UK: Government industrial policy - when dry turns out to be wet.

UK: Government industrial policy - when dry turns out to be wet. - Peter Lilley has not carried forward the policies of his predecessor at the Department of Trade and Industry, but wants to look at the links between science and industry, writes Roger Egl

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Last Updated: 31 Aug 2010

Peter Lilley has not carried forward the policies of his predecessor at the Department of Trade and Industry, but wants to look at the links between science and industry, writes Roger Eglin.

The reluctance of some of the big construction companies, normally among the bluest of the Tory faithful, to continue making donations to the Conservative Party's funds in what could be an election year emphasises that the party's traditional alliances can no longer be taken completely for granted.

This is not so surprising. Mrs Thatcher was clear that she had no desire to continue the alliance on the old terms if that meant industry continuing to look to Government support as a crutch to fall back on if the going got rough. A succession of Secretaries of State for Trade and Industry reiterated much the same message, none more so than Nicholas Ridley.

Many would argue that there was nothing wrong in the Government adopting a more arm's length approach. Industry had become too dependent on government help. Undue stress was being placed on policies inspired in the corridors of Whitehall rather than those springing from businessmen in touch with the needs of the marketplace. The success of the privatisation programme provides overwhelming evidence of the sense of leaving the running of business to people who understand it, rather than politicians and civil servants. The tragedy of British Rail is that it is the one major state industry that has so far missed privatisation and remains the abject victim of political short-termism rather than sound industrial management.

But under Ridley, whose argument seemed to be that there was nothing that government could do to prosecute industry's case, policy had swung too far in a negative direction.

Now there seems evidence that attitudes are changing. The Prime Minister appears intent on sanding down the sharper edges of Thatcherism and has been inviting industrialists in for a friendly drink. More surprisingly, the latest Secretary of State for Trade and Industry, Peter Lilley, who will set something of a precedent if he is still here this time next year, such is the short-termism prevalent in Victoria Street, seems less dry than his reputation had suggested. It has always been assumed that Lilley, one of the true believers, would carry forward the sort of policies, or rather the absence of them, espoused by his predecessor, Ridley. But so far, not so.

Within the all-embracing concept of industrial policy there are certain features that few, except for the most fervent market forces ideologue, could disagree with: a willingness on the part of government to provide appropriate political support that allows the function of market forces in a constructive way. Admittedly the word "constructive" begs a number of issues; but an important example of the sensible role of policy is the refusal of Malcolm Rifkind, the Transport Secretary, to let new American airlines into London's Heathrow airport without some quid pro quo for British airlines.

Set these sorts of test, Lilley is emerging as one of the most interesting Secretaries of State for some time. Take Kuwait. The competition to rebuild Kuwait is intense and who gets the work will often be influenced at government level. Surprisingly, who do we find taking a lead in talking to the Kuwaitis and co-ordinating the British effort but Lilley's department?

On the test of shaping the policy framework, Lilley has pulled off a coup with the review of the telecommunications duopoly. For years telecommunications has been the black hole of British industrial policy and effort. As Postmaster Generals came and went with even greater frequency than Trade and Industry Secretaries in recent years, we scored a series of spectacular own goals: consumers, both business and private, suffered standards of service which were deplorable for an advanced industrial nation; The Post Office lost money supplying the service, and none of the companies manufacturing the equipment managed to export much more than the value of a local call.

The privatisation of British Telecom did something to improve matters but the framework was still far from satisfactory. Now Lilley has come forward with a seemingly remarkable exercise in satisfying everyone: a review that promises cheaper services for consumers, greater ease of access for new entrants into the industry and leaves the stock market taking a bullish view of BT and discounting the potential impact on its profits.

If this were not enough, we now have Lilley taking his top advisers away for the weekend to review his department's strategy. A wide range of issues was discussed but Lilley has focused on one: innovation. He is rightly worried about it. We spend £3 billion a year on civil research and development through universities, polytechnics and research establishments - a higher percentage of gross domestic product than Japan - but seem not to get the return on it that we should. If Lilley wants to start by looking more closely at the links between science and industry, the DTI could perform a valuable job without spending more money. He definitely seems a minister to watch.

(Roger Eglin is managing editor of the Business section of The Sunday Times.)

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