November 27, 2017 / 5:13 PM / a year ago

Breakingviews - UK's post-Brexit industrial plan lacks ambition

Britain's Prime Minister Theresa May delivers a speech on leaving the European Union at Lancaster House in London, January 17, 2017. REUTERS/Kirsty Wigglesworth

LONDON (Reuters Breakingviews) - Britain’s post-Brexit industrial plan is short of ambition. The government has promised to boost research spending, improve teaching of mathematics, and upgrade infrastructure. Even if the country was not breaking from its largest partner, however, the goals would lack oomph.

Conservative party ideology has eschewed state intervention for decades. Yet Prime Minister Theresa May’s minority government is no longer prepared to leave everything up to private markets. Brexit is the catalyst. Leaving Europe’s single market could see banks and carmakers cut off from end customers. Meanwhile, years of dismal productivity growth are a threat to the public finances: the Office of Budget Responsibility expects output to grow by no more than 1.5 percent a year until 2021.

The measures and policies unveiled in a white paper on Monday are mostly sensible and welcome. The government is investing an extra 8 billion pounds in infrastructure and new technologies such as driverless cars, while boosting tax breaks for research spending. By collaborating with specific sectors, it hopes to make the UK even more business-friendly.

Even so, it’s hard to see the policies offsetting the possible adverse effects of Brexit on industries like carmaking or life sciences. The government hopes to boost pharmaceutical manufacturing by improving collaboration with the country’s National Health Service. That may make it easier for firms to develop drugs. Yet selling those in Europe will be harder if Britain cannot align its regulatory regime with the rest of the continent.

Even leaving Brexit to one side, the strategy could have gone further. Take the plan to boost research and development spending to 2.4 percent of GDP by 2027. Even if it achieves that target, Britain would still be outside the top quartile of OECD member states for R&D.  A review in August suggested the government should aim for 2.6 percent in half that time. Meanwhile, fiscal sweeteners - such as increasing the tax break on research spending to 12 percent from 11 percent - are incremental. A plan to roll out fast fibre broadband to 10 million homes would still leave the UK lagging behind Spain or Portugal in terms of coverage.

The Conservative party’s minimal intervention contrasts with the opposition Labour party, which wants to boost spending and nationalise utilities. As Brexit bites, voters may prefer a more ambitious approach.


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