As the global economy experiences turbulence, the UK finds itself at a crossroads: whether to be open or closed to the rest of the world.
Liam Byrne, an MP in the governing Labour party, is something of a weathervane in British politics. In 2010, as part of Gordon Brown’s departing Labour government, he left a note that told the incoming Conservative party leadership that there was “no money left” in the treasury. So began the age of austerity. Ever since, the story of British politics has been how to flog whatever bit of revenue out of the economy that the government can find.
Now chairman of the Business and Trade Committee in Parliament, Mr Byrne is leading calls for a national industrial strategy in light of the changed circumstances in the world economy. US President Donald Trump’s protectionist policies have turbocharged this item to the top of the UK’s political agenda, putting Mr Byrne back at the centre of the action – just as he was in the wake of the 2007-2009 Great Recession, the other epoch-defining event in his long career.
There are many friends of the UK, and some putative foes, who remain unclear about London’s thinking when it comes to managing the nation’s business assets. Would the economy be manageable were the government to embrace nationalisation, some ask. But that is a question that Mr Byrne probably finds ridiculous.
The case for an industrial strategy is the situation with British Steel, a household name and the only virgin steel producer in the UK.
The company’s output is not only critical to national infrastructure – seeing as it supplies nine in 10 rails for the railways – but also vital in a world undergoing a military build-up. Leaks from the UK’s forthcoming national defence strategy suggest that it will take several more Royal Navy ships with steel hulls to patrol the Arctic’s waters.
British Steel is currently owned by a Chinese steelmaker called Jingye, although only by a thread at this stage. The UK government plans to take over the operation, fearing that its Chinese managers will harbour a scheme to shut it down. Were British Steel’s blast furnaces to be stripped, the UK would have little option but to depend on China and other countries for the construction of sensitive national assets.
The complication for the UK’s industrial strategy champions is that they are pushing for protectionism even as the nation’s open economy is allowing for more and more of its businesses to cede control to overseas enterprises. This is rapidly becoming a bewildering and messy situation. Like the Roman god Janus, the UK government has become an entity that is looking both ways at once.
Britain’s openness to foreign investment has been longstanding, and few restrictions on foreign buyouts exist. Moreover, Mr Byrne’s colleagues in the Labour government are actively seeking foreign investor-backing for national infrastructure projects – a big plank for their claims to lead a growth-focused administration.
Despite the almost-certain defenestration of Jingye’s ownership of British Steel, large UK companies continue to tie up with foreign capital. Just last week, there were two deals with resonance far beyond the country’s borders.
The currency note printer De La Rue has a global reputation for excellence. It has a contract with the Bank of England to print pound sterling notes that circulate throughout the kingdom. It has dozens of other national currencies rolling off its printers, too, including the Egyptian pound and the Qatari rial.
De La Rue has built its reputation from the time it struck an agreement to print notes for Mauritius in 1860. But it is now being sold to the US firm Atlas Holdings in a deal valued at $350 million. If the offer goes through, the historic name will disappear from the London Stock Exchange.
Another important node of the UK’s economic ecosystem looks to be going that way. Wood Group is an engineering firm that has seen the Dubai-based Sidara put a $320 million price tag on its business.
While it has recently hit trouble, Wood Group is a product of the North Sea oil industry boom from decades ago. Its expertise is transferrable to new industries – such as carbon capture and storage – but it could also see a revival of its traditional business, given the rapidly increasing demand for London to restart its permit system for North Sea oil exploration. At the end of this week, government ministers will attempt to parade the country’s competitiveness at an energy security conference in the capital, to be co-hosted with Fatih Birol, executive director of the International Energy Agency.
Yet it’s worth pointing out that the UK has a 78 per cent regressive tax on its North Sea energy profits. It’s small wonder, then, that suppliers in this industrial chain have hit the doldrums. Not unrelated is the fact that industrial electricity prices in the UK are four times higher than in the US.
Fortunately, foreign capital is helping bridge a gap caused by the country’s current taxes and regulations. Which makes it all the more important that its role be made clear in any industrial policy being formulated – or such a policy will fail.
