Industrial Strategy disappoints on investment in UK’s human capital

You can be forgiven if you failed to notice the launch of the latest version of the UK’s industrial strategy last week given it was somewhat overshadowed by coverage of Prince Harry’s forthcoming marriage to Meghan Markle. It is hard to get people excited about industrial strategy at the best of times let alone amid the furore of the next Royal Wedding.

However, the UK’s industrial strategy is extremely important as Government looks to take the actions necessary to boost the UK’s poor productivity and improve its competitiveness after Brexit.

Industrial strategies reflect the times. They have an expiry date, sometimes unknown. For much of the post-war period, nationalization and privatization were the preferred ways of intervening in, or liberalising, certain markets. During the 1990s and 2000s, government assumed it could craft precise interventions that targeted failings of the market, rather like keyhole surgery. The Coalition government set out an industrial policy though it’s questionable if anyone beyond politicians and policy wonks read it. In any case, 23 June last year meant all such policies suddenly reached their expiry date.

The latest industrial strategy has been positioned as central to the UK’s economic future outside the EU. Yet, for companies trading with Europe, and for the many employers that rely on European migrants, these future relationships will be far more powerful factors shaping their future. The strategy as set out to date might best be seen as trying to give mobile businesses and people (such as scientists) a reason, or an incentive, to stay in the UK.

The strategy describes five “foundations” of productivity: Ideas (R&D), People (essentially education and training); Infrastructure; Business Environment; and Places.

The biggest areas for investment are in research and development, where the Government is pledging to raise total investment to 2.4% of GDP by 2027, and infrastructure which is supported by a £31bn National Productivity Investment Fund to go on transport, housing and digital capacity.

In contrast, investment in the UK’s human capital does not fare nearly so well. There is nothing in the strategy that addresses the UK’s chronic under investment in adult skills and life-long learning, with the focus mainly on education policy and the supply of skilled labour for the future in niche sectors. The new National Retraining Scheme, backed by an initial investment of £64m, seems primarily focused on the use of educational technology for students in two small sectors.

The sector focus in the strategy is also too exclusive to have the impact required given the UK’s productivity challenge, with the sector deals focusing on important but narrow high tech and construction sectors that together account for less than 15% of UK employment.

Leaders of all parties much prefer talking about technology, and visiting construction sites and hi-tech multinationals, but our productivity, and earnings, are at least as dependent on the efficiency of our shops, hotels and hairdressers and the people who run them.

The strategy does acknowledge there is a need to find ways to boost the productivity of the UK’s small firms and proposes to launch a review on this. This is promising but will depend on there being the political will – or money – left to implement its recommendations.

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