This week, the UK government will launch an industrial strategy designed to help the economy as we leave the EU. To be effective, policy in this area needs to be sustained. Short-term incentives are not enough to create new industrial strengths. This raises the whole question of how policy-makers deal with long-term issues. How do governments, companies or investors assess the value of assets with a long or very long life? The question is provoked by the generally negative response to the proposal to build a tidal energy scheme off the South Wales coast. A review conducted by Charles Hendry, the former energy minister, was extremely positive but failed to address the challenge of financing a project requiring up-front investment of £1.3bn and costing an index-linked £92.50 per MW/h for 60 years – almost twice as long as the period granted to Hinkley Point. The ministerial response to the idea has been distinctly lukewarm, with a junior energy minister telling the House of Commons in December that the project would be a very significant deviation from existing policy. As a statement of fact that is true. But no attempt is being made to address the challenges associated with long-term capital investment. The requirement for short-term returns is real. But financing issues should not be allowed to dictate everything. The development of long-term infrastructure is important and should be part of any government’s natural thinking, especially in the context of a new industrial strategy. Just saying no to schemes that don’t match rigid methodology is rather pathetic. Many elements of our infrastructure were built on the basis of financing schemes that sometimes included local authorities. The London underground would not have been built without investment by the City of London – the local council.
FT 23rd Jan 2017 read more »
Theresa May will signal an era of greater state intervention in the economy as she launches her industrial strategy with a promise of “sector deals”, a new system of technical education and better infrastructure. The prime minister will publish the strategy at a cabinet meeting in the north-west of England, setting out five sectors that could receive special government support: life sciences, low-carbon-emission vehicles, industrial digitalisation, creative industries and nuclear. She will say the government would be prepared to deregulate, help with trade deals or create new institutions to boost skills or research if any sector can show this would address specific problems.
Guardian 22nd Jan 2017 read more »