Turning the tide: the place for government in the Coalition's evolving industrial policy

Turning the tide on manufacturing will be no easy task. In common with other industrialised countries the share of manufacturing in the economy has fallen. In the UK, however, the share of manufacturing in GDP fell to slightly more than 10 per cent in 2008. This was a far more precipitate fall than in competitor countries.

It would be unwise to promise that we could reverse all the structural factors that have led to industry’s declining share of output and employment in Western economies. But if these trends were so inevitable, why was Germany only overtaken (by China) as the world’s largest exporter in 2010?

Despite misconceptions that have been allowed to flourish in recent years, Britain is still a country that excels at making things. Where once we led the way as innovators in textiles, shipbuilding and iron and steel, we now have companies blazing a trail in technologies such as new materials, robotics, software design and some renewable energies. So it is important we explode the myth that UK manufacturing is moribund.

But in other areas, we have allowed our latent capacity to wither. When I visit some, often superb, manufacturing plants the machine tools are rarely British. When visiting Dubai Ports at the London Gateway, I was saddened to see no British-made cranes. The skills and capacity have just gone.

So where does government have a role in helping the UK revive manufacturing? I would start with innovation and technological leadership. A knowledge economy needs people with the right training to develop technologies and apply them. We have some of the best universities in the world, a strong record in scientific discovery and some outstanding entrepreneurs. We need to keep it that way.

But in the UK there has been a bigger gap between scientific theory and business innovation than in, for example, Germany. That is why I have given such support to arms-length bodies such as the Technology Strategy Board and the Technology Innovation Centres (TICs).

The TICs will provide university researchers and businesses with facilities to collaborate to build prototypes, use large-scale clean rooms or develop virtual environments to support product design.

“To be frank, we have been too tactical and short term in relation to matters of public procurement”

The second pillar of our industrial policy comprises the carefully managed use of limited public sector seed capital to leverage in private investment. The £1.4bn Regional Growth Fund is providing direct government support as a necessary catalyst for projects with the potential to ramp up investment enterprise in areas of the country where there has been a historic reliance on the public sector for jobs.

A third pillar of our strategy is a focus on skills, centred on apprenticeships. Despite the tough fiscal backdrop, we have managed to finance a sustained investment in training.

The fourth pillar is our work with major manufacturers to rebuild their supply chains. Sectors such as automotive and aerospace have an appetite for increasing UK-based suppliers.

Finally, there is scope for the government to recalibrate its approach towards public procurement to boost support for UK industry and its supply chains. I am not advocating a lurch towards protectionist procurement or breaking international rules. But recent controversies over procurement have raised questions over the best way to balance short-term cost considerations with longer-term value for money and competitiveness. To be frank, we have been too tactical and short term.

Our new industrial policy is still a work in progress and there is room to develop it. I am confident that world-class manufacturing will once again be at the heart of our economy.