7th Report - Industrial Strategy

We welcome the Government’s proposals to bring forward a modern, 10-year industrial strategy that provides businesses and investors with certainty, stability and a solid foundation upon which to invest and grow. A more active partnership between Government, business, trade unions and local leaders is needed to address the stubborn economic challenges of the past and help business navigate the seminal challenges of the future. The Government must remain agile and responsive to what is a dynamic global environment. However, the price of further inconsistency is high. Delivering this strategy successfully will be a whole-of-government endeavour and we look forward to playing our part by holding the Government to account for its performance. (Conclusion, Paragraph 17) Growth Mission

We welcome the Government’s plans to bring forward an industrial strategy as a central pillar of its Growth Mission. The direction of growth matters, so we are pleased that the Government intends to use the industrial strategy to help the economy grow in a way that is inclusive, resilient and sustainable. (Conclusion, Paragraph 29)

The industrial strategy must clarify how the Government plans to balance any tensions between maximising the headline rate of growth, supporting new sectors and existing jobs in industry, and achieving its net zero, economic security and regional growth objectives. (Recommendation, Paragraph 30)

We recognise that ‘what gets measured gets managed’. The forthcoming industrial strategy and sector plans must set out how their economic contribution to the Growth Mission and the Government’s strategic objectives will be measured. To track the progress of the industrial strategy, we recommend the Government sets a robust framework, with clear targets for the remainder of this Parliament and for the 10-year span of the industrial strategy, along with clear metrics. The framework should allow 70 Parliament and the Industrial Strategy Advisory Council to assess how the industrial strategy is contributing to the Growth Mission as well as the strategy’s contribution to inclusive growth, net zero and the UK’s economic security and resilience. Key targets must be set for each of these objectives and enshrined in public spending agreements between the Treasury and individual departments to ensure that public spending across government is supporting the Industrial Strategy. The Industrial Strategy Advisory Council should conduct an annual progress review against these targets, and this review should be reported to Parliament. This framework should be reflected in plans for each of the growth-driving sectors, while also allowing for sector-specific metrics and targets. (Recommendation, Paragraph 31) Growth-driving sectors and grand challenges

We recognise that the UK needs to prioritise and play to its strengths if it is going to move the dial on growth. We support the Government’s decision to focus the industrial strategy on sectors of the economy where the UK has a comparative advantage, or the ability to build one. However, the industrial strategy and sector plans should be supplemented by a clearer vision of how the UK can contribute to, and economically benefit from, societal challenges that are reshaping the global economy. (Conclusion, Paragraph 40)

We recommend that the Industrial Strategy Advisory Council works quickly to specify some selective grand challenges designed to galvanise whole- of-government efforts to boost the priority sectors set out in the Industrial Strategy. The challenges should be designed in a way to help transform public-private collaboration across a larger part of the economy and stimulate greater potential for growth. (Recommendation, Paragraph 41) International and Domestic markets

In a rapidly developing and uncertain global trade environment and with an ongoing pipeline of trade negotiations, it is crucial that the industrial strategy and trade strategy are closely aligned. Having chosen eight growth-driving sectors as the focus of the industrial strategy, the Government must now ensure that these sectors are supported to maximise their growth opportunities from future trade. (Conclusion, Paragraph 53)

We recommend that the Government develops its forthcoming trade strategy with the industrial strategy and makes sure that it enables the 8 growth-driving sectors to grow exports, including in the food and drink sector. We also recommend that the Government publishes a 71 10-year plan for working to take down non-tariff barriers and ‘behind the border’ barriers to UK exporters in the growth driving sectors. (Recommendation, Paragraph 54)

We recommend that Department for Business and Trade teams based abroad are given a clear framework, which they report to Parliament, for how they can support export opportunities for each of the growth driving sectors, in the most important UK markets accounting for 80% of UK export growth. This framework should specify (a) DBT’s estimate of potential export growth opportunity for priority sectors over the decade to come, (b) DBT staff resource on the ground (c) objectives for trade barrier removal and (d) trade promotion budget and activities. (Recommendation, Paragraph 55)

