A bureaucratic tangle has replaced UK industrial policy

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How will we maintain our balance in the new gold rush? As investors and manufacturers mount and ride to the United States, the EU is debating how best to respond to President Joe Biden’s chipping and inflation-reducing laws. But the UK seems abandoned, with ministers flinching at any mention of “industrial policy”.

It is not necessary to have read the work of Friedrich Hayek. the path of bondage feeling a little nervous about the idea that every nation should have a set of protectionist trade incentives. However, it is surreal to have watched UK ministers talk about Britain’s prowess in life sciences and green energy as we slipped down the clinical trials rankings. AstraZeneca is building its new factory in Ireland, carmakers warn Brexit has undermined electric vehicle production and solar company Oxford PV says the UK is the “least attractive” place to set up a factory.

When Shadow Chancellor Rachel Reeves laid out a contrasting vision in Washington this week of an active state working in partnership with the free market, I was surprised that she was so restrained. It is hard to beat the United States in the race for subsidies. But the government should at least be clear about its ambitions and help with regulation, intellectual property and infrastructure. The Conservatives’ stealthy approach to industrial policy has just sown confusion.

Britain is still haunted by the experience of the 1960s and 1970s, which convinced many Treasury officials and politicians that the best industrial policy is to have no industrial policy at all. Governments that tried to pick the winners ended up backing the losers: like the elegant but hopelessly expensive Concorde, of which only 20 were built, and the ugly Morris Marina, a car that rusted even in summer.

Thatcher, Major and Blair largely avoided interventionism. It was only during the 2008 financial crisis that Labor developed “industrial activism”, looking strategically at what could be done to help each sector of the economy. That approach continued through the coalition, which backed economic “groups” like Northern Powerhouse, and the May government, which advocated an official industrial policy. Memorably described by then-Tory MP Kwasi Kwarteng as a “pudding with no theme”, it was too radical. But by dumping him as business secretary, Kwarteng lost the Industrial Strategy Council, which could have audited what worked, and the Industrial Strategy Challenge Fund, meaning key budgets seeped into the bureaucratic soup.

Certainly the system wasn’t perfect: the Covid vaccine only scaled up fast enough because the Vaccine Task Force was created outside of the official machinery. Still, as one senior creative industries executive told me: “It’s bad enough that there’s a turnaround every time there’s a party change. But a flip-flop when it was the same party was really nerve-wracking.”

Companies value certainty. But the UK has had terribly messy policy making. In 2015, a Tory government privatized the Green Investment Bank; six years later, another Tory government created a UK Infrastructure Bank to do the same. When Dominic Cummings created Aria, the advanced research agency, he sounded like an echo of Qinetiq, which had been privatized by Labor almost 20 years earlier.

If we cannot learn and adapt, but continue to act on a whim, we are much more likely to fall into exactly the trap feared by those on the right: naive statism. According to economist Diane Coyle, many other democracies are much better at evaluating the effectiveness of their industrial policies.

“Hopeless”, “slow” and “confused” are some of the words companies and experts I’ve spoken to use to describe the current state of the UK government machine – and that’s for those who want to stay here. Outsiders are faced with a labyrinthine set of institutions and initiatives. Critics say planning permission and R&D funding allocations take too long and that UKRI, the main funder of research and innovation, is “heavy” and “bureaucratic”.

The residual machismo of Brexit does not help. Rishi Sunak’s premiership has restored a sense of pragmatism and conservative ideologues have been dissuaded from a wild and total scrapping of all EU laws. However, exporters remain nervous that ministers will decide to deviate from some EU rules simply because they can. Divergence would double the workload for companies, as well as the ludicrous attempt to replace the EU’s long-established ‘CE’ safety mark on industrial and electrical products with a rival mark called UKCA: another political leniency.

It makes no sense for this government to pretend to have no industrial policy: it has just offered Tata Motors £500m to build an electric vehicle battery plant in the UK instead of Spain, and has put extra money into science of the life. Chancellor Jeremy Hunt has laid out five growth areas for the economy. But he shouldn’t have to defend them in a whisper. Without something we used to call joint thinking, we are in danger of wasting money on unsuccessful bets. Electric vehicles will not take off without a system of universal charging points. And Big Pharma won’t do any more clinical trials unless they can use patient data.

Every gold rush has its cowboys. At the start of this new industrial revolution in genetics, green technology, and artificial intelligence, no one can see very far. But we need agility, not ideology.

camilla.cavendish@ft.com