AMID all the excitement in the Middle East, the government published its Industrial Strategy on Monday. I’ve summarised it below to save you the agony of reading this affront to the English language, intelligence and economic sense (at least Pravda, the mouthpiece of the Communist Party of the Soviet Union, was written in exquisite Russian). This document’s greatest achievement is that it makes the recent Defence Review seem like the teachings of Aristotle.
First, though, in the interests of disclosure I should point out that I am no fan of any government implementing any industrial strategy. Very few in government (and fewer in the government machine) have any understanding of industry and commerce. They may well have degrees in economics, but as Rachel Reeves (who by her own admission has two such degrees) demonstrates every day, that doesn’t make them expert.
Governments, particularly this one, don’t have any money of their own. Their spending and borrowing is possible only because they tax us, on pain of prison. They and their public servants have no concept of personal risk. To a government economist, growth is a number in a spreadsheet; to any businessman it’s speculative expenditure on increased marketing, a complex sales bid, expanded production or larger inventory. If additional sales materialise there is more profit, if they don’t there will be a loss. For most of the businesses in the UK (owner-managed SMEs) that means less food on the table for the kids.
The core of this industrial strategy is that the government has picked eight sectors that it wants to stimulate in the hope they will deliver the growth it so desperately needs to balance the books and stave off economic collapse. Those sectors are Advanced Manufacturing, Clean Energy, Creative Industries, Defence, Digital and Technologies, Financial Services, Life Sciences and Professional and Business Services.
Much of the document is devoted to how it will ‘crowd in’ private money alongside government money. I’m not sure I know what ‘crowd in’ means, and I spent a decade or so in corporate finance. The document’s authors don’t deign to define it – just another soundbite of piece of jargon.
I suspect they believe that if the government throws some money into a sector, venture capital and the like will too. The strategy lists the UK government’s investment vehicles – UK Export Finance, The National Wealth Fund, the British Business Bank and Innovate UK. The Bank and the Fund, which are the only ones with money to invest in industry, have some £40billion (of our money) between them. That sounds like a lot (almost two ‘black holes’) until you consider that according to a government paper private-sector pension funds have £3trillion under management. The government investments are a rounding error.
The UK pensions industry puts only about 2 per cent of its money in the UK. As well as spreading geopolitical risks they’re seeking growth to fund your retirement. They know what they’re doing, they’ve done it for a long time and they are tightly regulated. (Compare with the government-run National Insurance, which is just a Ponzi scheme).
That 2 per cent is about £60billion and isn’t much compared with the £4.4trillion or so value of all the companies listed on the London Stock Exchange. Add to that the US$2.8 trillion of the UK’s commercial bond market and the £3trillion of the UK’s national debt and you can see that the government’s £40billion is insignificant. That’s why Rachel Reeves (current capo of the Ponzi scheme) is trying to force the pension funds to invest more in the UK, with minor success. (They’ve signed the voluntary Mansion House agreement to assuage Reeves’s plan to fill the voids in her strategy with your private pension pot.)
Glossing over the paltry funding the government commands, the real problem is energy costs in general and electricity in particular. The short version is that we are already running out of electricity – when the wind doesn’t blow we are utterly dependent upon the interconnectors to Europe. If they have spare electricity, which is far from clear, it can get very, very expensive. The really bad news is that over the next five to ten years many of our gas-fired power stations are coming to the end of their life and will need replacing. The government isn’t keen on that as it still believes Ed Miliband and (major donor) Dale Vince who blithely assert that the answer is more wind allied to storage.
Wind may be free but converting it to electricity is expensive. Two large wind projects are in jeopardy because the developers, Orsted and Vatenfall (both large, experienced operators who know how to make money from wind power) have pulled out because the strike price was too low. Connecting is expensive too: it requires many more miles of expensive cable to connect a hundred or so wind turbines in the North Sea to the national grid than it does to connect a gas power station.
Storing electricity is another expensive requirement. According to the latest figures the UK has enough storage for just three days’ demand (ignoring losses and grid constraints). That hasn’t been cheap to build. One day’s storage in batteries would cost perhaps £200billion at today’s prices. Your electricity bill is capped; commercial ones aren’t which is why they’re among the highest in the world.
All of which means that powering anything by electricity is going to get more expensive, not less so. The Net Zero delusion undermines the government’s aspirations for manufacturing, digital / tech and much of the creative industries, all of which are electricity-hungry. The document inadvertently acknowledges that ‘clean’ power is expensive as it’s creating an incomprehensible subsidy to support 7,000 businesses that it assesses are big power users. (Bad luck, number 7,001.)