Public procurement if used effectively is amongst the most important tools to drive the industrial strategy. However, for this to be the case, the Government needs to ensure that procurement policy joined at the hip with the industrial strategy and wider growth mission. The Government needs to procure in ways that incentivise private sector investment, encourage innovation and therefore provide very clear long-term demand signals. The Government also needs to ensure that the current barriers facing SMEs are addressed. (Conclusion, Paragraph 69)

We recommend that alongside the industrial strategy, the Government publishes a clear estimate of the number of jobs in the eight growth driving sectors that are supported by public procurement as well as the contribution of procurement spend to the economic growth of the sectors. We recommend that the Government Chief Commercial Officer sits on the Industrial Strategy Council and provides to Parliament a clear ten- year plan, reported annually, on the way in which public procurement will help deliver on the ambitions of the industrial strategy. This should include clear performance data. This plan and these annual reports should be signed off by the Secretary of State for Business and Trade. (Recommendation, Paragraph 70)

To support SMEs to innovate and to continue to grow, we recommend that multi-year framework contracts are available for SMEs in the sectors in which the state is the biggest customer, such as defence and life sciences. We also recommend that the Government set a target for how much of public procurement spend is direct spend to SMEs. (Recommendation, Paragraph 71)

To ensure that there is sufficient long term demand signalling, we recommend that Government Departments increase the proportion of public contract opportunities in their pipeline that are five to ten years out. . We also recommend that the Government update its public procurement strategy to include a comply-or-explain process for declaring why products are not procured from the UK. (Recommendation, Paragraph 72) 72 Government support for crowding-in investment

The UK has a complex system of public finance institutions. We accept that different businesses, depending on where they are on their journey, will need different types of financial support. However, our view is that there would be merit in providing a single front door for companies looking for government support. (Conclusion, Paragraph 78)

We recommend, in line with the Harrington review, that the Government should consolidate the public finance institutions, especially the National Wealth Fund and the British Business Bank, preferably into a single body to simplify the system for business and investors looking for government support, together with the reforms we set out below. (Recommendation, Paragraph 79)

The industrial strategy needs to provide ways to unlock finance that allows UK startups, spinouts and other firms to commercialise to scale-up and commercialise their innovations in the UK. Far too many promising companies are leaving for the US and other countries. (Conclusion, Paragraph 82)

The industrial strategy must set out measures that will be used to help firms access the funding they need to scale-up and commercialise in the UK. As an initial step, we recommend that the Government increase the amount of support the British Business Bank can provide to help firms scale-up. (Recommendation, Paragraph 83)

We welcome the Government’s plans to expand the Office for Investment. To help drive strategic investments across the country, we recommend that a reformed and expanded Office for Investment should be build a team to work with Mayoral Combined Authorities and newly created strategic authorities capable of building a ‘term-sheet ready’ prospectus of investments in our regions, in the eight priority sectors listed by the Industrial Strategy. (Recommendation, Paragraph 86)

The intensity of global competition between countries to attract internationally mobile investment reinforces the importance of ensuring that the Government uses the financial resources it has allocated carefully and effectively. Without a clear budget, Parliament will not be in a position to effectively hold the Government to account for the way public money is spent. (Conclusion, Paragraph 90) 73

We recommend that through the Spending Review the Government provides clarity about the sum of public expenditure that will be allocated to the industrial strategy and the wider Growth Mission over the remainder of this Parliament. (Recommendation, Paragraph 91) Pro-business environment

High electricity prices in the UK are deterring investment and hurting the ability of UK industries to compete internationally and decarbonise. (Conclusion, Paragraph 101)

We recommend that the industrial strategy must include measures that level the playing field with our international competitors on industrial energy prices. Priority should be given to leading sectors, and other foundational industries, in which high energy prices have the greatest impact on the ability of UK-based businesses to compete and attract investment. As an initial step, we recommend the Government consider extending the British Industry Supercharger scheme. (Recommendation, Paragraph 102)

