In a speech to investors and multinational companies at Bloomberg’s European headquarters in the City, designed to bring greater optimism on the economy, Jeremy Hunt called on businesses to invest in the UK and promised long-term thinking to “turn the UK into the world’s next Silicon Valley”.
The chancellor vowed that growth would be driven by encouraging enterprise, tackling poor productivity and through a focus on key growth sectors including green industries, life sciences, advanced manufacturing, digital technology and financial services, areas where Britain has a competitive advantage.
“When it comes to the innovation industries that will shape and define this century the UK is powerfully positioned to play a leading role,” Hunt said.
Green industries Britain has prided itself on being, as the chancellor put it, a “world leader” in green energy (Emily Gosden writes). It was the first major economy to commit to cutting its emissions to net zero by 2050 and has rapidly deployed some clean technologies, especially offshore wind, of which it had more installed capacity than any other country until being overtaken by China in 2021. However, it has struggled to capitalise in manufacturing with most turbine parts, for instance, made overseas.
Now, as Britain seeks to deliver on highly ambitious goals for a massive scale-up of clean energy deployment this decade, the industry has warned that it must up its game to undo the damage done to electricity generators by the windfall tax and to compete against the huge incentives on offer in America from the Inflation Reduction Act.
Ana Musat, executive director of policy at Renewable UK, said the chancellor should “use the spring budget to announce a reform to our capital allowances regime to avoid Britain losing out in the global race for investment”, with America offering $216 billion in tax credits to those investing in clean energy and transport.
One key request across the energy industry is for reform of the planning system to enable quicker deployment.
Tom Greatrex, chief executive of the Nuclear Industry Association, said the government must establish the promised Great British Nuclear delivery vehicle, which has been delayed amid wrangling over its budget.
Life sciences Successive governments have identified life sciences as one of Britain’s key growth sectors, talking up the idea of creating a “science and technology superpower” (Alex Ralph writes).
The sector, spanning about 282,000 people and £94.2 billion in revenue in 2021, is built on the country’s leading universities, institutions, research base and so-called Golden Triangle of Oxford, Cambridge and London, home to GSK and AstraZeneca, Britain’s two big pharma groups and growing biotech and medtech companies.
Cell and gene therapies, vaccine technology and artificial intelligence, to help drive productivity and the speed of drug discovery, are areas where industry has been investing and focusing.
Hunt identified Britain as having the largest sector in Europe, behind only the US and China, for “high-quality” life science papers published; and the world’s top 25 biopharmaceutical companies have operations in the UK. Those bosses agree there are significant opportunities and investment potential for the sector, with research showing an additional £68 billion in gross domestic product can be generated over the next 30 years from increased R&D investment alone.
However, bosses are warning ministers of “real concerns” that the UK’s competitiveness in life sciences is slipping behind global competitors, led by the US. They point to a significant decline in commercial clinical trial activity and a fall in the UK’s share of global R&D investment. Leaders have pinpointed a soaring NHS sales levy on branded medicines as hitting growth in the sector.
Advanced manufacturing The UK aerospace, defence and space sector is the second largest in the free world after the US — data on China’s spend is not readily available — with clusters centred on Lancashire where BAE Systems’ main plants are, the Derby home of Rolls-Royce in the Midlands, and Bristol where Airbus bases it wing technology development (Robert Lea writes).
The sector employs 400,000 in its supply chain and has been boosted by a multibillion-pound, multi-decade commitment to a next generation Tempest stealth fighter and by the emergence of the small electric aircraft of the future being developed by the likes of Vertical Aerospace.
Rolls-Royce is one of the world’s four big jet engine manufacturers but it has been hit by the operational and production failures of its Trent 1000 engine for the Boeing 787 Dreamliner.
Britain’s automotive industry, which employs 180,000, is in steep decline with the 775,000 cars produced last year putting it way behind Germany, Spain and France. It has fallen well behind the Czech Republic and Slovakia, where Jaguar Land Rover produces the Land Rover Defender.
The sector is going through massive change in the move toward electrification. While Jaguar Land Rover and Aston Martin have been heavily lossmaking, the UK-produced, German-owned luxury marques Rolls-Royce Motor Cars and Bentley have been making record volumes and profits. Volumes at Nissan’s Sunderland plant, once the world’s most efficient, have more than halved in the past six years.
The sector has also been hit hard by the decision of Honda to close its plant in Swindon; by Mini’s decision to shift production of electric cars to China; by the decision of Arrival, the electric van and bus start-up, to quit Britain for better subsidies in America; and most notably recently by the collapse of Britishvolt’s would-be gigafactory.
Digital technology The UK excels in areas such as artificial intelligence, gaming and fintech and exciting developments are spinning out of academia, where Britain is home to ten of the world’s top 100 universities (Katie Prescott writes).
Hunt said Britain has become only the third economy in the world with a trillion-dollar digital technology sector.
“We have created more unicorns [private, start-up companies valued at more than $1 billion] than France and Germany combined with eight UK cities now home to two or more unicorns. The London/Oxford/Cambridge triangle has the largest number of tech businesses in the world outside San Francisco and New York.”
Yet the sector has been buffeted in the past year as the pandemic-induced boom has waned. The industry is deeply frustrated by delays from the government at producing strategies on key areas, in particular semiconductors and artificial intelligence, and recent cuts to research and development tax breaks.
The CBI called for more government subsidies in green technology to combat US incentives, while technology executives want “normal” relations with the EU to foster collaboration.
Financial services Underpinning the chancellor’s plan for the economy is Britain’s vast financial services sector (Ben Martin writes).
“The capability of the City of London combined with the research strengths of our universities makes our aspiration to be a technology superpower not just ambitious but achievable,” Hunt said.
The chancellor name-checked two initiatives that the government hopes will boost financial services. The first was a post-Brexit overhaul of EU insurance capital rules, known as Solvency II, that is aimed at unlocking billions of pounds of capital to invest in the UK. The plans “will begin to be implemented in the coming months”, Hunt said.
The second was the so-called Edinburgh Reforms, a collection of about 30 measures unveiled by the chancellor last month that it is hoped will improve the City’s international competitiveness, an area of particular concern for both ministers and finance executives.
There are worries that London is falling behind other financial centres such as New York, Hong Kong and Amsterdam, particularly for innovative technology companies to list their shares. Yet despite the challenge London is facing, the Edinburgh Reforms took a scattershot approach to turbocharging the City, with measures to tinker with or review a variety of different rules but little in the way of broader strategy.
What many in finance really want is for ministers to move faster. There has been much talk since 2016 about how Britain can seize on Brexit freedoms but it has taken years to push ahead with Solvency II reform, which was identified as an early Brexit dividend.
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