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Why the UK needs a new institution for growth and productivity: Could a revamped Industrial Strategy Council be the answer?

Bart van Ark, Anna Valero and Andy Westwood argue that a new statutory body for growth and productivity should facilitate policy making across government.

As the UK gears up for a General Election, there is no lack of advice on what any new government’s priorities need to be. While the margins for policy manoeuvre are perceived to be rather narrow, we can be certain that growth and productivity will be at the heart of the economic policy agenda irrespective of what government will be in power.

Last November, The Productivity Institute (TPI) published a Productivity Agenda with suggestions for more productivity-friendly policies across a broad spectrum of policy domains. In some joint work (Chapter 10 of the Agenda), TPI and the LSE’s Programme on Innovation and Diffusion (POID) made the case that a new growth and productivity institution (GPI) would be a useful addition to the range of advisory bodies to government, provided it is broad-based in its approach to productivity, independent and put on a statutory footing.

This type of institution also featured in the recommendations of the Economy 2030 Inquiry (a collaboration between the Resolution Foundation and the Centre for Economic Performance), as well as in an LSE report on investment in the sustainable economy.

Does the UK really need a new advisory body?

There are reasons to be sceptical. One obvious risk is that having too many institutions advising government can lead to more fragmentation, when what is needed is coordination. The UK already has a variety of commissions dealing with important aspects of policy making for growth, including the Office for Budget Responsibility (OBR), the National Infrastructure Commission (NIC), and the Climate Change Committee (CCC). One may reasonably ask what value a new GPI could add in this already busy landscape?

Another risk is that too much advice from different bodies can complicate and potentially slow decision-making when what is needed is clarity and urgent action to address the UK’s longstanding stagnation.

The third risk is that government becomes too reliant on experts, creating a potential democratic deficit. Hence the institutionalisation of policy advice should be carefully considered and designed in a way that it helps policy makers (that is, politicians and the civil service) to make faster and more effective decisions embedded in what they see as their own license to govern and what is possible, practically and politically.

But many countries have independent productivity-focused bodies, and in fact the UK had a brief experience of having an independent Industrial Strategy Council (ISC) which was focused on monitoring productivity and other objectives of the (also short-lived) Industrial Strategy (set out by then Business Secretary Greg Clark in 2017).

In this article, we describe what is desirable and possible institutionally for strengthening a pro-active growth and productivity agenda during the next parliament. While the current Conservative government has not (yet) indicated that it aspires to a change in what we see as a rather fragmented policy landscape, some direction has been provided by the Labour shadow team in their policy statements to-date.

What can we learn from the Shadow Chancellor’s recent Mais Lecture?

In her recent Mais lecture, Rachel Reeves outlined of her approach to growth, and indicated where and how policy advisors could help a potential future Labour government. She reiterated her vision for ‘securonomics’ as the basis for managing the economy.

Conceptually the idea borrows much from the US – from Janet Yellen’s ‘modern supply side economics’, Dani Rodrik’s ‘productivism’, the Danish labour market system of ‘flexicurity’ and the industrial policy and geopolitics at the core of ‘Bidenomics’, but also some elements that look a little more ‘made in (or for) the UK’.

A key focus is the promise of stability – an appeal for replacing damaging policy churn (which has been particularly an issue since the Brexit referendum, multiple growth plans, reshuffles and short-term political fixes) with a more long-term and stable approach.

This has been referred to as the ‘dullness dividend’, meaning that the economy will benefit – and grow steadily – with more long-term investment simply because government’s approach is stable. Stability would help businesses, public sector organisations and citizens to know where they stand when making decisions for the long-term.

Indeed the Economy 2030 Inquiry and TPI’s Productivity Agenda argued that stability helps, and that a new growth institution would help to achieve it. In her Mais lecture, Reeves re-emphasised Labour’s previously announced commitment to reinstate the ISC and place it on a statutory footing. She also reasserted the role and importance of the Treasury and particularly a planned revitalisation of its Growth and Productivity Unit (or ‘Prod’ as it was known in the New Labour era).

It is important to note that to move the dial on growth, stability would need to be accompanied by a range of reforms to boost business investment as well as increased public sector investment. Labour, like the current government, are placing much emphasis on supply-side reforms to increase business investment – for example in planning and pensions and indeed, stronger growth-focused institutions, and more emphasis on the long-term in decision making, could help inform such policies and their implementation.

Ambitions on public sector investment are now more muted compared with previous iterations of the Green Prosperity Plan, though Reeves did open the door to more of a focus on long-term value creation in fiscal frameworks while underlying the importance of economic institutions – from the Bank of England to the Office of Budget Responsibility.

Another key issue relates to how stronger growth can be delivered given today’s challenging and uncertain global economic and political environment, and this does require a clearly articulated strategy.

