(ShareCast News) - A new industrial strategy proposed by the government on Monday hopes to solve the UK's productivity puzzle and generate private investment via "sector deals" to boost business in the medium and long term.
The secretary of state for business, energy and industrial strategy, Greg Clark, said in a white paper that the strategy was built on five "key foundations" to transform the economy and fix problem areas: ideas, people, infrastructure, business environment and places.
As part of the proposed strategy, a new independent watchdog -- the 'Industrial Strategy Council' -- will be created to monitor progress made in boosting innovation, upgrading infrastructure, increasing the level of workplace skills, and making recommendations to government where it sees fit.
He said these areas of focus would set out how Britain build on existing strengths and capitalises on new opportunities, but also address weaknesses, noting that there are "businesses, people and places whose level of productivity is well below what can be achieved".
Alongside last week's Budget, the Office for Budget Responsibility revealed its new estimates for UK gross domestic product growth for the coming years had been sharply downgraded due to lower productivity forecasts, with growth expected to fall to 1.4% in 2018 and down to just 1.3% for two years from 2019.
Clark said: "By improving productivity while keeping employment high, we can earn more - raising living standards, providing funds to support our public services and improving the quality of life for all our citizens. So this Industrial Strategy deliberately strengthens the five foundations of productivity: innovation, people, infrastructure, places and the business environment.
Across his five pillars, the focus on the 'business environment' will see the launch and roll-out of "sector deals", which are partnerships between government and industry aiming to increase sector productivity, beginning in the life sciences, construction, artificial intelligence and the automotive sectors.
Clark and Prime Minister Theresa May expect this to drive more than £20bn of investment in innovative and high potential businesses, including through establishing a new £2.5bn Investment Fund, incubated in the British Business Bank.
A review is also to be launched into the "actions that could be most effective in improving the productivity and growth of small and medium-sized businesses", including how to address what has been called the 'long tail' of lower productivity firms.
In the area of 'ideas', the Industrial Strategy white paper proposes a new target for UK research and development investment of 2.4% of GDP by 2027, aided by a plans to increase the rate of R&D tax credit by one percentage point to 12% and a £725m investment in new Industrial Strategy Challenge Fund programmes focused on innovation.
Proposals in the area of 'people' included establish a strong technical education system, with an additional £406m invested in maths, digital and technical education, and the creation of a new National Retraining Scheme that supports people to re-skill, beginning with a £64m investment for digital and construction training.
In infrastructure, the National Productivity Investment Fund would be expanded to £31bn, to support more investment in transport, housing and digital infrastructure, with £400m invested in charging infrastructure and an extra £100m to extend the plug-in car grant, plus more than £1bn of public investment in digital infrastructure, including £176m for 5G mobile and £200m for local areas to encourage roll out of full-fibre networks.
The fifth tenet of 'places' aims to drive the agreement of local industrial strategies "that build on local strengths and deliver on economic opportunities", with the paper also proposing a new Transforming Cities fund to provide £1.7bn for intracity transport, plus £42m to pilot a teacher development premium testing the impact of a £1000 budget for "high-quality professional development" for teachers working in areas that have fallen behind.
Clark's proposals are being unveiled five years after Vince Cable launched a long-term industrial strategy under David Cameron's coalition government, which apart from the creation of the Business Bank, has many similarities with Monday's announcement, including creation of a "strategic partnership with key sectors", "innovative technologies" and proposals to develop "world class skills".
INDUSTRIAL STRATEGY - REACTION
Businesses will welcome the "sense of mission" from the government, said Adam Marshall, director general of the British Chambers of Commerce, as well as the assessment of the "challenges and opportunities that the UK faces, particularly as both businesses and government look to forge a new path beyond the European Union".
He added regional business communities "will cheer the focus on places to boost productivity in local economies" and stressed that the government will need to listen to a "full range" of business voices when developing local and sector-based deals in the coming consultation of the proposals.
"Businesses will now want to see clear evidence that this Industrial Strategy can be implemented over the long term - and will be dismayed if it falls victim to short-term Westminster politicking. Only a consistent and coherent approach over time will help set the foundations for business communities across the UK to grow and thrive."
But the government hasn't gone far enough with R&D tax relief, said Mark Tighe, boss of R&D tax specialist Catax.
"The industry was looking for a rise of 4% in R&D tax relief to 15%," he said. "Instead, it's stuck with a raise of 1%. This might look good on paper as it's actually a 9% rise in the rate of relief overall, but this isn't change on a scale that will supercharge the potential in our economy as many would wish."
Tighe said while it was a positive message from the government, the strategy was not just about cutting-edge firms and the majority of companies that could benefit from the strategy belong to more traditional industries.
"Not enough businesses know it's not all about space travel and driverless cars, but a new pint of beer or menu for a restaurant too," Tighe said. " Lots of companies don't realise they are entitled to this kind of relief and it's often the smaller firms with tighter balance sheets that would benefit the most so this rhetoric has to change."
Terry Scuoler of the EEF manufacturers' organisation, hailed the idea of an independent industrial strategy council.
"By introducing independent scrutiny of the progress of these plans, the government is signalling that there will be a strong focus on measuring delivery which boardrooms will recognise and welcome," he said.