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The Government's Industrial Strategy Will Make No Difference To Major Threats To British Industry

23/02/2017 11:01 GMT | Updated 23/02/2017 16:56 GMT

The Government's much-anticipated industrial strategy Green Paper has attracted a range of criticisms in the month since it was published. But the most telling reaction was positive.

The Green Paper was billed as radical new direction in how we manage our economy. But, as Allister Heath, deputy editor of The Telegraph and arch free-market fundamentalist, gleefully declared:

"The Government's "industrial strategy" Green Paper is little more than show business, with a sprinkling of activity: it's glitzy, talks the talk, but will change almost nothing when it comes to the Government's relationship to the economy".

Beneath the fanfare, the Green Paper was more a patchwork of initiatives than a strategy - and modest initiatives at that. There is no better reflection of its limitations than the two near-crises that have shaken British industry in the last week - the proposed sale of Vauxhall to Peugeot PSA and Kraft-Heinz's attempted takeover of Unilever. What was striking about each is that - even if it had been in delivery stage rather than still a Green Paper - the Government's industrial strategy would have made no difference.

Discussions over the sale of General Motors' European business, including Vauxhall in the UK, has exposed the vulnerability of Britain's world-leading automotive industry in the wake of Brexit. The industry's supply chain relies heavily on imports, whose cost has increased substantially as the value of the pound has fallen. And uncertainty about our future trading relationship with the EU is putting access to the industry's biggest market in doubt.

But nothing in the Green Paper will address either of these problems. Reshoring is back in vogue, with 1 in 6 manufacturers bringing some production back to the UK. But decades of off-shoring in pursuit of cheap labour won't be reversed spontaneously.

The £268bn spent each year by the public sector is one of the most powerful tools Governments have to shape supply chains, yet the Green Paper makes no mention of using procurement in this way. And market access is secondary to belligerent posturing in the Government's Brexit negotiation strategy, which amounts to a high-stakes game of chicken with our economic future. If the Government carries out its threat to turn Britain into a tax haven, our car-makers will pay a heavy price.

Even more galling for Vauxhall's 4,500 strong workforce, the Vauxhall crisis has made apparent how ill-protected they are compared to their French and German counterparts. The French Government's 14% stake in PSA led analysts to conclude that French workers would be spared any job losses driven through by PSA CEO and notorious cost-cutter, Carlos Taveres. Meanwhile, German newspapers have reported that PSA had promised to keep all four German plants open. It would be foolish to underestimate the role that the much greater protections against dismissal afforded German workers played in this decision - if Greg Clark really wants to fight Britain's corner, why doesn't he make it harder to sack British workers?

Vauxhall is not the only story to have shaken British industry in the last week. Kraft-Heinz's attempted buy-out of Unilever stirred fears that the drip of foreign purchases of UK firms would become a flood, as overseas investors take advantage of the weak pound to buy up British companies on the cheap. Many noted the stark contrast between the business cultures of the two firms. While it is a stretch to describe Unilever as an underdog, Kraft-Heinz's history of ruthlessly acquiring companies through leveraged buyouts, only to lay off workers in order to expand profit margins and pay out dividends gave a David and Goliath quality to its pursuit of Unilever, a company that puts investment, long-term growth at the centre of its business model.

In the end, it was the integrity of the Unilever management that saved the company (for now at least - Kraft-Heinz has sizeable resources and many anticipate a second approach). The Prime Minister ordered a review of Kraft-Heinz's proposals, but if Kraft-Heinz break the resolve of Unilever's board with a higher offer, existing law gives her no powers to intervene. This matters because the contrast between Kraft-Heinz and Unilever goes right to the heart of what an industrial strategy is about - to deliver an economy of Unilevers when the market fails to.

The Prime Minister has spoken favourably of strengthening the public interest grounds for intervening in corporate takeovers, but Chancellor Philip Hammond is fiercely opposed to the idea, and the complete absence of any mention of takeovers in green papers on either industrial strategy or corporate governance are a reminder of how isolated the Prime Minister is in her cabinet. But until the Government is prepared to use its policy levers to guide the economy in a strategic direction, it will lunge from crisis to crisis punctuated by proclamations of good will.

The remarkable response - well over a thousand at last count - to Labour's industrial strategy consultation indicates widespread enthusiasm for a new direction. It is clear that we need an industrial strategy that seeks to avert the kind of crises we've seen this week.

This isn't about state versus market, but about state and market - about the Government helping business to thrive and prosper on stable ground. It is also about going one step further and helping business to help society. As Alistair Heath is astute enough to realise, the Government's Green Paper is not up to the job.