With the government’s new industrial strategy set to be published next spring, there’s a real risk that nostalgia for our manufacturing past gets in the way of the sectors that really drive growth, says Sam Bidwell
Political conversations about the British economy are often dominated by one depressing fact – nobody seems ready to celebrate our strengths, but everybody is all-too-aware of our supposed weaknesses.
We are one of the world’s foremost services economies, with incredible expertise in fields such as finance, law, and accounting. London is a city of truly global importance, making up nearly a quarter of the British economy. Nearly 12 per cent of foreign listed companies worldwide are listed here, and nearly a third of global foreign exchange trades take place through the City.
And yet celebrate these facts too loudly, and you’ll soon come under fire from those who wish that the British economy looked entirely different. These are the people who pine after Britain’s long-faded industrial past; naturally, Margaret Thatcher often faces the blame for our 20th century industrial decline. According to these people, Britain’s economy ought to look more like Germany’s – more heavy industry, more manufacturing and fewer people working in grubby industries like banking.
Unfortunately, this idealism isn’t always confined to opinion columns.
Victorian nostalgia
With the government’s new industrial strategy set to be published in spring 2025, there’s a real risk that this immaterial nostalgia does material harm to our economy. Too often, advocates for industrial strategy blame “inefficient” capital allocation for the decline of manufacturing, arguing that the government should intervene to push more investment towards British industry. Others say that our ‘services-heavy’ economy is deliberately designed to undercut industry. As my recent essay for the Adam Smith Institute shows, these aren’t new arguments – we’ve been blaming the services sector for the decline of industry since the late Victorian period.
Those arguments weren’t true then, and they’re certainly not true now. In fact, if the government is serious about creating industrial jobs in “left behind” areas of the country, it should recognise that London’s world-class services industry is a boon, not a boondoggle. If the country’s economic fundamentals were improved, the global capital which moves through London would flow naturally towards industrial endeavours in other parts of the country.
If the government is serious about creating industrial jobs in “left behind” areas of the country, it should recognise that London’s world-class services industry is a boon, not a boondoggle
And what does that mean in practice? Rather than throwing ever-increasing subsidies at white elephant projects, the government should focus on getting the basics right first. Thanks to our ideological policy of decarbonisation, Britain now has the highest industrial energy prices in Europe; for energy-intensive industries such as steel, this is an existential issue. We could start by lifting the ban on new North Sea oil and gas licenses, or permitting shale fracking, unlocking cheap energy and giving British industry a shot in the arm. Of course, in order to do that, the government would need to admit that there were tradeoffs associated with our current policy of pursuing net zero at all costs,
Even beyond energy prices, there are other factors which keep British industry uncompetitive. Our planning system delays – or prevents – the construction of new factories, new transport infrastructure and new housing, driving up costs in the process. For an industrial economy to succeed, people need to be able to move to where industrial jobs emerge, and the output of those industries needs to be connected to the rest of the country and, eventually, to the rest of the world.
Yes, Britain could create more industrial jobs, but this should not come at the expense of our world-class services industry. Many of the changes needed to improve life for industrial businesses would also make the UK a better place for businesses in general. Streamline the dense mass of regulation which stifles innovation, remove blockers to capital investment, fix our broken system – in doing so, we would unlock billions in growth from the services sector, while also giving our ailing industrial sector a fighting chance. We don’t have to support one at the expense of the other; economic growth doesn’t need to be a zero-sum equation.
Sam Bidwell is the director of the Next Generation Centre at the Adam Smith Institute