Corporate rescues need a strategic purpose

“Taking back control” has been the British government’s mantra ever since the 2016 referendum that set the course for the country’s departure from the EU. Nowhere have the downsides of this ambition been more exposed recently than in the UK’s attempts to forge its own independent satellite navigation system after it was pushed out of Europe’s Galileo programme. Plans under former prime minister Theresa May to develop a rival to Galileo have been scaled back after ministers balked at the £5bn price tag. Instead, Boris Johnson’s government is now considering investing about £500m of taxpayers’ money as part of a consortium to bid for the collapsed satellite operator OneWeb.

The prospective deal is being billed as a first step in creating Britain’s own sovereign navigation system, and evidence the government has a clear intent to invest in industries of the future. It may yet turn out to be a masterstroke. But it is worth remembering the bid for OneWeb has its roots in political and corporate expediency: after the break with the EU a way had to be found to give the UK a global-positioning system that could provide some useful services to the military. The collapse of OneWeb opened the door — provided the UK has the means to develop the new technology required.

In the absence of a proactive industrial policy, the government risks ending up with a haphazard agglomeration of nationalised companies forced upon it by the coronavirus pandemic. It is being asked to assist companies in all sectors, and it is unclear what criteria will be used when decisions on funding are being made. For rescue deals to be decided on a case-by-case basis, rather than with the aims of a long-term industrial strategy in mind, is unsatisfactory. The issue has become particularly acute as the government considers rescuing six companies under its bailout plan dubbed “Project Birch”. One of these is Tata Steel, which has been seeking a loan for its UK operations. The ability to make steel has often been seen as a gauge of a country’s mettle, and Britain led the world in steelmaking for more than two centuries. Since then, production has been on the wane, and state ownership of the industry ended with the privatisation of British Steel in 1988.

If the government made it clear that some degree of self-sufficiency in steel was a policy goal, then an investment would make sense: defensive moves can still be strategic. There could be another strategic goal: steelmaking is very carbon-intensive, and the search is on to find greener methods of production — such as hydrogen-fuelled furnaces or electric-arc smelting done from renewable energy. If state support for Tata Steel was linked with the stated goal of turning the UK into a leader in this greener sunrise industry, ministers could claim to have a longer-term goal. Without this the mooted rescue smacks more of political expediency and a desire to avoid the loss of 8,000 jobs in an otherwise deprived part of the country.

Britain has had numerous attempts at forging an effective industrial strategy. The latest was just three years ago when areas such as artificial intelligence, clean energy, advanced manufacturing and life sciences were flagged as key. Amid the distractions of Brexit and now coronavirus there has been little tangible progress. The pandemic should, however, provide a spur for a proper policy. Many companies will be asking the Treasury for assistance. The quick adoption or reiteration of a series of long-term industrial goals would make the choice of which to favour much easier — and greatly benefit Britain’s post-coronavirus rebuild.

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