We need to strengthen our manufacturing base.
Strengthening modern manufacturing is about encouraging scientists, researchers, inventors, and all those with ideas to make things here in the UK. There are two elements to this – first, to ensure that we incentivise locating manufacturing here in the UK, linking this up to the Freeports agenda the Government is already progressing. The second element is to ensure that we have a sensible regulatory framework to reduce barriers to innovation and industry by removing anti-competitive legislation.
A) Opportunity Zones for manufacturing centred around our research hubs.
As recently as 1970, nearly a third of UK GDP came from manufacturing. Now it is less than 10%. Britain has some of the world’s leading scientists and researchers, but too often we have failed to develop significant industrial capacity. During the acute phase of the Covid-19 crisis, our inability to manufacture vital medical testing equipment and drugs, despite having originated much of the basic research, was notable. Our manufacturing base therefore needs to be strengthened – to provide high quality jobs across the whole country. To reindustrialise our economy to any degree, we have to make it more profitable to place more manufacturing capacity in the UK rather than elsewhere. We need to do that by making it fundamentally attractive in two ways – high quality people, and lower taxation.
How would it work?
Opportunity Zones are a Twenty-First Century version of the Thatcher–era Enterprise Zones. The fundamental aim is to incentivise investment in regions which hitherto had not been seen as particularly attractive, for a range of reasons. Using a similar process as we are using for Freeports (currently under consultation to being introduced), we should provide a set of incentives for domestic and international investors to invest in specialist zones deliberately placed in poorer regions of the UK which also has a scientific research base through long established businesses or a university or research centre. Opportunity Zones should be linked to Freeports in regulatory terms as much as possible. Potential regions we could focus on might be the Greater Manchester region, Sheffield, Yorkshire and the Humber, and Northern Ireland.
Potential incentives could be:
- Full immediate expensing of fixed capital investment (instead of depreciation over the lifetime of the asset), and fixed machinery being non–rateable.
- Temporary deferral of taxes on previously earned capital gains. Investors can place existing assets with accumulated capital gains into Opportunity Funds (an investment vehicle that invests in Opportunity Zones). Those existing capital gains are not taxed until the end of 2025 or when the asset is disposed of.
- Permanent exclusion of taxable income on new gains. For investments held for at least 10 years, investors pay no taxes on any capital gains produced through their investment in Opportunity Funds.
- Waiver of normal visa rules for bringing in high quality staff from abroad – as long as there is a signed agreement for training local people over the long-term with a local FE college and/or university.
- Better regulatory environment where possible, including trialling regulatory sandbox concepts for potential application more widely.
We should focus these benefits on manufacturing, and on projects directly connected with manufacturing.
B) Opening up the economy: reducing barriers to innovation and industry presented by anti-competitive legislation.
Competition review by the Competition and Markets Authority into key industries in the UK economy, and this must be considered by regulators and government departments in regulations or new legislation. This will embed a pro-competitive regulatory framework in the UK.
The CMA should be required by BEIS to do biannual competition reviews into anti-competitive practices, government distortions and hybrid distortions in the key “life-blood” industries in the UK economy. These are industries which are crucial to costs of basic items that particularly affect poorer British people. The key areas would include energy (cost of energy for industry and for domestic consumers), transportation, food and retail banking. In many sectors there are competition problems that lead to lower output or higher cost (or both).
All regulators and government departments should be required to take the CMA’s competition reviews into account when producing regulations or new legislation, and state how they have done so. This may be done by adapting the mandate of the Regulatory Policy Committee, or through another mechanism. By doing this, we will embed a regulatory framework which is as pro–competitive as possible, consistent with legitimate regulatory goals.