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Charles  Levy

Budget 2013: A mixed message on industrial strategy

Authors: Charles Levy Charles Levy and Prateek Sureka

20 March 2013

Having seen a package of targeted measures unlock private investment and help to turn around our automotive industry, the government has committed to taking a differentiated approach to supporting specific areas of our economy. This is to be welcomed because the types of innovative activities with the potential to drive growth in our economy depend on a highly specific mix of skills, infrastructures and both public and private institutions. However today’s Budget suggests that this approach is not central to the chancellor’s vision of what could drive growth in our economy.

The announcement of £15 million for the digital content production industry is targeting an important part of our economy which is facing real challenges. But this is a re-announcement or an allocation of existing funds – so no new money there. The chancellor was however able to confirm £1.6bn of new money to support the industrial strategy of the Department for Business Innovation and Skills. The first investment from this will be in an area of British industrial strength, aerospace. However, the Budget Book suggests that this fund will only dispense £135m this year, £160m next year, rising to £180m the year after that.

While any funding for an industrial strategy is positive, and long-term frameworks are always welcome, these are modest sums compared to what was found for more traditional support for business. By 2017/18, the cut in corporation tax will be reducing revenues by £865m each year, and the National Insurance Employment Allowance will have led to an £1.7bn hole in public finances.

Looking into the detail of how the Budget supports one area of our economy raises further questions. The chancellor described the low carbon economy as a “vital sector for our economy” and confirmed that planning permission has been granted for a new nuclear plan in Somerset to deliver low carbon energy. But policy here is inconsistent, and still fails to offer the long-term frameworks needed to drive investment in low-carbon goods and services across the energy sector and beyond. The commitment to shale gas and exempting other energy-intensive industries from the climate change levy undermines the central position of the government. The announcement of progress on carbon capture and storage was merely an update on an on-going project.  

The chancellor is right to assert that “creating a low carbon economy should be done in a way that creates jobs rather than costing them”. But without a credible and coherent strategy for how major low carbon infrastructure items will sit alongside carbon intensive energy production we may miss the opportunity to create many jobs in industries connected to the low carbon economy.

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