Skills shortages are holding back growth and deterring investment across large parts of the economy, including within the UK’s growth-driving sectors. The skills system is too fragmented and inflexible. The needs of employers must be at the centre of the UK’s approach to training. Local leaders are best placed to know the needs of local employers and work with training providers to adapt provision accordingly. (Conclusion, Paragraph 106)

We recommend that: • Skills England commission and publish an analysis of the skills gaps across the eight growth-driving sectors and report to Parliament within six months. This should include an estimate of the current and future skills gaps across these sectors over the course of the 10-year period of the industrial strategy and provide recommendations on the funding and policy changes needed to fill these shortfalls, including funding gaps for courses that need to be filled. • The Government’s plans in the English Devolution White Paper to devolve more responsibility for skills to local leaders should go further. Responsibility for technical education and training post-16 should be devolved, to the maximum possible extent to Mayoral Combined Authorities and newly created Strategic Authorities, once they have demonstrated capability to manage local systems. 74 • Responsibility and funding for skills policy at a national level should be transferred to the Department for Business and Trade. This will help ensure national skills policy is more attuned to the needs of employers and is more aligned with the Government’s industrial strategy and growth mission. • The Minister for Skills should be a joint ministerial role across the Department for Business and Trade and the Department for Education to ensure there is a coordination between the two departments, as people transition from school to post-16 education and training. (Recommendation, Paragraph 107)

The UK has strengths in research, development and innovation (RDI) but the Government struggles to effectively support companies, including startups and scale-ups, to commercialise their innovations domestically. We have heard that the UK has a complicated landscape of institutions to support RDI and that this landscape needs to be reviewed. (Conclusion, Paragraph 112)

We recommend that the Department for Business & Trade and Department for Science, Innovation and Technology now conduct a review of the UK’s public research and innovation institutions to ensure they are in alignment with the industrial strategy and that there is clear institutional leadership of research and development for the eight priority sectors, for example by ensuring a lead Catapult in each sector. In particular, the Government should focus on ensuring that the UK has an effective system in place to help UK firms commercialise their innovations in the UK. We recommend the review looks at the lessons the UK can learn from institutions in other countries, such as Fraunhofer Centres in Germany. (Recommendation, Paragraph 113)

We welcome the further support the Government has provided for the Made Smarter programme this year. We recommend that the Government provide further support in the Spending Review to substantially scale-up the programme. (Recommendation, Paragraph 114) Governance, oversight and accountability

The regulatory landscape for businesses needs to be simplified. We welcome the Government’s commitments to regulate for growth, and attempts to offer clarity through the regulation action plan and regulatory innovation office. However, we agree with Lord Livermore that the Government should take this agenda further and we believe that the Government could and should do more. (Conclusion, Paragraph 122) 75

We recommend that the Regulatory Innovation Office should be expanded to act as a clearing house for regulatory conflicts and give businesses a place to report conflicting regulations. We recommend that this expanded Regulatory Innovation Office sits within the Cabinet Office and is resourced appropriately to carry out this expanded role. We recommend that the Government publishes a list of the series of projects that the single lead regulator model will be tested through and commits to publishing an assessment of the new model’s impact. A minister from the Department for Business and Trade should help oversee the Regulatory Innovation Office and should be tasked with presenting for resolution examples of regulations from either government departments or regulators, which conflict or which are incoherent, given the growth objectives. (Recommendation, Paragraph 123)

The Government has sent a positive message in their commitment to cross- departmental co-ordination, engagement with regional leadership, and announcement of an Industrial Strategy Council. However, if the industrial strategy is to be successful, this needs to be translated into concrete action when the strategy is published. (Conclusion, Paragraph 134)

First, and as a priority, we recommend that the Government introduces legislation to put the Industrial Strategy Council on a statutory footing, alongside the publication of the industrial strategy. We also recommend that the Industrial Strategy Council meets with Combined Authority Mayors on a quarterly basis. (Recommendation, Paragraph 135)

Finally, it is crucial that the industrial strategy and the wider growth mission has clear support from the Prime Minister. As such we recommend that the Prime Minister chairs quarterly sessions of the Growth Mission Board and that progress on the industrial strategy is reviewed at each such meeting that he chairs. (Recommendation, Paragraph 136) 76