The UK government (HMG) has released its Green Paper on "Building our Industrial Strategy" in which it states that it is keen to work with industry to identify the UK's competitive strengths and then to work out how HMG can better help industry to grow and to drive better productivity. The Green Paper sets out 10 "Pillars" on which the strategy will be based and these cross-cut all industrial sectors. The Green Paper is not a strategy as such: it is a consultation document on a proposed strategy and sector participants are encouraged to comment in particular on the 38 questions for consultation set out at the end of the document. I would encourage everyone that has an interest in the industrial success of the UK whether you are a UK company that trades solely in the UK and/or sells overseas or a non-UK company based in the UK trading in the UK and/or using the UK as a gateway into Europe to consider the document and to respond to the consultation questions by 17th April 2017.

Experts in our Diversified Industrials sector reviewed the 132 page document and have commented below.

Automotive

Simon Jones, Head of Eversheds Automotive Sector, comments:

The UK government (HMG) has released its Green Paper on "Building our Industrial Strategy" in which it states that it is keen to work with industry to identify the UK's competitive strengths and then to work out how HMG can better help industry to grow and to drive better productivity. In so doing, HMG points to the strong growth in the UK's automotive sector as evidence as to what can be achieved whilst, at the same time, wanting to support further growth in automotive. This is good news for the automotive sector.

It is so encouraging to see that the Government has now published an Industrial Strategy which looks to the long term prosperity of our country - this has been something that the automotive industry has been keen to see for some considerable time and it is so refreshing to see that Government is now really getting behind industry as part of a wider strategy for securing the future wealth and prosperity of our country. The Automotive Sector is already held out as a beacon of success with the UK set to produce more than two million vehicles a year by 2020, Moreover, the UK is also at the centre of the development of the automotive technologies of the future, particularly in relation to the development of battery, hybrid and driverless technology. Here, the first two pillars of the new industrial strategy (being investing in science, research and innovation alongside developing skills) will be music the ears of the automotive sector.

In all of this, the excellence of our automotive sector, and its adoption of new technology, is recognised by the Government and the new Industrial Strategy should go a long way to providing encouragement to companies to continue to invest in the UK's automotive industry and the development of many of the new technologies which will be fundamental to the vehicles of tomorrow and as the sector turns its focus to global markets.

The Green Paper sets out 10 "Pillars" on which the strategy will be based and these cross-cut all industrial sectors (including automotive). Much will, no doubt, be said about the 10 Pillars. To an extent, the Pillars pull together a number of existing proposals, but there are also a number of new initiatives and all of these are to be pulled together as part of an overall strategy.

What does this mean for Automotive?

Relevant announcements and themes for the automotive sector include:

"Smart" working - here the emphasis on increasing productivity is not about working harder and longer but working smarter. Here , the UK lags well behind a number of countries in the adoption of "smart" technology into our factories whereby the machines on the production line will be able to communicate with each other, the products being produced, the sales channels and the supply chain. This needs to change quickly and will, in turn, lead to a need to retain many staff in the digital skills of the future.

Increased funding for science, research and innovation:

  • the increased budget for science, research and innovation will be used to fund further research into new automotive technology, particularly in relation to autonomous vehicles (HMG have already stated that they want the UK to a global leader in driverless technology and is pushing forward with the Modern Transport Bill as part of a legislative programme to facilitate the uptake of this technology), battery and hybrid technology and additive manufacturing techniques for applications in the automotive sector
  • a new body, UK Research and Innovation, will be created to develop a clear overview strategy from fundamental research and business innovation and HMG is eager to consult over the possible priorities - clearly, there will be a need for the automotive industry to lobby HMG regarding these priorities
  • ideas exist to create new funding streams to support world class clusters of research and innovation in all parts of the UK - the automotive industry clusters (Midlands, North East, North West and South Wales should consider these opportunities, particularly in partnership with local universities
  • additional ideas are suggested regarding the delivery of further sector specific funding which is matched by industry along the lines of the Advanced Propulsion Centre
  • in addition, a new Industrial Challenge Fund is being set up to specifically support new technology with global application such as (for automotive) energy storage technology, autonomous vehicles, artificial intelligence and new manufacturing processes. In particular, specific plans are being considered by HMG's Chief Scientific Officer to create a new research institution to focus battery technology, energy storage and grid storage in relation to electric vehicles. Here, HMG clearly wants the UK to be a global leader in battery technology which is great news for the UK automotive sector

Skills - the skills shortage is a well known issue across industry and automotive is no exception. With this in mind, plans to improve basic numeric and scientific skills and to develop a high quality technical education system are to be welcomed as are plans to identify and act on sector specific skills gaps - those in the automotive industry need to lobby to ensure that the skills needs of the automotive sector are fully satisfied.

