Wednesday, June 19, 2024

Running out of battery: how post-Brexit Britain is failing to set up a future-focused economy | Mariana Mazzucato

The UK government looks set to land a deal with Tata-owned Jaguar Land Rover, in which the company will construct an electric-vehicle battery plant in Somerset in exchange for about £500m in subsidies. Jaguar Land Rover had previously warned that Brexit tariff rules could make production in the UK inviable.

This is not the only time ministers have been warned about the effects of Brexit on investment. Already, the UK’s decision to leave the EU is costing £100bn a year in output. Of more than 100 leading UK manufacturers, almost half have said their EU suppliers are growing more cautious about doing business in the UK.

So should the government be doing deals like this to try to make the UK more competitive? The answer is that one-off deals unfortunately don’t work. For this to be more than a desperate attempt to woo back capital flight, ministers need a more thoughtful approach to industrial strategy. Deals must be part of a broader, joined-up plan to align investments with commitments to decarbonise transport and supply chains across the economy.

On this front, the UK faces steep competition. The US and EU are ramping up industrial strategy investments. The US’s industrial strategy could lead to public and private investment reaching a total of about $3.5tr over the next decade. At the same time, the EU is financing its largest stimulus package ever, with a €2tr deal aimed at building a green and digital future. The UK has nothing of this kind. In fact, with austerity back on the agenda, the country is moving in the opposite direction.

It doesn’t help that the UK’s industrial policy seems to change every year. Every time there is a new minister, they reinvent the wheel, putting forth a new growth plan with new priorities, incentives and support.

There have been some positive developments, such as the goals of ending the sale of gas-powered cars by 2030 and achieving net zero carbon emissions by 2050, plus a 10-point plan for a green Industrial Revolution announced in 2020. Also promising is the possibility of linking the Jaguar deal to a related incentive package which would include measures to decarbonise Tata’s steel operations in the UK.

But the government needs to go further. The UK needs to engage all sectors, including the car industry, in an ambitious effort to redirect the economy towards a more inclusive and sustainable future that provides businesses with long-term certainty. The massive challenges we face, whether the environmental crisis or poor public health, cannot be considered separately from the UK’s struggling economic trajectory.

The UK has the slowest growth of G7 nations. Business investment has grown 19% less than the G7 average. The industrial strategy adopted in 2017 was more or less abandoned in the following years as policy attention was sucked up by Brexit and then by the capital flight that it caused. We saw this in the government’s secretive offer of support to Nissan in 2018 to help the company navigate the impacts of Brexit. Now it is hoping the same strategy will work with Jaguar Land Rover.

In 2019, I co-chaired a commission with David Willetts, a science minister under David Cameron, which informed the government’s innovation and industrial strategy. While past policies have tended to pick winners by focusing on specific sectors, this strategy focused on four challenge areas, including clean growth and the future of transport.

It also set out specific missions in each area, highlighting the need for collaboration across the entire research and innovation value chain. Keir Starmer’s own “missions” can benefit from this approach. Growth, for example, is not the mission, but the result of having an inter-sectoral investment strategy that requires new forms of training and collaboration.

Moving from one-off deals to an ambitious and comprehensive industrial strategy will require setting a clear direction, and coordinating investment and innovation around bold goals. The government will need to use all the tools available to it – from investment in research and development to its procurement policies. It will also need to take a different approach to public-private partnerships.

The motivation behind these should be less about being “business friendly” and more about reaching goals together and forming symbiotic rather than parasitic relationships. Substantial investment will also be needed in the civil service. Britain has become addicted to outsourcing the core functions of the public sector, a process Lord Agnew has referred to as the infantilisation of Whitehall.

We have seen how this forward-thinking approach can work. Germany gave loans to the steel sector from KfW, a state-owned bank, but made these conditional on the sector working to help reduce carbon emissions. Another example, in the US, is Biden’s Chips Act, which aims to definancialise manufacturing by setting conditions on funding that limit the recipients’ ability to buy back their own shares. In France, Covid-19-related bailouts were conditional on five-year targets to lower domestic carbon-dioxide emissions. By contrast, the UK government lent £600m to easyJet with no strings attached.

The UK needs an ambitious industrial strategy more than ever. To achieve this, the government needs to take a systematic approach, forming symbiotic partnerships with the private sector and investing in the state’s capacity to create mission-oriented policies and effectively engage citizens. Backroom deals are no substitute.


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