Ensuring A Future For Our Manufacturing Industries Post-Brexit Means Learning To Love Bigger Government: Why Not Start With CCS?

13/09/2016 16:06

Virtually as she stepped into Number 10, Prime Minister Theresa May indicated a new attitude of the UK's Conservative government towards manufacturing and industrial policy. It was a welcome shift from a party who have consistently undermined British manufacturing communities like my own in the last 40 years. Now there is an opportunity to put words into deeds by taking a stake in the development of 21st century climate change infrastructure urgently needed by our industries; leading Europe and re-joining the global vanguard.

May's shift was all the more striking as the new Secretary of State for Local Government and Communities, Sajid Javid MP, as an acolyte of George Osborne had decimated the Department of Business, Innovation and Skills (BIS) imposing 40% cuts to vital budgets and ripping up the cross-party consensus on manufacturing started under the Labour government and continued and beefed up by Vince Cable, his predecessor. Meanwhile, in cutting budgets, Osborne scuppered the UK's £1bn competition to develop carbon capture and storage - an energy technology and infrastructure needed by our foundation industries and power sector to reach our climate change obligations and the recently signed Paris Agreement's emission reduction targets.

The crisis in the steel sector and the last Conservative government's lack of willingness to tackle the root causes - global overcapacity and steel dumping, notably from China - and scapegoating of the EU for government inaction, was arguably a strong reason why most manufacturing communities voted to leave the EU, bringing down David Cameron and George Osborne, and leading to the coronation of Theresa May. So it is politically astute of her to change tack and relook at manufacturing policy.

However, rhetoric has little value in the real world, and our manufacturing base and the many services that rely on it, urgently need action. Now that we are embarking on the journey to leave the EU, there are many challenges for our industries, which overwhelmingly depend on exports and European supply chains, successive UK governments won't be able to unfairly blame the EU for woes. This makes a long term industrial and energy plan for the UK economy crucial.

Clearly there are those - notably the Fresh Start group of radical neoliberal Tory MPs (which includes many prominent Brexiters) - who dream of a little regulated free-trading island nation operating as a larger version of Singapore, unshackled by fair welfare policy or labour market rules. This would be the death-knell for UK manufacturing which relies on membership of the European single market for trade and industrial networks, and as all manufacturing industries may loath the state at times, they understand that that this sector needs strong public policy and support, especially in addressing the challenges of climate change and seizing the opportunities it presents.

As Harvard's Dani Rodrik argues in his book 'The Globalisation Paradox', "if you want markets to expand, you need governments to do the same". Since she will chair her government task force on manufacturing, I would encourage May to look at where manufacturing policies are working elsewhere and why, just as others came to the UK during the Industrial Revolution to learn from us.

For instance, there are important lessons to take from Scandinavia and Germany about industrial policy, the role of labour market institutions, technology policy and skills policy, while the US has much to show for long term public investment on clean tech (e.g. ARPA-E programme). In the UK industrial policy has had a dirty name for many years being associated with 'picking corporate winners and losers', compare and contrast this with other countries and regions' industrial policy which is far more than this stereotype and is rather about improving the whole eco-system of industries and taking advantage of new technologies offered.

Thinking about Britain's industry as an eco-system could lead to policy choices that promote the circular economy, and particularly industrial symbiosis, where one process or industry's waste supplies is the input for a new product or process in another industry, ultimately benefitting UK manufacturers by reducing costs. But this won't just happen on its own. State intervention is needed to support that eco-system through direct public policies of education, taxation and infrastructure investment.

No example better exemplifies this than carbon capture, use and storage (CCUS), where the UK has a unique opportunity through geography and industrial capacity to re-join the vanguard of the new industrial revolution.

This week, the UK Parliamentary Advisory Group on Carbon Capture and Storage has published its recommendations (the report can be found here) on how urgent Government action to support the building of CCS infrastructure through the creation of a public investment company could save £5 billion annually and provide alleviate pressures on our energy-intensive industries. This investment is crucial for not only those same manufacturing regions who voted to leave the EU, including my home area of Teesside, where local communities feel ignored and abandoned by Westminster, but also for the beleaguered North Sea offshore industry.

By working on regional industrial clusters and coordinating infrastructure, the government could provide a new future for our real northern powerhouses in a cleaner, more sustainable Britain, cutting the costs for all consumers of climate action on the way. If rolled out successfully, there are opportunities to commercialise and export this technology to many other regions, again combining economic success with climate action and to (partially) future proof the potential rising costs of carbon emissions in any future emission trading scheme system the UK is part of.

This is the test of Theresa May's commitment to British industry and the communities it supports. Leaving the EU could deeply damage our industries, so government intervention to guarantee their long term future is vital. The public won't accept a Brexit Britain competing globally on low-pay, low regulation exploitation, let's chart a course to allow us to compete on high quality innovation and clean tech - why not start with an investment for the benefit of the next and future generations?