4 May 2023

Bargaining chips: the Government must stop dithering over its semiconductor strategy


There’s a new ‘British disease’ when it comes to technological innovation: piercing insights and brilliant innovation let down by bureaucratic muddle and delay.

Semiconductors are the most important technology of the information age, and will be central to plans for the green transition as well. Britain happens to have some of the world’s most innovative firms in the sector. But right now, this sector is also at the centre of geopolitics, as China’s increasingly hawkish stance on Taiwan casts a shadow over the security of world’s main supplier of advanced microchips. Other great powers have swung into action to protect their semiconductor supplies and to attract and retain vital talent. In the face of all this turmoil, Britain’s government promised to release a strategic response – but has so far delivered only delay after delay.

The Government’s plan was apparently finished last summer, but the collapse of Boris Johnson’s premiership shoved it onto the back burner, if not off the heat altogether. In February, the chair of the BEIS select committee Darren Jones complained that after two years of work there was still nothing to show for it, and any further delay would be ‘an act of national self-harm’. We are still waiting.

In April, the EU – not known for its rapid decision-making – agreed a €43bn (£38bn) package of public/private support for its semiconductor ecosystem. It was in part a response to Joe Biden’s $53bn (£43bn) salvo of subsidies in the 2022 CHIPS and Science act. There were brief hopes that the EU intervention would finally prod the UK into action. These hopes rapidly fizzled out again, thanks partly to an internal row about who was covering Michelle Donelan’s maternity leave. The latest promise is that something may be said later this month, during the G7 meeting in Japan.

These delays matter. While we wait, decisions about investment are being taken by companies that need to act to stay afloat. And with the US (and now the EU) pumping huge sums into semiconductors, it is hard for bumbling Britain is not looking competitive. In March, Cambridge-based Arm announced its decision to list in the US rather than London. That same week, its co-founder Jamie Urquhart told Bloomberg the Government’s long-term tech strategy ‘couldn’t be any worse’. For months, highly-innovative firms like Paragraf have been warning that they need clarity. Pragmatic Semiconductor in Cambridge and IQE at Newport, a leader in compound semiconductors, have both warned they are considering their options overseas.

Britain’s contributions to the semiconductor industry are under-appreciated. While we have little in the way of chip fabrication, at the top of the value chain we shine. Arm designs are in 95% of the world’s premium smartphones. Paragraf is a global leader in graphene chips, which are incredibly fast and energy-efficient. IQE specialises in compound semiconductors, which are set to play a key role in charging electric vehicles and in quantum computing.

All these remarkable success stories are being kept on indefinite hold for a government announcement that could make or break their firms. It’s not to say that Britain should leap aboard the runaway train of competitive subsidies like the EU and the US, even if we had the resources to attempt it. It makes sense to focus on our strengths. The expected cost of the semiconductor plan is rumoured to be about £1bn – not in the same league as the EU or US efforts, but enough to make a meaningful difference. The first and main thing it will achieve is simply to end the present uncertainty.

And it’s not just government delay. Our chipmakers have to grapple with all the other besetting flaws of Britain’s current competitive landscape: high taxes, expensive property and onerous planning requirements for lab space. Not to mention the difficulty in getting visas for highly-skilled workers, or the limited local supply of STEM-trained recruits.

It’s all depressingly reminiscent of the 1950s, when Geoffrey Dummer saw the enormous potential for integrated circuits but couldn’t find anyone in war-weary, risk-averse Britain to take it on and become world-leaders of the information age.

There is still time to turn this around. If Rishi Sunak can finally announce his semiconductor strategy, it could be the beginning of a new era. Especially if we followed it up with other badly needed reforms to make Britain a better place for high-tech business, and indeed business all round.

In the process, we can also prepare ourselves better for the geopolitical risks. Right now, if the supply of Taiwan’s semiconductors were to be cut off, Britain would quickly find itself in a huge crisis. In a world where everything from car manufacture to smartphones and fridges depends on advanced chips, we are at the mercy of our supply chains. Since Britain can’t realistically start building its own large-scale chip fabs, we need to stand up for Taiwan, develop good relations with a wide range of friendly suppliers, and continue to establish ourselves as a major player in this strategically-vital industry. If the worst happens, we will be glad to hold a few bargaining chips of our own.

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Marc Sidwell is Director of Research at the Henry Jackson Society.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.