Budget 2010: We need a new strategic investment fund

Next week’s Budget is the Government’s last real chance to set the industrial agenda. It should grab that chance with both hands.

Our guest writer is Tim Page, senior policy officer at the TUC

With a Mandelsonian flourish, last year’s publication of “New Industry, New Jobs” changed the UK’s economic landscape. Many column inches have since been filled with discussion of the detail of NINJ, so sectors such as composites and industries such as plastics electronics are now part of the industrial lexicon.

What is more important, for the purposes of this discussion, is that it is no longer off-limits to talk about the role of government in identifying and supporting strategic industrial sectors. The Thatcherite philosophy of “market is king” has gone. In the forthcoming Budget, the TUC would like the Government to go to the next stage. Having made its commitment to less financial engineering and more real engineering, we would like to see it introduce NINJ phase two.

Specifically, we have called for a new strategic investment fund, borrowing from the French model, where an independent public sector body takes long-term minority stakes in strategic companies, with a view to supporting their development into world class players, building the British economy, reducing our balance of payments deficit and providing high skill, high value jobs.

We also wish to see the wider question of government support for industrial investment tackled head on. The problem has been well rehearsed. Some companies need to make investments that a risk-averse banking sector will not support. If those investments are in sectors such as green technology, where the outcomes are not proven, it is often understandable that regular banks will not take such a risk.

In such obvious cases of market failure, rival economies have industrial investment structures supported by government. This means that entrepreneurs with good ideas in strategic sectors with high start up costs take those ideas abroad – and other governments reap the economic benefits. The TUC has called for a Green Investment Bank to support the growth of a world class green sector, bolstering our industrial base and helping to protect our environment both at the same time.

Furthermore, Britain’s infrastructure urgently needs investment; government cannot possibly fund all of it, yet the public good derived from such investment is obvious. So there is a role for government as conduit or guarantor of private sector investment.

Let us be clear. Care must be taken to avoid government taking on functions that are best served by private sector banks. Government must certainly not hand out taxpayers’ money to every company that steps forward with a wish list. But at long last, the government has recognised that it has an interest in the types of company that thrive in the UK.

Post economic downturn, in the age of globalisation, there is a specific role for British industry. We must continue to do what we do well, so our aerospace and automotive sectors, and our pharmaceutical industries must continue to succeed. But consumers will demand that the planes in which they fly and the cars they drive are greener and more efficient.

Where our scientists, our technicians and our engineers have the know-how to make that happen, but the banking sector is not forthcoming with support, the role for government is obvious. As we branch into new, exciting areas such as wind, wave and tidal power, that role is even more obvious.

Next week’s Budget is the Government’s last real chance to set the industrial agenda. It should grab that chance with both hands.

7 Responses to “Budget 2010: We need a new strategic investment fund”

  1. Tribune

    RT @leftfootfwd: Budget 2010: We need a new strategic investment fund: http://is.gd/aOL07

  2. Aditya Chakrabortty

    RT @leftfootfwd: Budget 2010: We need a new strategic investment fund: http://is.gd/aOL07

  3. Tim Worstall

    “Some companies need to make investments that a risk-averse banking sector will not support.”

    Entirely missing the damn point. We have what is known as “Anglo-Saxon” capitalism, not Rhineland. Risk and equity capital, in our system, do not come from banks. They come from public markets.

    If you’ve got a bright new idea then the place to get your funding is AIM, not a bank. And yes, if you do have a bright new idea you can indeed get your funding from AIM.

  4. james

    “If you’ve got a bright new idea then the place to get your funding is AIM, not a bank. And yes, if you do have a bright new idea you can indeed get your funding from AIM.”

    Not if your bright idea is to locate in the UK and employ a UK workforce, you don’t…

    And I fully understand that. It’s more profitable to manufacture where wages are lower, where free and independent trade unions do not operate effectively.

    So you shouldn’t be surprised Tim, that the TUC is proposing an alternative to AIM…

  5. James Doran

    RT @leftfootfwd: Budget 2010: We need a new strategic investment fund http://is.gd/aOL07

  6. Tim Worstall

    “Not if your bright idea is to locate in the UK and employ a UK workforce, you don’t…”

    Really? A quick look at the list of new issues on AIM gives this:

    “The Admission is a result of a reverse takeover by Green Compliance plc of Waterchem Limited. The existing business of Green Compliance plc is focused on providing services and guidance to companies and local government in the UK with regard to energy performance services necessary under the EU initiated Energy Performance of Buildings Directive 2007. Waterchem Limited is primarily engaged in the provision of water hygiene and water treatment services to facilities management companies, hospitals, universities and local authorities in the UK. ”

    “EMIS Group is the UK’s leading supplier of software and related services to GP practices, with approximately 39 million patient records in the UK held on EMIS’ software. Established in 1987, EMIS’ core activities include software licensing and support, hardware support and maintenance services, hardware sales, third party software sales and training services. ”

    That’s just two of the first 7 on the list.

    Aren’t these what everyone wants? Green knowledge based businesses?

  7. Budget 2010 must include support for industrial investment | ToUChstone blog: A public policy blog from the TUC

    […] towards next week’s Budget, I was happy to be asked to comment on the needs of industry for Left Foot Forward. Regular readers will know of the TUC’s recent call for a French style strategic investment […]

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