The writer, a former FT editor, is head of industrial policy at Policy Exchange, a think-tank
Among the issues facing the Conservative leadership contenders there is one that has received almost no attention: industrial policy. This topic, while not in the same league as the energy crisis, will present the government with tricky decisions in the coming months. They are important, not least in showing how far the next prime minister believes in an active role for the state in influencing the structure and performance of particular industries.
Margaret Thatcher, admired by both leadership candidates, believed that the government had no business deciding that one industry was more important than another, and therefore deserving of special help. She also insisted that no obstacles should be put in the way of foreign acquirers of British companies — that put her at odds with Tory MPs. She was greatly irritated when backbench pressure forced her to abandon the sale of parts of British Leyland to Ford and General Motors. As she wrote later, a kind of “pseudo-patriotic hysteria” had swept through politics.
But the Conservative party has shifted in a non-Thatcherite direction. Since Theresa May’s government, substantial sums have been spent on developing batteries for electric cars. This has included both funding for early-stage research and direct support for commercial ventures, such as Britishvolt’s battery factory in the north-east.
The government’s case is that it will help British assembly lines transition to electric cars and contribute to decarbonisation. Similar considerations apply to the Port Talbot steelworks in South Wales; the owner, Tata Group, has asked for help in financing the replacement of blast furnaces with a less carbon-intensive technology. Should steel have a higher priority than others facing similar problems? Despite lengthy debate, no clear definition of a strategic industry has emerged.
As for foreign takeovers, here, too, the influence of Thatcherism appears to be fading. In the pre-Thatcher era, merger control in the UK was widely regarded as arbitrary and unpredictable, with the Monopolies and Mergers Commission (now replaced by the Competition and Markets Authority) using a range of public interest criteria.
The commission was expected to assess the suitability of the acquirer and make predictions on the consequences of the takeover — a process that provided ample scope for lobbying. This changed in 1984 when trade and industry secretary Norman Tebbit announced that references to the commission would be based primarily on the effects on competition. Although the legislation has been modified, competition has remained the focus in merger control, in foreign as well as domestic takeovers. Consistent policy in this area has helped to make the UK an attractive destination for acquirers.
An important change took place at the start of this year with the National Security and Investment Act. This gives the government wide powers to review and prohibit takeovers that might pose a risk to national security. Like the word “strategic”, national security is open to interpretation; an interesting test will be the expected decision on whether to unwind the acquisition of semiconductor company Newport Wafer Fab, by a Chinese-owned company.
Some observers believe that the new act will deter potentially valuable foreign acquisitions. Others argue the government should go further in taking powers to block foreign acquisitions of companies with special importance for the UK economy. That would involve greater involvement by ministers and the politicisation of merger control — an outcome that should not have much appeal for the heirs of Thatcher.
True, the current trend in the US and the EU is towards more interventionist industrial policies, with subsidies for strategic industries and stricter curbs on takeovers. It does not follow that the UK should move in the same direction.