Next week marks the release of the UK Government's Industrial Strategy. Before its publication, Matt Hammerstein, Chief Executive of the UK Corporate Bank and Head of Public Policy and Corporate Responsibility, explores the three key questions he believes Government must use this moment to answer.
Later this month the UK Government’s much trailed Industrial Strategy will land, following extensive engagement with industry. In principle, a forward-looking, robust and co-ordinated industrial policy should play an important role in driving UK-wide prosperity, not just for firms in high growth sectors and their supply chains, but also for businesses in the wider economy.
Our Group CEO, C.S. Venkatakrishnan, called for as much in his Times piece from 2023 ‘Global Britain badly needs a bold strategy for growth’. There is no silver bullet to UK economic renewal, but meaningful impact will only come from something that enables the best possible conditions for UK businesses to thrive.
This means addressing and overcoming the barriers facing UK corporates to improve productivity and unlock their confidence to invest for growth after nearly eight years of battling wave after wave of short-term pressure.
Speaking as CEO of Barclays UK Corporate Bank, representing over 13,000 UK corporate clients, I believe the UK Industrial Strategy needs to answer three questions to create the best possible conditions for growth:
1. Reducing energy costs
The UK is a net importer of energy, diminishing our energy security and resilience. This acts as a drag on growth at all levels of the economy, not least for UK businesses who pay some of the highest energy costs in the world.
Our Business Prosperity Index (BPI) finds that 41% of businesses believe input costs (including energy) are having a negative impact on their long-term growth potential. In addition, clients with energy-generating projects (seeking to overcome the UK’s dependency on energy imports) face significant delays with plugging into the national grid.
The Industrial Strategy needs to set out steps to build a more secure, resilient and affordable energy system, supporting UK businesses to invest for growth. A national transition plan, including specific sector decarbonisation pathways, could also be additive in this regard – helping investors commit capital for long-term investments.
2. Tackling skills shortages
Weaknesses in the UK’s skills landscape consistently come up in our conversations with UK businesses: 72% of businesses cite the difficulty of hiring skilled labour, rising to 75% for sectors such as construction, as having a negative impact on their growth.
To spell that out, UK firms operating in the manufacturing sector alone are losing approximately £6.5billion in potential output a year owing to unfilled vacancies.This creates a broader challenge for UK competitiveness as firms look to other markets that have stronger talent pools. A pro-business environment requires a solid talent pipeline.
The Industrial Strategy should play an important role in facilitating this through a greater focus on skills gaps and retraining; pointing the rest of those focused on building that talent pipeline on where the jobs of the future will be; and ensuring young people are leaving education ready for work. We recently published a report with more detailed recommendations for government to improve employability skills.
3. Supporting growth-stage companies access capital
The Industrial Strategy consultation identified eight growth sectors in the UK, providing helpful strategic direction and greater certainty to facilitate private investment. Within that we would welcome greater policy focus on the particular experience of fast-growth scale ups.
Drawing on insights from Barclays support for climate technologies (read our in-depth report here), the constrained ability for innovative companies to access capital in their critical growth stage is holding back their ability to realise their full potential within the UK.
The Industrial Strategy must consider how UK public finance, including via maximising the potential of the National Wealth Fund, can be optimised to help de-risk investment in these ventures at the growth stage, helping them to scale and drive UK growth.
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