Zachary Spiro is a former adviser to Conservative Select Committee Chairs and is a consultant at Flint Global. He writes in a personal capacity.
The Government has a simple problem: how do you do industrial policy without spending serious cash?
Part of the problem is that the Government has repeatedly committed itself to trying it: publicly declaring ambitions to grow favoured sectors such as semiconductors, quantum, AI, and life sciences. But the traditional tool to grow those kinds of capital-intensive, research-heavy sectors is to throw large quantities of money at them: volumes the UK both shouldn’t – and can’t – give.
As the ongoing dispute over green technologies between the US and EU shows, the UK’s pockets simply aren’t deep enough to enter a sustained subsidy shoot-out with continent-sized economies. And that’s before coming to the dire state of the public finances. As well as not addressing the small niggle that, based on the evidence, large subsidies often don’t work particularly well.
The purpose of the spending is simple: businesses like things being cheap, and they like Governments who they feel are committed to making their lives easier. Having some extra money that you didn’t work for means the stuff you’re buying with it is essentially discounted, freeing up cash for other priorities. A bag of money isn’t a guarantee that the business will grow or be competitive, but it is certainly nice to have if you’re the person receiving the bag.
For the industries named above, having access to capital is especially important. Semiconductors, for instance, are set to attract $300 billion of private investment and R&D annually for the next decade. But can public spending even make a dent against this figure? Take the US, which passed laws with tens of billions in semiconductor subsidies last year. The entire CHIPS Act, one of the most aggressive acts of industrial subsidy in decades, allocated $70 billion over five years: this is less than 5 per cent of predicted private sector spending on the sector.
The name of the game, therefore, shouldn’t be to rely on the public purse to buy the UK cutting-edge quantum computing or AI industries. It should be to attract enormous flows of private investment into the UK where they can build one themselves and liberate existing domestic pools of capital. This is what we recommend in our report published last week by the Centre of Policy Studies: making the UK a more attractive destination for emerging technologies, without resorting to colossal public subsidies.
As my co-author and I set out, the way to view this problem is to consider what those subsidies would buy, and then tailor a policy to make it easier for firms to get them: staff, structures, machinery, space, and R&D.
As a result, the UK doesn’t need that much money to have an effective industrial strategy. We could make it easier and cheaper to hire staff, for instance by expanding the High Potential Individual Visa to advanced STEM graduates from top-tier universities that are currently excluded from the scheme. We could also waive visa and NHS surcharges for these companies: PhD-level researchers employed in quantum computing companies are hardly burdens on the state, and the thousands of pounds spent on application fees could be used to boost their salaries.
We could provide tax incentives for these companies constructing structures and buildings, investing in machinery, or funding R&D. Factories can cost hundreds of millions, if not billions, of pounds, and reducing the size of the price tag would be a smart investment. Most importantly, if the tax incentive is what shifts the dial on the company choosing to bring its money to the UK in the first place, there is no lost revenue for the Treasury: the counterfactual is not that the factory was taxed more, but that it didn’t exist at all.
As I have detailed elsewhere, we can make it easier to build new laboratories and industrial space all over the country, letting supply match demand and bringing down the UK’s astronomically high lab rents. To protect green spaces, relaxing development restrictions could be limited to within a certain distance of university campuses, existing technology clusters, or brownfield sites. Conversions or expansions could have streamlined permissions, provided they met conditions on size or location.
With the right policies, the Government would attract more of the world’s most imaginative and inventive scientists, helping them build their own businesses here in the UK. In time, that would lead to more jobs and growth spread all across the country: the UK’s semiconductor sector, for instance, is almost entirely outside the South East.
As our report explains, almost none of these measures would require new primary legislation, but could instead be made under ministerial powers with laws that have been on the books for years. This means that the Government could, if it so chose, implement these measures as soon as they’re drafted into the right legal form, avoiding the risk of any protracted parliamentary rebellions. Given the UK’s pessimistic growth forecasts, but lofty aspirations to lead in the sectors of the future, they should do so.