"Sector Deals" - rather than pick winners, HMG encourages sector participants to come together to make proposals on how they would like HMG to facilitate growth; this is "not about additional funding" but instead about directing deregulation and using HMG as an accelerator/intermediary. However, the automotive sector is singled out as a model for this and Richard Parry Jones is already leading on work with the Automotive Council in relation to the production of ultra-low emission vehicles. In addition, work is underway to encourage the digitisation of manufacturing.

Inward investment - as is common in the automotive sector via the likes of BMW, Ford, GM, Honda, Nissan, Tata, Toyota and others has been fundamental to the current success of the UK's automotive industry and is to be further encouraged. The Automotive Investment Organisation continues to focus on inward automotive investment, particularly in relation to the supply chain. Here, it is hoped that a bold and ambitious free trade deal with the EU which secures tariff free movement of automotive goods whilst also establishing free trade arrangements with others such as the US, Australia, Canada, China, India, Mexico, South Korea creates exciting possibilities for the UK and those companies who invest in the UK.

Cultivating world leading sectors is a key objective. Here, automotive is already recognised as a key sector in the UK and as being a global leader. Accordingly, the automotive sector can be assured as being a major focus of the UK's industrial strategy. Here, the work of the SMMT, the Automotive Council, the MIA and others such as the North East and North West Automotive Alliances is well recognised. More particularly, the work of the following bodies is already driving innovation within the automotive sector to further promote the development of new automotive technology:

  • the Advanced Propulsion Centres has half a billion pounds of planned investment into cleaner engines, energy recovery systems and more efficient stop start diesel engines
  • the Office of Low Emissions Vehicles is working to facilitate the transition to ultra- low emissions vehicles via grants to use such vehicles, the establishment of charging points, grid integration and research
  • the Centre for Connected and Autonomous Vehicles is already helping to establish a world leading position for the UK in this technology with various matched funded research projects under way
  • MIRA, Millbrook, Warwick Manufacturing Group and the National Automotive Innovation Centre all foster invaluable research and collaboration throughout the sector

Infrastructure

  • within the infrastructure plan is a commitment to cement the UK's position as a go to destination to develop connected and autonomous vehicles by establishing a new testing eco-system in the real and controlled environments at a location to be announced in Spring 2017
  • plans to make the UK the safest place to do business on-line via the creation of HMG's £1.9 billion National Cyber Security Strategy which will focus on the UK's critical national infrastructure will help find solutions that will protect the security of connected and autonomous vehicles

Intellectual Property - the Green Paper highlights an ambition to use our intellectual property system to encourage further R&D; the detail on this is limited, but there is reference to "new registries" to facilitate licence deals and an intent to roll out template B2B model agreements.

Finance - various plans to facilitate access to capital will be helpful to companies in the automotive sector, particularly in the supply chain where much of the technology which will find its way into the vehicles of the future is developed.

Tax - in addition to the further funding referred to above (and elsewhere in the Green Paper) HMG signposts the likelihood of further R&D tax changes to encourage investment and growth.

Conclusion

Automotive is clearly at the heart of the UK's future, particularly in relation to battery technology, connected and autonomous vehicles, robotics/artificial intelligence and advanced manufacturing processes and materials. Companies with existing businesses or ambitions in these areas are likely to see prioritisation of HMG support.

Whilst the Green Paper reiterates existing policies and announcements for the automotive sector, it is encouraging to see some announcement of "new money" and there will be opportunities to be had particularly in the areas of battery technology, connected and autonomous vehicles, robotics/artificial intelligence and advanced manufacturing processes and materials.

