By Phil Tomlinson, Senior Lecturer in Business Economics, University of Bath’s School of Management
The UK government recently set out some of its plans for a new UK industrial strategy. The Prime Minister, Theresa May addressed the CBI and announced an extra £2 billion for scientific research and development (R&D), a review of patent finance and wider consultation on the possibility of worker representation. This was followed by the Chancellor, Philip Hammond in his Autumn Statement announcing a further £23 billion for a ‘new national productivity investment fund’.
This promised new investment is welcome, but it is quite small – amounting to just around 0.2% of GDP – and as such, is unlikely to be the ‘game changer’ the Chancellor is aiming for. The UK lags way behind its major competitors on R&D expenditure as a proportion of GDP – spending around 1.7% of GDP compared to almost 3% in Germany and the USA, and 3.5% in Japan – and also on productivity, which is 20% below that of Germany. This translates into a low-skilled, low wage economy, and hinders the country’s growth path and ability to reduce the national debt.
A more ambitious Chancellor could have used the opportunity to reset fiscal policy and make a more aggressive move to address the UK’s chronically low levels of business investment
A more ambitious Chancellor could have used the opportunity to reset fiscal policy and make a more aggressive move to address the UK’s chronically low levels of business investment. With historically low interest rates, this was another missed opportunity to fund large-scale public investments in regional innovation, skills and infrastructure that the UK economy desperately requires. Such public investments can enhance productivity growth and ‘crowd in’ new private investment, which will be especially important given the uncertainty that Brexit is having upon firms’ investment decisions. Over time, higher economic growth reduces the share of national debt as a proportion of GDP to more manageable levels.
Nevertheless, the addition of an extra £2 billion a year of funding for scientific research and development (R&D) will be some relief for the UK Science community, who have raised concerns about the medium to long term impact of Brexit on their funding base. Details of this new funding are currently sketchy, although much of it is likely to be earmarked for UK STEM projects. However, it will be important not to ignore the UK’s creative sector, which is a huge source of innovation and, just as importantly, is successful at commercialising this innovation.
The promise of a review of patient capital for UK business – particularly young businesses – is long overdue
Returning to Theresa May’s speech to the CBI, the promise of a review of patient capital for UK business – particularly young businesses – is long overdue. As part of this, I would hope the review would consider the idea of a National Investment Bank, something which several leading economists have long advocated and which Jeremy Corbyn mentioned in his speech to the CBI later in the afternoon. A newly created National Investment Bank with a strong regional element can play a significant role in providing long term finance to small and medium sized firms, raising the UK’s poor investment record and help to re-balance the economy.
Finally, the Prime Minister appeared to back track on her earlier suggestion for greater worker representation on corporate boards, by indicating that such a move would not be mandatory. This is a pity, since corporate governance is a critical issue in the UK, and the experience of other countries, notably Germany and Sweden, is that worker representation can play a valuable role in successful company decision-making. Indeed, worker representation can help to negate short-termism, which is something that has long blighted British industry.