As in the US with its ‘small yard – high fence’ approach to protecting key technologies, ‘securonomics’ appears to emphasise how security at home involves a different view of globalisation and geopolitical tensions – a more pragmatic, defensive strategy that prizes energy security and net zero, higher defence spending and more resilient supply chains amongst friends that share the UK’s democratic values.

In this vein, industrial strategy remains an important strand of Labour’s thinking, with an emphasis on supporting the industries that deliver this security as well as those where the UK has (or has the potential to develop) comparative advantage. In other words, Labour still plans to be a very active state.

What institutional support is needed for growth and productivity?

So, we agree with Anton Muscatelli at Glasgow University who recently noted, ‘Most economic historians know that strong institutions matter in driving economic success. Solving the UK’s ‘wicked problem’ in terms of productivity growth will only happen if government and the public sector can encourage greater private sector investment and maintain a focus on the long term.’

We have previously argued that a dedicated and lasting institution focused on growth and productivity would be a key part of the solution to the UK’s economic challenges. Such an institution could focus on identifying the key policy levers to revive productivity-driven growth, make recommendations to government on how to best shape policies which are sustainable in the long-term, and monitor the effectiveness of policy solutions.

Like other institutions that already exist, the new institution should support ministers and individual departments in making effective decisions in their respective areas. Similar examples are already evident in the UK system, notably the OBR, CCC and NIC – all three of which would work together with the new economic institution we propose.

We suggest putting this institution at some distance from day-to-day policy making as a location of deep and continuous expertise on productivity, and stakeholder coordination. Crucially, an active state taking a strategic approach has to make difficult choices on where to channel support to maximise impact – independent analysis and monitoring can help to inform decision-making frameworks and maximise the likelihood that public support is channelled wisely. In this way, it would help with the politics of making decisions where positive outcomes are likely to be seen over the long term (and beyond the political cycle), as well as highlight synergies and trade-offs between different strategies and between growth, sustainability, and inclusivity objectives at different timescales.

The new institution should be placed on a statutory basis (for longevity), and be accountable to the level of government where socio-economic policies get coordinated and guarantee is that sufficient breadth – something that echoes recent recommendations from the Institute for Government for strengthening the centre of government.

Additional accountability to parliament would further aid transparency. It would also be important that the work is directly connected to that of key policy stakeholders representing business, workers and the third sector as well as from devolved nations and combined mayoral authorities. Comparisons with what works in other countries, such as Australia, France or Germany could also provide lessons for the UK.

A stronger institution of this nature should not erode the key role for ministerial or government policy choices or decisions on productivity and growth policy. Well-designed institutions should never dilute ministerial (or mayoral) power, nor should they clutter or complicate the landscape.

The institution should complement and help to coordinate work on productivity and growth at HM Treasury and at other relevant departments such as business and trade, science and technology, education, transport, levelling up, energy and net zero. In fact, this type of approach would mean that government departments and ministers at various levels of government could all benefit from strong, evidence-based advice across ‘horizontal’ as well as sector-specific issues.

An Industrial Strategy Council “Plus”?

Given the emerging framework set out by the Shadow Chancellor, it is important to consider the extent to which Labour’s proposals to bring back the Industrial Strategy Council (ISC) would fulfil the role of the institution we describe. So far, little detail has been set out, but the ISC’s original agenda seems a good fit with what has the aims of Labour seems to be, as described above.

The ISC’s agenda was explicitly aimed at monitoring and evaluating government’s progress against both horizontal and more targeted policies set out in the 2017 Industrial Strategy, including Ideas, People, Infrastructure, Business Environment and Places; sector deals and cross-cutting challenges such as ‘clean growth’. Improving productivity was a key focus which, in a new enhanced version, could simply be retained as the principle aim to achieve faster growth.

Bringing the ISC back is therefore welcome, and so too is placing it on a statutory footing, likely providing it with greater independence and longevity. A more critical improvement would be to broaden its remit, so that it can inform government’s approach to the growth of the economy overall as well as to the specific activities and sectors in its industrial strategy.

It would need to focus on all aspects of the economy – from high-growth frontier sectors and clusters to the non-tradeable services sectors that are large employers across the country. It would also have to promote stability and consistency in overall strategy as well as the building of capabilities to respond effectively to economic shocks and change.

While improving productivity was already core to the remit of the original ISC, there is value in reflecting this focus in the name of the institution – our suggestion is an Industrial Strategy and Productivity Council (ISPC). This would help to clarify the emphasis on broad-based productivity as the driver of growth, as opposed to only a narrower sectoral focus that is often associated with the term industrial strategy.

Bart van Ark is the Managing Director of The Productivity Institute and Professor of Productivity Studies at the Alliance Manchester Business School, Anna Valero is the Director of the Growth Programme and a Distinguished Policy Fellow at the Centre for Economic Performance and Andy Westwood is Professor of Government Practice and Vice Dean for Social Responsibility at The University of Manchester.