Responses to the consultation questions must be received by 17 April 2017. We anticipate that for the Automotive sector much of this will be led by SMMT and other trade bodies, but we would be delighted to work with clients to shape or communicate any individual responses they wish to make.

Chemicals

Philip Tunney, Head of Eversheds Chemicals Sector, comments:

Below are comments on each of the Pillars in so far as they are most relevant to the UK Chemical Industry:

  • investing in science, research and innovation - already the UK Chemical Industry invests over £4billion of capital and R&D annually, but this is not an area for complacency. HMG's promise to invest further in research should encourage the Chemical Industry to engage in further collaboration with Universities and greater investment in their own R&D. As HMG state there is a correlation between investment in innovation and faster growth and higher income levels. The creation of the Industrial Strategy Challenge Fund is welcomed
  • developing skills - the sector already employs around 140,000 people directly and supports around half a million jobs in the UK. The direct workforce is highly skilled and on average earns 30% above the average UK manufacturing worker. Encouraging the next generation of skilled workers is an essential component of the Industrial Strategy and one Cogent (the Sector Skills Council for the Chemical Industry) has been actively involved in promoting both at school leaver and graduate level. A Cogent survey revealed that 90% of companies reported difficulty in recruiting science graduates. 60% of companies reported that they were recruiting graduates from abroad - both areas that are going to become very challenging post Brexit. A clear steer from HMG on future strategy for skilled immigration would be welcome
  • upgrading infrastructure - this is one of the key investment priorities for HMG so far as they relate to the Chemical Industry - specifically in the area of energy. While HMG's commitment to Hinckley C is welcome there is much more to do to achieve a balanced mix of power necessary for a competitive UK PLC. Energy must also be affordable and we welcome the fact that HMG recognise this fact in one of the subsequent "Pillars"
  • encouraging trade and inward investment - the Chemical Industry is the UK's largest manufacturing exporter. Exports to the EU post Brexit and to other countries will be impacted by the trade agreements put in place (or not) following Brexit. Many exporting companies have benefitted from a fall in the value of sterling when manufacturing in the UK but selling their final products abroad
  • delivering affordable energy and clean growth - the Chemical Industry is one of the most intensive energy using sectors in the UK. For large energy users, UK gas and electricity prices are uncompetitive with countries in the EU. The rising carbon costs and electricity prices based on the current model will bring significant cost increases to the sector which will threaten competitiveness. The EU Emissions Trading Scheme will be of particular interest in the context of Brexit negotiations and HMG should look at the UK only Carbon Price Floor closely in this regard. Shale gas could play a significant part of the Industrial Strategy both as an energy source but also as a raw material for growth in the sector and which has been a true "gamechanger" in the United States
  • cultivating world leading sectors - HMG has challenged industry to come to them with proposals to transform their sectors through "Sector Deals" stating that HMG will work with sectors that organise themselves behind strong leadership to help deliver upgrades in productivity. The importance of trade organisations is going to become more important and we would emphasise to clients the importance of working with trade organisations such as the Chemical Industries Association to do achieve this goal

Responses to the consultation questions must be received by 17 April 2017. We anticipate that for the Chemical sector much of this will be led by the Chemical Industries Association and other trade bodies, but we would be delighted to work with clients to shape or communicate any individual responses they wish to make.

Defence, State Aid & Procurement

Alex Hand, Head of Eversheds Aerospace, Defence & Security Sector and Totis Kotsonis, Partner in Eversheds State Aid team, comment:

Relevant announcements and themes for the Defence, State Aid and Procurement sector include:

"Sector Deals" - rather than pick winners, HMG encourages sector participants to come together to make proposals on how they would like HMG to facilitate growth; this is "not about additional funding" but instead about directing deregulation and using HMG as an accelerator/intermediary - early work on these under key individuals is highlighted, including in the nuclear sector under Lord Hutton; our sector is singled out as a model for this - highlighting it as a success might be seen as a suggestion that further development in this area is less likely, but the sector should not see it as a closed-door as the Green Paper makes much of further potential growth in the sector.

Tax - in addition to the further funding referred to above (and elsewhere in the Green Paper) HMG signposts the likelihood of further R&D tax changes to encourage investment and growth.

