Three things the Industrial Strategy should now do to raise productivity
George Osborne gave Philip Hammond what is known in sport as a hospital pass: an economic plan based on the UK returning to pre-2008 productivity growth of two per cent per annum without the investment or strategy to make it happen. The Office of Budget Responsibility’s figures show we actually got paltry productivity growth of 0.2 per cent growth in 2016 and the forecast for 2017 is 0.0 per cent.
Hammond’s budget last week now aims for considerably lower GDP growth per hour worked of just over one per cent for the next five years. Crucially he has given Greg Clark and his BEIS team £31 billion in the National Productivity Investment Fund to deliver through the Industrial Strategy.
The strategy is now published and the question is, has it set the right priorities to deliver the long term productivity growth the chancellor needs?
The answer is a cautious yes. Green Alliance has been calling for an Industrial Strategy that builds an economy fit for the future and so we are pleased to see the white paper position clean growth – through low carbon technologies and the more efficient use of resources – as “one of the greatest industrial opportunities of our time”. Clean growth, one of four grand challenges in the white paper, shows the industrial strategy needs to do more than support business as usual and focus on preparing UK businesses for the opportunities and challenges of tomorrow.
As the strategy moves into the delivery phase, we will see if the government is prepared to make the choices needed to follow through the ambition in these grand challenges. There are three things BEIS will have to do to make sure clean growth really drives higher productivity for UK businesses:
1. Focus on smart green tech
The UK is a global tech leader and the recent Made Smarter review set out how the UK can deliver a £445 billion boost for our manufacturing sector at the same time as achieving a 4.5 per cent reduction in carbon emissions. But this won’t be automatic. Our analysis shows that we need to prioritise the digital technologies that optimise use of energy and resources in products, disrupting markets and creating whole new industries. Infrastructure and innovation spending should be assessed particularly for its ability to contribute to resource efficient productivity growth so we invest in solutions that are both smart and resilient.
2. Support lean, clean manufacturing
Boosting the productivity of UK manufacturing is critical to solving the problems of reviving UK productivity and regional rebalancing. Manufacturing makes up ten per cent of UK GDP nationally, but it is 15-20 per cent in the Midlands, the North, Northern Ireland and Wales, so raising manufacturing productivity will help to close the regional productivity gap. An industrial energy efficiency scheme is planned for large businesses but to really make an impact our analysis shows that small and medium sized businesses need a programme of support too.
3. Futureproof local industrial strategy and sector deals
The sector deals announced showed the opportunities in the UK’s key industries come from decarbonisation. The construction sector’s deal includes a focus on reducing environmental impact and whole life costs of projects, and the automotive sector deal captures the opportunities for ultra-low and zero emissions vehicles. Our past work on drivers for success says every sector deal, from finance to aerospace, and every local industrial strategy has to build in decarbonisation and more efficient resource use to have a credible plan for productivity growth. The government ought to build resilience and readiness for new markets into forthcoming sector deals and local industrial strategies by setting criteria for low carbon, resource efficient development for its investment.
Clean growth is the new competitive frontier for businesses. The government should be clear that it is backing business that can deliver lean, clean manufacturing jobs, affordable and comfortable homes, flexible and integrated energy systems and clean transport solutions. Establishing the UK as a country committed to delivering green solutions will give businesses a reason to invest and grow in the UK.
For all this ambition to be credible the clean growth grand challenge needs to be more than window dressing and really shape delivery.
[Image: Siemens wind turbine factory, Hull. With thanks to Chris Bentley, via Flickr Creative Commons]