Zachary Spiro is a former adviser to Conservative Select Committee Chairs and is a consultant at Flint Global. He writes in a personal capacity.
The Government has a simple problem: how do you do industrial policy without spending serious cash?
Part of the problem is that the Government has repeatedly committed itself to trying it: publicly declaring ambitions to grow favoured sectors such as semiconductors, quantum, AI, and life sciences. But the traditional tool to grow those kinds of capital-intensive, research-heavy sectors is to throw large quantities of money at them: volumes the UK both shouldn’t – and can’t – give.
As the ongoing dispute over green technologies between the US and EU shows, the UK’s pockets simply aren’t deep enough to enter a sustained subsidy shoot-out with continent-sized economies. And that’s before coming to the dire state of the public finances. As well as not addressing the small niggle that, based on the evidence, large subsidies often don’t work particularly well.
The purpose of the spending is simple: businesses like things being cheap, and they like Governments who they feel are committed to making their lives easier. Having some extra money that you didn’t work for means the stuff you’re buying with it is essentially discounted, freeing up cash for other priorities. A bag of money isn’t a guarantee that the business will grow or be competitive, but it is certainly nice to have if you’re the person receiving the bag.
For the industries named above, having access to capital is especially important. Semiconductors, for instance, are set to attract $300 billion of private investment and R&D annually for the next decade. But can public spending even make a dent against this figure? Take the US, which passed laws with tens of billions in semiconductor subsidies last year. The entire CHIPS Act, one of the most aggressive acts of industrial subsidy in decades, allocated $70 billion over five years: this is less than 5 per cent of predicted private sector spending on the sector.
The name of the game, therefore, shouldn’t be to rely on the public purse to buy the UK cutting-edge quantum computing or AI industries. It should be to attract enormous flows of private investment into the UK where they can build one themselves and liberate existing domestic pools of capital. This is what we recommend in our report published last week by the Centre of Policy Studies: making the UK a more attractive destination for emerging technologies, without resorting to colossal public subsidies.
As my co-author and I set out, the way to view this problem is to consider what those subsidies would buy, and then tailor a policy to make it easier for firms to get them: staff, structures, machinery, space, and R&D.
As a result, the UK doesn’t need that much money to have an effective industrial strategy. We could make it easier and cheaper to hire staff, for instance by expanding the High Potential Individual Visa to advanced STEM graduates from top-tier universities that are currently excluded from the scheme. We could also waive visa and NHS surcharges for these companies: PhD-level researchers employed in quantum computing companies are hardly burdens on the state, and the thousands of pounds spent on application fees could be used to boost their salaries.
We could provide tax incentives for these companies constructing structures and buildings, investing in machinery, or funding R&D. Factories can cost hundreds of millions, if not billions, of pounds, and reducing the size of the price tag would be a smart investment. Most importantly, if the tax incentive is what shifts the dial on the company choosing to bring its money to the UK in the first place, there is no lost revenue for the Treasury: the counterfactual is not that the factory was taxed more, but that it didn’t exist at all.
As I have detailed elsewhere, we can make it easier to build new laboratories and industrial space all over the country, letting supply match demand and bringing down the UK’s astronomically high lab rents. To protect green spaces, relaxing development restrictions could be limited to within a certain distance of university campuses, existing technology clusters, or brownfield sites. Conversions or expansions could have streamlined permissions, provided they met conditions on size or location.
With the right policies, the Government would attract more of the world’s most imaginative and inventive scientists, helping them build their own businesses here in the UK. In time, that would lead to more jobs and growth spread all across the country: the UK’s semiconductor sector, for instance, is almost entirely outside the South East.
As our report explains, almost none of these measures would require new primary legislation, but could instead be made under ministerial powers with laws that have been on the books for years. This means that the Government could, if it so chose, implement these measures as soon as they’re drafted into the right legal form, avoiding the risk of any protracted parliamentary rebellions. Given the UK’s pessimistic growth forecasts, but lofty aspirations to lead in the sectors of the future, they should do so.