What does the Government’s Industrial Strategy mean for supply chains?

The Government has published its White Paper on a modern Industrial Strategy for Britain, setting out a long-term plan aimed at boosting productivity and growth. Frances Churchard and Ruth Andrew consider the Government’s proposals and their potential impact on manufacturing, logistics and supply chain management.

Original news

Government launches Industrial Strategy with additional £725 million pledge, LNB News 27/11/2017

"Business Secretary Greg Clark has released the Government’s 'ambitious' Industrial Strategy White Paper for the UK, containing the Prime Minister’s plans to ‘boost the country’s economy, build on its strengths and embrace the opportunities of technological change’. The industrial strategy challenge fund will invest £725m into new challenge fund programmes."

How much does the Industrial Strategy impact on manufacturing, logistics and supply chain management?

At the core of the Industrial Strategy is the Government’s determination to improve productivity. It is intended to be a cohesive and united strategy to address productivity issues and to demonstrate Britain is, and will remain, "open for business".

The strategy includes specific measures to support diffusion of best practice (including digital technology) throughout the supply chain. The impact of these measures could be substantial—the Government’s recent Made Smarter Review estimated that digitisation could add £455 million to the manufacturing sector over the next decade, bringing in the age of Industry 4.0.

Specific proposals in the strategy include:

• A new Supply Chain Competitiveness Programme supporting training and enhanced business processes.
• Additional funding for the High Value Manufacturing Catapult.
• Funding through the £725 million Industrial Strategy Challenge Fund for innovations in the four "Grand Challenges" (clean growth, artificial intelligence and big data, the future of mobility and solutions for an ageing society)—all of which are potentially relevant to the manufacturing sector. For example, £26 million will be available through the fund for research focused on future materials.
• A renewed focus on skills training, including a national retraining scheme for digital training and an ability for businesses to pass on 10 per cent of their apprenticeship levy to their supply chain.
• Direct intervention through "sector deals". The automotive sector deal includes a commitment to increasing the local content of the sector’s supply chain from 44 per cent to 50 per cent by 2020. The White Paper also suggests that the strengthening of domestic supply chains could be a key factor in other sector deals (eg the potential deal for the nuclear sector).
• Focus on supply chains when planning infrastructure. The new "Transforming Infrastructure" programme will look at how new infrastructure investments can support the supply chain.

The manufacturing sector would also benefit from many of the more general elements of the strategy if successfully delivered, such as improved infrastructure and skills.

The aim is to create a more efficient and dynamic manufacturing environment which continues to lead the way on new innovations, supported by technology and skills to enable it to be proactive, flexible and resilient, competing strongly on the world stage.
 

How much will be innovation and how much will be extending efficiencies in existing infrastructure?

Inevitably there will be elements of both, but the strategy clearly aims to create genuine innovation by focusing on "cutting edge" sectors and technologies. There are specific measures aimed at the next generation of technologies — for example, the £400 million funding package for charging infrastructure for electric cars and the £176 million commitment to 5G.

The Government has also acknowledged that "too narrow an assessment of costs and benefits can preclude important opportunities", suggesting an increased willingness to look at infrastructure projects that could offer transformational benefits rather than focusing on incremental improvements.
 

Are there conflicts between clean growth and the mobility of goods? Is everything based around electric transport?

The strategy identifies both clean growth and the future of mobility as "grand challenges" facing our economy and explicitly links the two, noting that transport uses an enormous amount of energy and that low carbon transport is therefore key to both challenges.

Electric and autonomous vehicles have a high profile within this but there are many other elements. For example, the clean growth challenge will also look at transforming construction and precision agriculture, and the future mobility challenge references the modernisation of rail and freight services and research into future transport m odels. (The White Paper comments that in the future there is likely to be a blurring of the distinction between private and public transport.) We only have to look at the proposed automotive sector deal to see that the future is not just electric, taking a much more holistic view of the needs of industry in order to compete.

How will business be incentivised to change?

One of the five foundations of the Industrial Strategy is the "business environment" and the strategy includes a package of measures intended to drive the adoption of best practice. Supporting exports and attracting foreign direct investments are both high priorities. Measures include:

• A new £2.5 billion investment fund within the British Business Bank to support high-growth innovation businesses, which it is hoped will unlock £5 billion of matching investment from the private sector.
• An expansion of the support available through the Enterprise Investment Scheme and Venture Capital Trusts, and revisions to the rules for entrepreneur’s relief to remove disincentives to external investment.
• A new "GovTech Catalyst" with £20 million of funding available over three years, using the power of public procurement to drive innovation by helping government departments to source innovative products.
• A regional network of nine UK trade commissions, each responsible for developing a plan to support exports within their region.
• Data-sharing between government agencies to identify businesses with potential.
• Direct intervention through sector deals—for example, the automotive sector deals includes proposals for an industry lead supplier improvement programme to provide bespoke training.
• Rewards for collaboration—for example, the Industrial Strategy Challenge Fund is intended to bring together academic research and business investment, and the measures to support exports include a drive towards a "Team UK" approach where businesses bid together for overseas contracts they couldn’t win individually.

As the White Paper identifies, the key is creating an environment which supports innovation and growth, whether that be through funding, immigration measures, tax incentives or the adaptation of the UK’s legal framework to support cutting edge/growth industries.
 

Who will lead in the changes to infrastructure and join up the dots with business?

The strategy contains a commitment to "strengthen local decision-making" and a balance between central and regional planning, a continuation of the role of existing regional strategies such as the Northern Powerhouse and the Midlands Engine. The White Paper offers a consistent framework for decision-making on both a regional and national basis. The proposal is that there will be regional industrial strategies for each area of the UK, but approved by central Government.

Of the £1.7 billion Transforming Cities Fund, half has been devolved to the metro mayors to spend in their regions and the other half will be devolved through a competitive process. Local authorities will also be able to access an additional £1 billion of funding through the Public Works Loan Board for projects in their areas. However, central Government retains control of the overall infrastructure pipeline.

Sub-national transport bodies, combined authorities and local economic partnerships should provide a conduit to central government, passing on the needs of their region, academic institutions and local businesses.

First published by Lexis Nexis on 14th December 2017