As the government can’t ditch Ed and Dale it perpetuates the myths of carbon capture, use and storage (CCUS) and hydrogen being the silver bullet. It adds the delusion of direct air capture. The global CO2 market is about 230million tons per year. The UK’s CO2 emissions are more than twice that. No one would buy our CO2, even if we could capture and refine it in volume (which we can’t as we don’t have enough power). If you’re interested in more detail on CCUS, hydrogen and the rest of the Net Zero delusion it’s in my book.
The Net Zero delusion is imploding – even Ed Miliband now accepts that rolling out 600,000 heat pumps per year isn’t affordable. It’s probably not technically possible in this parliament. The industry installed just 45,000 heat pumps last year. So why is the government ‘doubling down’, as it puts it? And what is a gambling term doing in a supposedly considered strategy?
The sad truth is that the likelihood of the UK becoming a centre of green excellence is slim. We don’t have the money and, worse, it makes no sense. Being excellent at delivering Net Zero is as useful a national skill as underwater Morris dancing – why would anyone want to do that? For reasons known only to the authors, the industrial strategy continues to push Boris Johnson’s deranged dream of being ‘the Saudi Arabia of wind’. No other country is following us, so who will buy this (alleged) expertise?
The strategy is very pro-nuclear energy. Not only does it trumpet Sizewell C (without mentioning that it’s still looking for co-investors in a French technology) and Rolls-Royce small modular reactors, it trumpets the defence expenditure on new nuclear warheads and submarines, which it counts as £100billion over ten years. We’re now the ‘nuclear nation’.
On page 121 the strategy even anticipates ‘creating a commercialised fusion reactor by 2040’. Nobel Prizes all round if that happens on budget and schedule. If it works, it might be in time to power HS2.
Of course, some of that expenditure is on the AUKUS submarines which will generate some revenues, as will most of the UK’s defence manufacturing sector. But that £100billion has already been announced and is actually a cost – it will generate no income and once spent there will be few residual jobs.
As is increasingly the case in government, the paper can’t distinguish between ‘investment’ (building something that generates income or directly supports it) and ‘expenditure’ (buying stuff government needs and hiring people to run it).
The government seems to think that the City can’t innovate. Has it not noticed the amount of effort it’s currently putting into developing tax avoidance schemes, shifting assets offshore and looking for investment opportunities? Not forgetting the eternal task of finding investors (increasingly pronounced ‘mugs’) to buy yet more government debt.
The solution to the non-problem is more legislation and (on page 137) to set up a bespoke Financial Services ‘concierge service’ to help international firms get to grips with UK regulations. Fabulous, another quango! A more useful approach would be to simplify the regulations.
Simplification and striking our regulation would be a far bigger boost to a City that is struggling. Likewise, axing Net Zero would save at least £17billion per year. Commercial electricity prices would then have some chance of falling closer to the EU or global average from currently being the most expensive in the world. That would boost all 5.5million businesses in the UK, not just the lucky 7,000 who will get a 25 per cent rebate on their electricity – I’ve no idea how that’s to be funded as I lost the will to live while reading it. It won’t make them much more competitive as their electricity cost will still be 50 per cent above the EU average.
The government is currently fretting about food price inflation, now running at 4.7 per cent and climbing. It had to raise employment tax to pay for Net Zero (and its other follies). Much food is stored in cold stores. What powers the fridges and freezer? Commercial electricity. Who pays for it? The food consumer – you and me.
And that’s the core problem of this strategy. It’s underpinned by two flawed beliefs. The first is that Net Zero is achievable, desirable and necessary. In reality it’s impossible, absurd and pointless – as described above.
The second is that a government can manage an economy and drive growth in detail. It can’t. The economy is simply the aggregation of the purchasing decisions of the 68million people in the UK. A Government may influence how we spend some of our money, and it certainly can appropriate our income and wealth to spend on its whims. However, we spend the rest (still just about a majority) as we need and see fit.
The only way the government can control an economy in detail is to nationalise everything and abolish private property. That would appeal to the many Marxists amongst them and it might even look good in some economic models. It won’t work in reality; the concept was tested to destruction by the Soviet Union and the countries of the Warsaw Pact, plus China, Cuba, Venezuela and a few others, despite governments using harsh powers to stifle individual initiatives. Communism doesn’t work and socialism is, as Nobel prize winner Friedrich Hayek put it in his book title, The Road to Serfdom.
The reason pension funds and others are not investing in the UK is that they can’t match the risk and the reward. Why would you build a factory or data centre in a country where electricity is the most expensive in the world, your income will be taxed highly (and dividends more so), you will be taxed to employ anyone (if our can find suitable workers). Worse inflation is eroding wages, so the UK consumers are poorer than they were. The government is more broke that it has ever been with little hope of getting its deficit under control, which means tax is going only one way. There are better opportunities elsewhere.
I’m not looking forward to another four years of this third-rate idiocy. Are you?
This article appeared in Views From My Cab on June 24, 2025, and is republished by kind permission.