Intellectual Property - the Green Paper highlights an ambition to use our intellectual property system to encourage further R&D; the detail on this is limited, but there is reference to "new registries" to facilitate licence deals and an intent to roll out template B2B model agreements.

Key technologies - as ever, DARPA is held out as a model for the encouragement of specific technology development projects: "Eight Great Technologies" are identified including battery and smart grid technology (which receive repeated reference in the Green Paper), robotics/artificial intelligence (within which unmanned vehicles are included), satellite and other space technology and advanced manufacturing processes and materials. It is not yet clear exactly what the consequences are of this list, but clients with existing businesses or ambitions in these areas are likely to see prioritisation of HMG support (including using the levers referred to elsewhere in the Green Paper).

Finance - reference is made to a new pipeline of PF2 projects (particularly in the areas of digital rail signalling and cyber protection for critical national infrastructure) and extension of the UK Guarantees Scheme until 2026 (both heralded in the Autumn Statement), and encouragement of investment in fixed capital (robotics is an area which is singled out - the consequences are not fully identified but expect this to be reflected in amendments to the tax system), a desire to back regional venture capital and an investigation of dual class share listings (to encourage founders of growth companies with the potential for IPO).

Procurement - given the scale of cross government procurement this is clearly an area where levers might be pulled to give effect to the strategy when it is finalised; the Green Paper identifies in particular:

  • encouraging innovation in small businesses through procurement (both changing the focus of certain procurements and, potentially, their terms - for example there is a reference to encouraging the ownership of IP by suppliers, at odds with the ongoing amendments to the IP DEFCONs)
  • an extension of the "balanced scorecard" (which seeks to take into account social and economic factors) into all major construction, infrastructure and capital investment procurements by HMG over £10m
  • an intent for the Crown Commercial Service to simplify its tender documentation and processes

The proposed strategy appears consistent with existing obligations under procurement and state aid rules and what is notable by its absence is guidance on what freedom the government perceives that Brexit will give it in the field of procurement law and how it intends to use that freedom - presumably because the Prime Minister would perceive this as giving away her negotiating strategy.

Defence:

  • the Green Paper notes that consultation on the Defence Industrial Policy referred to in SDSR 2015 is out for discussion and that this will be reported on shortly
  • there is a reiteration of HMG's focus on non-traditional defence suppliers and SMEs (but little detail in this Green Paper on how they will be prioritised)
  • HMG notes that it will respond to Sir John Parker's report by announcing a National Shipbuilding Strategy in early 2017 (the Green Paper restates the report's recommendations on multiple yards for the General Purpose Light Frigate and exportability)
  • HMG notes the £800m Defence Innovation Initiative announced in September 2016 and the IRIS unit, as well as a Defence and Security Accelerator
  • one guide for the future is an explicit intent to improve UK multi-supplier bids overseas - for government to act both as a coordinator and an advocate - in part perhaps in response to certain high-profile campaigns in the last few years

In summary, the majority of the Green Paper reiterates existing policies and announcements for our sector, but the "new money" is welcome and there will be opportunities to be had particularly in the areas of the "Eight Great Technologies". It is what the Green Paper does not announce that is perhaps most interesting: the "Sector Deals" are very much a challenge to industry to come forward with proposals (rather than a HMG led initiative) and we will have to wait until later in the Brexit negotiations to understand better how the procurement and state aid landscape might change. Please see the following link for our review of Brexit's potential impact on state aid and procurement:

http://www.eversheds.com/global/en/what/articles/index.page?ArticleID=en/Public_Procurement/brexit_state_aid_public_procurement_update190117

Responses to the consultation questions must be received by 17 April 2017. We anticipate that for the Defence sector much of this will be led by ADS and other trade bodies, but we would be delighted to work with clients to shape or communicate any individual responses they wish to make.

Employment

David Beswick, Partner in Eversheds Employment team, comments:

The Green Paper sets out 10 "Pillars" on which it's Industrial Strategy will be based. "Developing Skills" is one of those pillars. However, it goes further than that from an employment perspective as the whole focus of the paper is to increase the economic prospects of the UK workforce by cultivating world-leading sectors whilst accepting the need to increase productivity and develop the skills of the UK workforce.

