Brexit and the future of industry

Raising productivity will be key

April 05, 2018
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Earlier this year Prospect published a special report on the future of British industry after Brexit, in association with Associated British Ports (ABP), the British Chambers of Commerce (BCC) and the Royal Institution of Chartered Surveyors (RICS). With the government’s industrial strategy now having been published and some progress made, Prospect convened a round table bringing together business representatives, politicians and academics to discuss the key issues.

During the discussion Emma Reynold MP, a member of the Brexit Select Committee, noted that one downside of Brexit was the extent to which it is dominating government and civil service time and crowding out the room for other initiatives. This was keenly felt in the discussion, with a general sense that is was hard to discuss the future of British industry without engaging with the Brexit process.

Gina Miller, the founder of fund management firm SCM Direct, opened the discussion by giving an update on a recent trip to Brussels and the current state of play of the ongoing talks. Throughout her conversations in Brussels she stated that she “repeatedly heard three things: one, no one has seen any detail or substance from our government or our negotiating team. Secondly, the timeline, if it gets to the June summit and there is still no detail coming from our side, then they will press on… and the feeling is that it will be quite difficult to reverse anything. This idea that we have until next March is not practical. The third thing is that no one appears to understand how supply chains, standards and borders will work.””

Industry representatives at the discussion made the point that business preparations for Brexit are varied. Mike Spicer, Director of Research and Economics at the British Chamber of Commerce, noted that a recent survey of BCC members has revealed that one third of businesses don’t believe Brexit will have a major impact on their business, another third think it will have an impact and are currently planning to mitigate that and, worryingly, the final third believe Brexit will impact their firm but have not yet taken many steps to prepare.

One area getting frequent attention in the media is the potential impact of leaving the European Customs Union on Britain’s ports.  However, David Leighton, Group Head of Corporate Affairs at Associated British Ports, noted that firms involved in facilitating cross border trade were firmly in the “solutions business”. Given that any regulatory divergence between the EU and UK will be extremely limited in the short term, ABP is not anticipating the kind of cross border chaos that is sometimes foreseen.

Jack Lopresti MP argued that Airbus, which is based in his constituency, already has factories outside of the EU single market and customs union – and argued that fears that leaving either would damage its future were overblown.   Responding to this, Paul Nowack, the Deputy General Secretary of the Trades Union Congress (TUC) noted rising concerns about the longer future of the plant from workforce representatives.  “What is clearly coming through by some sectors like aerospace, like automobile manufacturing, is our representatives saying that they won’t know what’s going to happen in four years’ time… this is not about anybody talking down Brexit, but we’re not going to get Brexit right simply by having a positive attitude. We’re going to get Brexit right by having concrete agreements with the rest of the European union.”

Dr Michael Gasiorek, Senior Lecturer in Economics at the University of Sussex, concurred and presented a few additional points: “Yes Brexit will happen, yes we need it to happen as well as possible, and no the economy isn’t going to collapse. Having said all of that… in order to have a discussion about the way forward, we need to acknowledge that we are leaving the most integrated market in the world.” Gasiorek went on to note the importance of regulatory standards and equivalence.

Later in the conversation, Lewis Johnston from RICS also highlighted this latter point when speaking of the importance of infrastructure. “The nature and importance of standards needs to be properly understood. They’re not just a burden on business and commerce. They’re in fact an enabler of business.” Johnston also presented the notion that, historically, the adherence and promotion of standards had been a competitive advantage for UK business.

After the initial focus on the short-term impact of Brexit, the discussion moved onto the wider questions of the longer-term future of British industry. There was a widespread sense that many of the issues that the Government’s industrial policy was trying to deal with reflected much longer running issues within the economy than Brexit itself. If anything, Brexit was an additional catalyst drawing attention to longer running problems.

Professor Richard Jones of the University of Sheffield, a member of the Industrial Strategy Commission, outlined many of these issues – low investment levels, a weak research and development performance (especially hampered in recent years by particular circumstances in the pharmaceutical industry with several key patents expiring and returns falling) and stark regional divides in terms of productivity levels and output per head.

Neil Carmichael, former Chair of the Education Select Committee and current Senior Advisor at PLMR, also underlined the importance of having a conversation about barriers to productivity. Gina Miller concurred and stated that one of the key themes that emerged from her conversations with SMEs was that “lack of skills, access to skills and talent are a problem. It’s not just about money and investments, but also talent. And if we were to train people, it simply won’t be in time for the end of the transition period. I’m hearing this from the private sector, public sector and third sector”

Stephen Kinnock MP – and other MPs present – reiterated the extent of the UK’s regional divides. Kinnock further noted that weak wage growth in the UK in recent years had an impact on low corporate investment and productivity. As he put it, firms in the UK were often much happier to use more (relatively cheap) labour to increase output than they were to investment new capital equipment and try to drive up productivity.

Sir Geoffrey Owen, a former editor of the Financial Times now working on industrial policy at Policy Exchange, echoed many of Richard Jones’s points. The UK clearly, he believes, has some long-standing problems with productivity problems – although he noted that more government intervention was not necessarily the correct response.

There was a broadly felt agreement that the UK’s regional inequalities were hampering productivity growth and the strength of British industry. Stephen Kinnock and Emma Reynolds both argued that many of the industries being prioritised by the current Government’s strategy – space and biotech for example – were already based in well-developed geographies of the UK and such a narrow focus would likely perpetuate regional divides.

Helen Goodman MP contrasted the, at times vague, policy details of the industrial strategy in its current form to the much more detailed work which had occurred with the Trident renewal – For example, the latter had included a regional impact assessment and micro-details on areas like apprenticeship numbers created by the project.

The discussion concluded with a broad consensus on the need to support UK firms to export more, on the need to reduce regional inequalities and on the challenge of reducing the UK’s productivity gap with our international peers. Brexit may be dominating the current political discussion but many of the UK’s real long-term challenges are much longer running.

Brexit Britain: the future of industry is a publication which examines the future of UK manufacturing through the prism of the recently released Industrial Strategy White Paper. The report features contributions from the likes of Greg Clark MP, Miriam Gonzalez, Richard Graham MP and Frances O’Grady.

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