Take the 80 minute train from London Liverpool Street to Clacton-on-Sea, and you’ll start to understand why government wants a more active industrial strategy.
Your journey begins in the City, a main plank of the country’s economy which contributes just over 10 percent of UK tax revenues, but is perceived to be overly dominant. It ends in the district of Tendring, ranked in a recent Localis report as one of the thirty structurally weakest economies in England. Once past Chadwell Heath, on the eastern fringe of London, every district the train passes through voted to leave the European Union. In the Brexit tour guide of discontent, it is one of the quicker trips.
The Localis report refers to areas like Tendring as England’s “stuck places”. They are penumbra economies still recovering from the 1980s, with weak labour markets sagging at both ends: their working populations are poorly skilled, while over 65s predominate. They are typically rural, and are clustered across the country.
If the Brexit vote is interpreted as the manifestation of a general discontent with the way the country and economy is run – Theresa May has called it a “quiet revolution” – then it is these stuck places to which the industrial strategy should give most attention and support. Yet this goes against the grain on two fronts.
First, to date much of government’s domestic economic policy has focused on city-regions. Many will elect a mayor in May, but the majority of the country – around 36m people – will be left without. They will have limited options in who can lead the industrial strategy in their area, because there will be no structure in place locally that government is willing to devolve to.
Second, historically government has preferred to focus on industries, sectors and even individual companies. The idea of treating places differently according to their need has rarely been a feature.
A successful industrial strategy for the nation as a whole needs to change this. As business secretary Greg Clark has said, “for too long, government policy has treated every place as if they were identical… What is needed in each place is different, and our strategy must reflect that.”
Given the breadth of government action that influences industry – both as policymaker and purchaser – the potential scope of the industrial strategy is huge. All arms of the state should be harnessed to support the prospects of places most stuck. From more local control of immigration to changes in the tax system, no recourse should be discounted.
One option is to double tax reliefs offered to investors in specific areas, for instance via the Enterprise Investment Scheme. Launched in 1993-94, the scheme provides 30 per cent tax relief on investments of up to £1m a year in shares of smaller, high-risk companies. It raised just under £2bn in 2014-15, over half of which went to companies registered in London.
Upping the rate of relief to 60 percent in a stuck place such as Tendring would give the area a boost. Companies registered there would have preferential access to financial benefits, and venture capitalists and entrepreneurs alike would be attracted to do business in the area.
Only so much can be done to mitigate a place’s history and geography. However the clear links between the Brexit vote and industrial strategy demand a response that raises the floor of our economy as well as its ceiling. For all the connotations of industrial strategy with picking winners, it’s the places that are losing who we ought to focus on.
Jack Airey is senior researcher at Localis.