The notable points arising from the Green Paper are as follows:

  • growth of economic benefits needs to be underpinned by a strong skills base which requires a greater strength in STEM (Science, technology, English and Maths) subjects
  • whilst we produce more university graduates than other OECD countries, we have more people with low levels of literacy and numeracy. In fact, 16-24 year olds are no more numerate or literate than their 55-64 year old counterparts
  • there will be a greater focus of on developing skills in technical subjects through the creation of Institutes of Technology
  • the UK produces in 5 days what US, French and German employees produce in 4 days. Productivity has only remained where it is through increased working hours. Future increases in wages and economic prosperity relies on an increase in productivity
  • the UK spends less on robotics, automation and R&D than equivalent countries and this must be reversed
  • the golden triangle for R&D is London, Oxford and Cambridge
  • 2.7m more people are in work than after the recession, however, wage growth has been muted and requires increases in productivity
  • central to the Industrial Strategy are the "Eight Great Technologies" which include smart and clean energy including batteries, robotics and artificial intelligence, manufacturing processes and materials, satellites and space and digital technologies
  • a Labour market strategy is going to be published by HMG later in 2017
  • supply chains are key to the growth of the UK economy and support from major industrials either through passing on potential apprentices or by providing patient capital is key to the continued development of supply chains

The Green Paper does not hold back on the challenges facing the UK economy in terms of employment and skills. HMG's labour market strategy to be published later in the year will be watched with keen interest. In the meantime the focus on the "Eight Great Technologies" and the support being offered through the Industrial Strategy has to be welcomed by all in the Industrials sector.

Responses to the consultation questions must be received by 17 April 2017. We would be delighted to work with clients to shape or communicate any individual responses they wish to make.

Environment

Elizabeth Shepherd, Head of Eversheds Environment Group, comments:

A key pillar of the Government's Green Paper is delivering affordable energy and clean growth. It highlights how increasing the efficiency of material use across the whole supply chain can deliver huge cost savings and improve the productivity of UK businesses.

The Government's focus in this context includes exploring opportunities to reduce raw material demand and waste in our energy and resource systems, as well as promoting well-functioning markets for secondary materials. This chimes with the principles behind the EU Circular Economy initiative. This concept, which has application across all sectors, starts with product design, taking an advanced "cradle to grave" approach, and is being promoted with a view to boosting competitiveness, fostering sustainable economic growth and generating new jobs.

UK law already embodies some waste-related regulations relevant to the Circular Economy, such as WEEE, batteries, packaging waste and waste management, as well as Restriction of Hazardous Substances (RoHS). These will be adopted officially into UK law when we leave the EU. Other EU initiatives such as a "Product Environmental Footprint" which the Commission is testing may or not be incorporated into UK law, depending upon overall timescales. It seems likely however that the UK may look to incorporate "learnings" from the EU as part of its consideration of its industrial strategy.

The Government has also mentioned its 25 Year Environment Plan, which will support these initiatives and set out a long term vision for delivering a more resource efficient and resilient economy. The Plan has not yet been released, nor do we have a timescale for such release. However, we do know that this is likely to look at the management of natural assets such as forests, rivers, minerals and oceans and the benefits we derive from them such as food, recreation, clean water, hazard protection and clean air. This is likely to have implications for planning policy, as well as plans for infrastructure and agriculture.

The Green Paper also mentions the significance of energy costs, and points out that electricity costs have moved out of line with other European countries. The strategy provides an opportunity to explore ways of reducing overall costs in a sustainable way, as well as opportunities for growth from the energy sector and for the UK. A long-term roadmap to minimise business energy costs is scheduled for 2017. This comes at an interesting time, with shale gas (although not specifically mentioned in the Green Paper) mentioned in the Government's January 2017 update to its Guidance on fracking: developing shale gas in the UK" as having "the potential to provide the UK with greater energy security, growth and jobs".

The consultation gives clients, whether individually or through their trade associations, the opportunity to respond to questions such as "what are the most important steps the government should take to limit energy costs over the long-term?"

Industrial Engineering

Robin Johnson, Chair of Eversheds Diversified Industrials Sector, comments:

The green paper is a welcome initiative setting manufacturing at the heart of government thinking and it is vital that the green paper is followed through with clear commitments.

