Peter Swain’s electric vehicle manufacturing company barely registers as a minnow in Britain’s automotive industry, but the Midlands-based entrepreneur says he is already eyeing an expansion into the US.
The founder of RBW Electric Cars says the incentives available across the Atlantic put the UK’s offer in the shade. “We can get so much help everywhere — apart from in our own backyard,” said Swain, whose small Lichfield-based company makes battery-powered classic cars.
Rachel Reeves, the UK’s new chancellor, vowed on Monday to turn Britain into a “safe haven” for business investment as she seeks to mark the country out for its stability, in contrast to political chaos in France.
But business leaders and former ministers are warning that the Labour government faces a vertiginously difficult task turning the UK’s reputation around, and have called for a far-reaching shift in the way Whitehall engages with business.
Lord Peter Mandelson, a former Labour business secretary, said that with public borrowing heavily constrained, mobilising private sector capital will be the sine qua non for the new government.
“If we think we can succeed by getting any of this ‘half right’ given the self-imposed handicap of Brexit and no longer being part of the EU single market we’re deluding ourselves,” said Mandelson. “Everything has to be completely right, not partially right. That’s what the new government will have to realise.”
UK entrepreneurs warn the country faces formidable competition from other big markets with deeper pocketed governments. Years of policy U-turns and the upheaval of Brexit have all left a lasting legacy, they said.
The UK has languished at the bottom of a G7 league table of total investment for 24 of the past 30 years, according to the Institute for Public Policy Research, while new foreign direct investment projects are at a near-12-year low.
Labour’s hunt for a new British economic model will entail a bigger role for a more strategic state under Reeves’s “securonomics” approach, including — in a sharp departure from former prime minister Rishi Sunak’s philosophy — the creation of a formal industrial strategy that prioritises sectors with a UK comparative advantage.
The notion that the government needs to assume an active and strategic role in steering the economy reflects a global trend towards deepening state interventions epitomised by US President Joe Biden’s Inflation Reduction Act.
It represents a sharp break from recent practice under the Conservatives. An industrial strategy published by Theresa May’s government in 2017 was shelved by her successor Boris Johnson just four years later.
Greg Clark, a former Tory business minister, said confusion about the UK’s post-Brexit business model makes a clear strategy set by government essential. “One of the consequences of Brexit is it is even more important to have a coherent industrial strategy so that people know what you are about,” he told the Financial Times. “How can they know unless you tell them?”
Under Labour’s approach, a new industrial strategy will focus on areas such as advanced manufacturing, creative industries and green technology. Jonathan Reynolds, incoming business secretary, said last month this strategy would be owned by the whole of Whitehall, not just the business department.
Business representatives and local government will be brought directly into the delivery of Labour’s five policy “missions” alongside new umbrella bodies — including an industrial strategy council, a British infrastructure council and a regulatory innovation office — to streamline the path for investors.
A £7.3bn national wealth fund will be set up as co-investor in key projects, with further details due to be unveiled this week.
Executives said change is urgently needed, including simpler processes for applying for innovation support, quicker planning decisions and the easing of barriers such as overpriced visas.
Rowan Crozier, chief executive at metal stamping company Brandauer in Birmingham, said that public support for small manufacturers like his was not only hard to find, but in his experience less plentiful since Brexit. The country needs a “proper, locked-down strategy”, he said. “It is a bit haphazard.”
Sir Keir Starmer’s government is not the first to vow to overcome bureaucratic obstacles. Giles Wilkes, a former policy adviser to May who worked on her 2017 industrial strategy, has said the biggest source of uncertainty is the departmental structure of government itself, which makes it harder to navigate blockages confronting executives.
Lord Richard Harrington, author of a 2023 report on boosting inward investment, said one answer is the creation of a “concierge service” for major investors, matching the process in other nations.
This would include the ability to assemble land, fast-track planning approvals and deliver critical infrastructure, such as grid connections or spur roads, all of which will require the kind of “whole government” approach pledged by Reynolds.
Britain, Harrington said, needs to look at areas in which it has a competitive advantage and then go out with packages that tempt foreign players to invest, while doing more to help UK-founded companies scale up at home.
“We can’t be good at everything, but there are sectors [where] the government needs to provide some infrastructure — it might be skills and training, it might be land for a cluster to develop around,” he said. “This is very much part of modern capitalism. We have to do it because our competitors are doing it.”
Labour has promised to focus on the transformative potential of new industries such as life sciences, quantum computing and artificial intelligence. These are areas where the UK has a strong research base but has failed to create the underlying conditions for growth clusters — for example around Cambridge, which is constrained by a lack of water and transport infrastructure.
Dan Thorp, chief executive of Cambridge Ahead, a pro-growth advocacy group, said Labour faces a daunting task joining the dots for investors.
“The critical thing is national co-operation. So with water, that means the Environment Agency, the local authorities, the water companies and the regulator Ofwat all working together to deliver capacity and provide the confidence industry needs to invest. And then we need the same for power and transport,” he said.
But industry experts warn the UK will need to achieve a step-change in its international competitiveness given it is no longer a gateway to the EU single market. The boss of pharma giant Eli Lilly warned recently that rival economies such as the US and Ireland are offering much faster factory building times, as well as skilled workforces.
Angus Horner, who founded and scaled up the Harwell Science and Innovation Campus south of Oxford in 2013, said part of the government’s job was to reassert the need to be competitive. “We’ve become a nation of process rather than being focused on output and winning,” he added. “There’s something cultural that has shifted.”
Ahead of the election Starmer and Reeves repeatedly stoked up expectations that their business strategy would yield rapid dividends, aiming for the quickest growth in the G7.
Economists are far from convinced, however, given this would imply hefty upgrades to productivity and potential GDP estimates by the government’s Office for Budget Responsibility when many analysts warn of downgrades.
The IMF sees annual growth peaking at no more than 1.7 per cent in the second half of the decade. Last year, GDP was nearly £11,000 lower per capita than if it had continued on its pre-2008 trend, according to the Institute for Fiscal Studies think-tank, underscoring the economic mountain the country needs to climb.
Allan Monks of JPMorgan said in a note that while low-cost policies such as planning reform to speed up construction projects can catalyse private-sector investment, there are reasons to be sceptical.
The UK has already picked many of the fruits of deregulation, he added, in areas such as product market regulation. And while Labour has suggested it could strip away barriers to growth that have been created by Brexit, the outcome of any negotiations with Brussels on closer relations is likely to be modest.
Mandelson urged Labour to be bold in delivering on the party’s growth agenda. “It’s not the hard left I’m worried about,” he said. “It’s something potentially worse. Softness. Compromise. Fudge.”
This article was written by Sam Fleming and Peter Foster from The Financial Times and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.