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The government’s industrial strategy risks undermining post-Brexit economy

  • New Civitas pamphlet says industrial strategy will fail to halt deindustrialisation and does nothing to capitalise on the opportunities from leaving the EU
  • A bold industrial strategy would have reindustrialisation as its strategic goal, not through unsustainable subsidies but by establishing competitive advantage
  • The strategy should systematically remove barriers to reindustrialisation, including Britain’s high energy costs, but decarbonisation has been prioritised instead

The Queen’s Speech says ministers ‘will spread prosperity and opportunity across the country through a new modern, industrial strategy’, but a new Civitas pamphlet on the government’s industrial strategy warns that it will fail to halt deindustrialisation and risks undermining Britain’s economy as the country prepares to leave the EU.

Its author, strategy analyst Rupert Darwall, says this is all the more worrying as a strong economy is needed to make a success of Brexit: even the best Brexit deal won’t make the economy strong.

‘A bold industrial strategy would have halting and reversing de-industrialisation as its strategic goal, not through unsustainable subsidies but through sustainable competitive advantage,’ Darwall writes in Going Through The Motions.

He calls for an industrial strategy that removes the barriers to reindustrialisation, including high energy prices, developing Britain’s natural energy resources and abolishing the carbon price floor.

‘The lower energy costs go, the greater the competitive advantage, the more Britain can export and the greater Britain’s ability to attract foreign direct investment. Overseas trade is vital for post-Brexit Britain.’

Darwall shows how for both medium and large industrial consumers, UK electricity prices are far higher than any other EU nation. For large consumers they are double the EU average and for medium users, more than 50 per cent higher. A post-Brexit free trade agreement with the US, where energy costs are also much lower, would expose UK manufacturers to a further competitive disadvantage.

‘Access to cheap energy would make British industry more competitive, yet at the moment, industry pays more for energy than any other European country. A free trade agreement with the United States would leave industry even more exposed as American energy costs are less than half those in the UK,’ Darwall writes.

‘Unless the Government pre-emptively adopts a realistic energy policy based on driving down costs, a free trade agreement with the US would likely lead to intensified UK de-industrialisation.’

Addressing the weak productivity that has plagued the economy since the financial crisis is the biggest economic challenge. Yet the green paper shows little sign of the analytical rigour and structured thinking needed to create an effective industrial strategy and take steps to grow high productivity sectors.

Thanks to North Sea oil, Aberdeen has the highest productivity of any city region outside London, yet the green paper is silent on the potential of fracking to generate wealth and prosperity across the North of England.  ‘A laundry list of existing government policies is not a strategy nor does it constitute a break with post-Brexit business-as-usual,’ he says.

In a foreword, Civitas director David Green writes: ‘We will soon be independent and able to devise our own strategy for enterprise without getting permission from Brussels under the ‘state aid’ rules. There is plenty to like in the Government’s consultation document, but overall it is a gigantic missed opportunity.’

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