These include:

1. connecting universities to technologies and clusters . We would like to see a clear link between university research funds, outcomes and industry partnerships with Research and Development incentives linked to university collaboration

2. regional funding to support clusters whether it be automotive, aerospace or advanced manufacturing

3. industry bursaries or grants to support new technology colleges. We have seen as an example the James Dyson university being set up in conjunction with Warwick. Similar incentives should be encouraged

4. Venture Capital Trust tax breaks the link to investing in industries

5. the LSE via AIM setting up a special industrial index

6. an Industrial Bank akin to the Green Bank run out of the Midlands or North adopting similar processes to the historic 3 i-model

7. a coordinated national logistics and tele-communication strategy linking to the industrial hubs

While the green paper emphasises this is about ideas and the private sector must commit, it is an encouraging start to a new philosophy from government to focus on the fourth industrial revolution.

Eversheds will coordinate responses to the green paper and is keen to set the agenda. Responses to the consultation questions must be received by 17 April 2017. We would be delighted to work with clients to shape or communicate any individual responses they wish to make.

Trade Law

James Lindop, Principal Associate in Eversheds Competition team, comments:

Department for International Trade (DIT) was established when Theresa May took office in July 2016, and will take a lead role on the Government's strategy to make Britain "a global leader of free trade". The Government's proposed industrial strategy suggests that it will take an active and somewhat interventionist approach to promote and support UK exports of goods and services; reverse what the Government describes as decades of slow growth in UK exports; and increase competition by bringing new ideas and innovations to the UK.

While the immediate priority for the Government will be to secure, to the extent possible, a Free Trade Agreement with the European Union, the Government is proposing to work more closely with industry to enable and secure trade in new markets and with new international partners (such as those that have indicated a willingness to discuss future trading relationships, namely Canada, China, India, Mexico, Singapore and South Korea; as well as in 'horizon markets' such as Kenya, Nigeria and Pakistan).

Proposed actions to enable and increase trade:

The key actions that the Government is proposing to put at the heart of its industrial and trade strategy include:

  • supporting exporters by utilising UK Export Finance and insurance to underwrite major deals
  • maximising opportunities for wealth creation by supporting Foreign Direct Investment and Outward Direct Investment
  • delivering the best international trading framework for the UK to maximise trade and investment opportunities
  • doubling the capacity that UK Export Finance is able to provide and increasing fourfold the number of foreign currencies it supports
  • making it easier for exporters and investors to access government support by providing access to the new great.gov.uk digital service
  • working actively with local areas to attract inwards investment projects to the UK
  • creating a more active approach to winning overseas contracts by, for example, establishing a new Infrastructure Exports Leadership Forum to enable Government and industry to work together to undertake pre-competitive engagement in new markets and help the Government target where it concentrates its resource
  • submitting a single UK bid for major overseas contracts and providing significant political support to company consortias in this process
  • maximising opportunities for UK industry at international trade fairs and creating trade events for those sectors that would benefit from such support, particularly in emerging sectors and innovative technology industries

Defence exports

Businesses operating in the defence sector will be particularly encouraged that the Government has identified increasing defence exports as a key pillar of its trade strategy. For example, the Department for International Trade Defence and Security Organisation (DSO) has already adopted the consortia approach to producing a single UK bid for overseas government customers so as to increase the probability of success; and the MoD is already tasked with ensuring that the future export potential is a key consideration when procuring defence equipment.

What does this mean for clients?

The industrial strategy the Government is proposing to embark on reflects a move to a more interventionist approach that might not ordinarily be associated with a Conservative Government policy. Businesses which are particularly reliant on exports should be encouraged that the Government is focusing on taking an active role in enabling the growth of exports to new markets. However, it is still unclear at this stage whether the Government is likely to focus its support on particular sectors and precisely how UK businesses can benefit. Moreover, for those businesses that rely on trade with the EU, the immediate concern will be on the Government's ability to secure a "bold and ambitious" Free Trade Agreement with the European Union.

Recognising that it can play an important role in enabling trade and investment, the Government is consulting on what it can do to improve support for firms that want to start exporting, or increase exports of, their goods and services overseas. The publication of the Green Paper therefore presents an opportunity for industry to engage with the Government and help shape a number of its policies that are likely to be key to the transition towards a post-Brexit UK.