Labour has no answers to Britain’s economic slump

The Labour government finally launched its long-awaited industrial strategy last week. Given the chaos and u-turns of his first year in office, it was a wonder UK prime minister Keir Starmer managed to keep a straight face when claiming that his 10-year economic plan provides ‘stability’ and ‘certainty’ for business.

The contents of the industrial strategy are remarkably similar to the other supposedly ‘bold’ industrial-policy documents and growth plans announced by successive governments in the decade-and-a-half since the financial crisis. The two flagship proposals this time – cheaper energy and improving skills – featured strongly in all previous industrial strategies. Starmer’s other commitments are just as familiar. These include promises to lighten regulatory burdens; a repeat of announcements to (inadequately) fund public research and development; and the rebranding of ‘freeports’ and ‘investment zones’ as ‘industrial-strategy zones’. Given the amount of regurgitation going on, it’s tempting to think the government is now using AI to draft its policies.

Why did it take nearly 12 months for the government to produce such a humdrum industrial strategy? This strategy is supposed to be a ‘central part’ of Labour’s ‘growth mission’, so why has there been so little urgency?

The delay speaks to an all too familiar problem – the desire of countless British governments to kick the can down the road. Procrastination has been a feature of our technocratic administrations since the 1990s. Their guiding managerial impulse is to avoid or at least put off making any decision that might be disruptive to the status quo. Labour’s dithering was probably further aggravated by the faint and now extinguished hope that chancellor Rachel Reeves might find the odd billion pounds or so to add some welly to these otherwise run-of-the-mill industrial policies.

That this has not happened has left Labour’s policy proposals looking anaemic. Take the measure that Labour promoted most last week – the slashing of electricity prices for business. This sounds like great news, given British businesses endure much higher electricity prices than their rivals in any other major developed country.

But the detail of the policy tells a rather less promising story. It suggests the government could subsidise energy prices for just 7,000 electricity-intensive manufacturers. The government itself admits that these manufacturers only support about 300,000 skilled jobs – that’s just one per cent of Britain’s total workforce. Furthermore, the policy will not come into effect any time soon. There will be another two years’ worth of ‘consultation’ to decide which companies ought to be eligible for the scheme, with a ‘review point in 2030’.

The real kicker is that the subsidies will not be coming out of the existing tax take. Instead, they will be funded through vague ‘reforms to the energy system’ and, crucially, ‘additional funds from the strengthening of UK carbon pricing’. This implies that a few thousand businesses will have their electricity prices subsidised by higher carbon prices for at least some of the millions of other businesses in the country.

The hackneyed policies contained in Labour’s strategy seem wholly inadequate given the scale and depth of Britain’s economic problems. Indeed, the government’s own green paper on industry from last October did not hold back on the extent of the UK’s economic malaise. It pointed out the persistently low levels of investment in British businesses, which are ‘routinely ranked in the bottom 10 per cent of OECD countries for overall investment’. It also noted that, while Britain’s research institutes are still pretty good at invention, the capacity to commercialise and roll out innovation across businesses remains poor.

Above all, the green paper drew attention to ‘the fundamental and longer-term challenge’ facing the British economy – namely, ‘a slowdown in productivity growth over the past decade and a half, which is the ultimate driver of people’s living standards’. It said that the productivity slump is driven by slowing market dynamism, a problem generated by the fact that labour and capital have generally stopped moving from less productive firms to more productive ones. This long-term decline in Britain’s business dynamism is, it said, the most important drag on productivity growth.

Any new industrial strategy, the paper concluded, would need to increase dynamism by allowing labour and capital to flow more freely towards growth-driving sectors. This will be disruptive and will create ‘losers’, as it will lead to the closure of failing businesses. As the green paper argued, the government will therefore need to consider these impacts and provide the right transition mechanisms to ensure that people are not ‘left behind’.

Yet, in last week’s long-awaited industrial strategy, the insights from October’s paper had been ignored. It talks of the need to create the next generation of challenger companies. But it says nothing about how to allow capital and labour to move towards the new, more productive companies – namely, by letting today’s unproductive businesses fold. It is also silent on the state’s responsibility to support people while they move from the declining and folding businesses into the better jobs provided by the challenger companies.

This industrial strategy is all too typical of our political elites’ approach to governance. They are ensnared in the present and remain committed to sustaining and supporting the status quo. The government’s advisers may have tried to draw Labour’s attention to the vital importance of energising business dynamism. But today’s managerial political class lacks the honesty and courage to do what needs to be done.

None of this is a surprise. Successive governments have churned out equally disingenuous and ineffective industrial strategies. Which raises the question: why there is so much political and even public support for the idea of an industrial strategy in the first place?

After all, even ministers acknowledge that the British state is dysfunctional. State bodies have run down public infrastructure, proven incapable of providing basic services and have seemingly lost control of our borders. The litany of state failures goes on and on. So why, given this awful record, do even anti-establishment parties like Reform UK continue to support active state intervention in industry?

The answer, I think, derives in large part from nostalgia. This is not a yearning for the revival of heavy industry itself. Politicians and much of the public don’t actually want a return to arduous and dangerous work down mines or in steelworks. Rather, they yearn for the culture and values of the industrial era, before the ravages of deindustrialisation kicked in under Margaret Thatcher during the 1980s. They yearn, that is, for a time when there was still a sense of community and solidarity. For a time when hard work was valued and people took civic pride in their locales. For a time when people assumed that their children’s generation would have better lives than they had.

The allure of industrial strategies rests therefore on the cultural attraction of the industrial era. It’s entirely understandable. But right now we need so much more than yet another spirit-raising but ultimately ineffective industrial strategy.

Britain’s economic renewal depends on regaining collective belief in our ability, as a society, to forge a better future. Only then will we be able to endure the disruptions needed to bring about meaningful economic and social transformation. Given that the political class is terrified of change, it will be up to the people to seize the day.

Phil Mullan’s Beyond Confrontation: Globalists, Nationalists and Their Discontents is published by Emerald Publishing. Order it from Amazon (UK)