Beware May’s “industrial strategy”: Brexit Britain must be market-orientated
Initially, it started to look as though the Prime Minister might even be overhauling our outdated Whitehall structure too. The appointments of Liam Fox to oversee international trade and David Davis to conduct the Brexit negotiations sent an encouraging sign that Brexit Britain will a market-orientated country with a global outlook.
But an opportunity to radically restructure other pillars of government to reflect the new realities of life outside of the EU has been missed. And in one area, in particular, it looks ominously as if it might get worse.
The department of Business, Innovation and Skills (BIS) has been ripe for abolition for some time, given that business, innovation and skills are not obvious strengths of the British state apparatus. Many of the department’s functions could be transferred to other ministries or, more often, done away with altogether. One imaginative option would have been to have made the department entirely focused on deregulation – working through and incinerating the EU red tape that is inappropriate to the needs of the British economy.
Instead, BIS has morphed into being the Department for Business, Energy and Industrial Strategy. The name alone is enough to send shivers down the spines of those of us who think there is already far too much state intervention in the economy.
Britain does not need an industrial strategy, unless the term is interpreted so narrowly as to mean no more than a determination to ensure that the prevailing regulatory and tax climate is one in which businesses of all types can flourish.
But Greg Clark, as the new secretary of state, has already said he is “thrilled” to be given the opportunity to lead a “comprehensive industrial strategy”. Clark is a thoughtful and intelligent man and it would be unfair to prejudge his likely approach based on just a few phrases in an anodyne press release. But the concern must be that there will be a huge temptation to draw up plans for various “strategically important” areas of the economy and to skew the pitch in their direction. In other words, to move further and further away from allowing the market to operate freely without discrimination in favour or against specific sectors.
The energy industry, often held up as an example of market failure, has actually been damaged, even broken, by an endless string of state interventions and regulations. The liberalising reforms of Margaret Thatcher and John Major saw electricity prices fall by 26 per cent and gas prices by 18 per cent in the 1990s.
Since the turn of the century, and the tendency of the state to intervene, gas and electricity bills have gone up by 60 per cent and 123 per cent respectively. This is a clear sign not of a market failure, but of an interventionist failure. One can only hope that Clark will seek to reconstruct a functioning market, and not continue to try and fiddle with it.
He must avoid the temptation to “pick winners” in British industry. Private investors and businesses don’t always make the right decisions, but they have a far greater propensity to do so than politicians and bureaucrats. Brexit provides the opportunity to free up and deregulate our economy.
But there is always the danger that the British government will use its repatriated powers in a harmful or foolhardy fashion. Early in his new job, Clark should signal that, in Brexit Britain, he is determined there will be less intervention in industry, not more. I look forward to his next press statement with both anticipation and concern.
This article was first published in City AM.