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The UK faces a “big threat” from US green mega-subsidies and needs a complete culture change in the way it attracts inward investment, according to a key adviser to chancellor Jeremy Hunt.
Lord Richard Harrington warned that Britain was confronted by tough competition from countries including the US, France, Ireland and Singapore and had to step up state support for key industries such as life sciences and green technology.
Harrington is leading a review for Hunt — feeding into the chancellor’s Autumn Statement — on how to boost foreign direct investment into the UK, which fell in value every year from 2016 to 2021, according to analysis of official data.
The review was partly sparked by AstraZeneca’s decision in February to build a $360mn factory in Ireland rather than Britain, with the pharmaceutical company lamenting the UK’s “discouraging tax rate”.
Harrington declined to say whether the 2016 Brexit vote had made it harder to secure inward investment, but the increase in UK corporation tax rates from 19 per cent to 25 per cent in April has not helped.
Rishi Sunak is sceptical about the concept of an “industrial strategy”, but Harrington is a keen supporter of the idea and his review will urge the prime minister and chancellor to embrace a more active state.
Speaking to the Financial Times, Harrington said the rules of global capitalism were changing, typified by President Joe Biden’s $369bn subsidy regime for green industries enshrined in the US Inflation Reduction Act.
“It’s a big threat to us,” he added. “Any move by a competitor to attract investment is something we have to react to. We have to change the whole culture in government.”
Harrington, who will report to Hunt in September, admitted Britain cannot go “pound for dollar” against the might of the US. “But do I think we can improve our investment offer in this country? I absolutely do.”
The pro-European Conservative peer, once booted out of the party by former premier Boris Johnson in a row over Brexit, wants overseas investors eyeing the UK to be able to go to a “one-stop shop” in government.
Harrington believes each FDI project should be handled by an “account manager”, bringing together the British offer on issues including grants, energy, skills, planning and visas.
A new “entity” in government would be responsible for dealing with potential investors and for bringing projects to fruition, removing the need for them to navigate Whitehall bureaucracy.
Harrington argues Britain has much to learn from slick inward investment operations in Ireland, France and Singapore, but he hopes and expects Hunt will put more money into backing key sectors.
The chancellor has identified five industries — technology, the creative industries, life sciences, advanced manufacturing and the green sector — he wants to promote.
But previous business secretaries including Labour’s Lord Peter Mandelson Liberal Democrat Sir Vince Cable and Tory Greg Clark have said if the government has an industrial strategy, it is hard to detect.
Harrington, a former business minister under Clark and a self-declared “Greg Clark groupie”, said the government should not pick winners but needed to “pick the race” it wanted to win and put muscle behind it.
Hunt is seen by some Conservative MPs as more receptive to the idea of an industrial strategy than Sunak and they believe Harrington’s appointment will provide some political cover for such an approach.
“Capitalism has evolved in such a way that governments are getting actively involved in the sectors they wish to develop within their country,” said Harrington. “We ignore this at our peril.”
Asked whether Hunt would adopt a new industrial strategy, he said: “Whether you call it an industrial strategy or not is just words.” Asked what he would call it, Harrington smiled. “A business investment strategy.”
Sunak, as chancellor, endorsed the scrapping in 2021 of the government’s old industrial strategy devised by Clark. The business secretary at the time, Kwasi Kwarteng, called it a “pudding without a theme”.
Shadow chancellor Rachel Reeves has embraced the idea of active state involvement in the economy, and backed Biden’s industrial policy.
There have been successive annual falls in the value of foreign direct investment in the UK since a peak in 2016 — a year when data was skewed by four big acquisitions of British companies — until 2021, according to House of Commons library analysis of official data.
Johnson’s government created an Office for Investment in 2020 to secure high-value inward investments, including a £10bn agreement with Abu Dhabi’s Mubadala Investment Company to put money into UK schemes including green energy projects.