Michael Moore’s Outlook on the international competition for long term investment funding

When is an industrial strategy not an industrial strategy? I ask because in the UK we have a decades long (and often dispiriting) debate about whether or not there should be one. Since to all intents and purposes there’s always a plan of one kind or another, this can be frustrating.

Alas, the arguments also use up political bandwidth and risk sending confusing signals to investors and business leaders. This is a bit sub-optimal, to put it politely. Especially now, at a time when we contemplate the long term investment needed to tackle epoch-defining moments such as climate change, the future of semiconductors and the opportunities arising from life sciences, deep tech and the like.

These UK debates don’t operate in a vacuum. Elsewhere, the USA is ramping up climate investment, under the guise of the Inflation Reduction Act, and onshoring semi-conductors through the ‘CHIPS Act’. The EU is responding with ‘The Green Deal Industrial Plan’ and its own ‘CHIPS Act’. All of this means that the industrial strategies of our international competitors (not forgetting the Chinese and other Asian economic powers) are gaining ever sharper focus. So where does that leave the UK?

It has been an interesting few weeks on this score. At a superficial level, the re-organisation of UK government in early February resolved the latest stage of our perennial argument – where once there was an actual department which had ‘Industrial Strategy’ in its name, that is no longer the case.

So, no prioritisation of sectors, no ‘national champions’, no economic preferences? Happily, that change to the brass plate on Victoria Street is much less important than it first appears, since there is now a ‘Department for Energy Security and Net Zero’, a ‘Department for Science, Innovation and Technology’, and a ‘Department for Business and Trade’.

Overseen by the Treasury, this all looks pretty sensible. And building on established legislative requirements on ‘net zero’ the changes signal that there is a continuation of the commitment to green economy priorities and others such as life sciences, digital tech, the creative industries and advanced manufacturing.

All of these areas are front of mind in the wider debate over the future of the economy. As such they were at the heart of a speech delivered by the UK Chancellor at the start of last month, setting out his ‘plan for growth’. For their part the opposition Labour party has published its ‘start-up review’ and its proposed industrial strategy which explicitly prioritises clean power, the care sector, sovereign capabilities and ‘future industries’.

The signalling of these priorities matters. But also how they are framed – there is clearly a limit to taxpayer-provided capital, so how will private capital be incentivised? Details on this and many other aspects of the policy framework are the key to unlocking that funding. Importantly, there is now an expectation of further announcements in the Budget in March. And we can anticipate more on the opposition party commitments in the months ahead, too.

This touches on another key metric - the degree of overlap between the parties; as investors deploy long term capital, consensus on priorities and implementation is important to underpin confidence that there will be policy consistency (too often under-valued by those who can deliver it). Policymakers may never be able to offer ‘certainty’, since they usually control less of the macro environment than can be reasonably expected of them, but consistency of policy is achievable, if often more elusive than investors crave.

As active long-term investors, private equity firms are already heavily engaged in these areas of the future economy, and well attuned to the attention-grabbing opportunities in other parts of the world. Significant in global terms, and free to make its own choices, the UK can now offer an exciting prospectus to investors – so there has never been a better moment to spell out the detail and unlock international investment at scale to shape the future of the economy and society.

And whether or not it’s badged as an industrial strategy is a debate we can return to another day.

Michael Moore
Chief Executive, BVCA

This article was originally published on 10 March 2023 on the Private Equity News website here.