British Industrial Policy: the continuing story of a death foretold

14 September 2022

James Silverwood - Senior Lecturer in Business, Bishop Grosseteste University

Richard Woodward - Assistant Lecturer in Business, Technical University Dublin

Drawing on newly published research, this blog argues that while Liz Truss and Rishi Sunak both stated a desire to introduce tax cuts and reduce the size of the British state, history suggests that once in office either candidate would have resorted to industrial policy in the shadows.

There were many points of contention between the those vying for the leadership of the Conservative Party, but industrial policy does not seem to have been one of them. Indeed, with candidates campaigning to introduce tax cuts and stating their desire for a smaller state, industrial policy would appear unlikely to feature prominently in the government of any aspiring Conservative Prime Minister.

In many respects, this is hardly surprising. Since 1979, successive British governments have apparently entrusted the task of industrial modernisation and innovation to the invisible hand of the market. Aside from a brief flirtation during Theresa May’s premiership, ‘vertical’ industrial policies where governments ‘pick winners’ and channel resources towards them were regarded as a damnable heresy. To the extent that it existed at all, industrial policy was supposedly confined to ‘horizontal’ interventions that would enhance the efficiency and competitiveness of the general business environment.

As we argue in a recent article in the British Journal of Politics and International Relations however, the story of UK industrial policy since 1979 is not so straightforward. The reality is that all governments have continued to pick winners and retained vertical industrial policies as an integral, albeit diminished, component of what we conceptualise as a dual industrial policy.

Officially enshrined in policy documents and political rhetoric, the first strand of dual industrial policy operates in the foreground. Over the last four decades, almost every government has published some form of White Paper on industrial policy. Normally the content of these documents corresponds with interventions designed to ‘make markets work better’. In other words, policies might be considered to be ‘market-friendly’.

Simultaneously, a second set of industrial policies are operating in the shadows. Strewn across government departments and cloaked in alternative nomenclature, this second strand of industrial policy has siphoned billions of pounds of taxpayer money to favoured industrial sectors and firms. As such, government expenditure on industrial policy tend to be much higher than customarily reported.  

The dual industrial strategy ushered in during the Thatcher years has been faithfully duplicated by her successors, not least by the Johnson administration. In a much-anticipated development, in March 2021 Kwasi Kwarteng, then Secretary of State for Business, Energy, and Industrial Strategy, and Rishi Sunak, then Chancellor of the Exchequer, penned a joint letter to business leaders, with Theresa May’s industrial strategy transitioned into ‘our plan for growth and related strategies’ responsible for creating jobs and ‘driving growth in existing, new and emerging industries’.

Action within the Plan for Growth (albeit later expanded somewhat in documentation such as the levelling-up white paper) was limited largely to pre-announced actions to achieve ambitions for levelling-up, net zero, and Global Britain. An uninspiring document, the Plan for Growth, rehearses the usual platitudes about the market’s genius for allocating resources. As such, it advocates the usual range of horizontal industrial policies to fix market failures and generate the incentives for entrepreneurs to expedite economic modernisation. 

While officially forswearing selective industrial policy, the Johnson government conducted a bewildering array of such interventions under a range of other guises. Divided between 26 individual strategy documents, we have identified 120 individual industrial policies launched by the Johnson government targeting preferential treatment to 13 industrial sectors, with £29.131 billion of public expenditure committed. Numbers in this paragraph does not include support measures taken during COVID 19. Specifics can be found in this table (PDF, 101KB). In short, reports of the demise of British industrial policy are greatly exaggerated. Despite their rhetorical affinity to free markets, British governments continue to intervene and pick winners. The Johnson government was no different. Neither will its successor.

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