-city transport. The fund is meant for projects that drive productivity by improving connections within city regions.