‘Industrial strategy’ refers to government intervention which seeks to support or develop some industries to enhance economic growth.
Intervention in industry can occur with varying degrees of intensity:
• At one extreme, an intensive industrial policy could involve government assuming a near-monopoly position within a particular industry by nationalising the means of production.
• At the other extreme, government would allow domestic industries to collapse under the pressure of international competition, regardless of the importance of the industry in terms of employment or strategic advantage.
In recent decades, UK industrial policies can be located somewhere between these poles. Governments have generally not taken ownership of key firms within sectors that they view as important, but neither have they allowed the market to completely dictate the industrial structure of the economy.
The types of interventions that governments take to support or develop industries can be classified as ‘horizontal policies’ or ‘sectoral policies’.
Horizontal policies are polices which address market-wide issues. They provide the “resources and economic environment” which make it easier for businesses and individuals to be productive. Examples of this type of policy include adjustments to regulatory frameworks, establishing tax regimes which favour business, polices which foster innovation or polices which encourage skill development.
Sectoral policies (sometimes called ‘selective’ policies) include any policies directed towards one specific sector in the economy. Examples include subsides to support the production of low carbon technology, providing ‘seed funding’ for high technology clusters and support for research and development in particular industries.
In practice, industrial policies generally have aspects of both categories, and the two types of policies are “highly complimentary.” For example, an education system which seeks to emphasise the importance of science, engineering and maths (‘STEM’ subjects) is horizontal in ambition because it seeks to provide pupils with a grounding in subjects which are valuable in almost all careers. But this strategy could also be viewed as sectoral or selective because it targets a particular sector and aims to make a particular part of the workforce more productive or employable.
Key legislation:
Industrial strategy can involve Government providing financial assistance to companies in specific industries. Several pieces of legislation provide for financial assistance to industry. These are largely consolidated into the Industrial Development Act 1982 (IDA).
The IDA was most recently amended in the Enterprise Act 2016.
The Enterprise Act provides for instances of up to £30 million worth of assistance to be provided without a resolution from Parliament. It also increases the limit on the cumulative amount of financial assistance that can be provided to businesses by Government to £12 billion.
Source: House of Commons Briefing Paper: Number 07682, 14 October 2016
