20 October 2023

We must stop normalising state intervention in industry


Batteries are big business in the Far East. China satisfies about 60% of the global market for rechargeable, mainly lithium-ion, batteries, and its only sizeable rivals are Japan and South Korea. But the market has the potential to grow bigger still, as we prepare to say goodbye to the internal combustion engine: after 2035, you will no longer be able to buy a new petrol or diesel powered car in Britain or the European Union.

That obvious source of growth is encouraging the industry, but governments and business alike have noted the problems of relying on China, and plans for factories in the US have burgeoned since 2022. America is now the world leader in growth, if not (yet) output.

Recently the UK has also fallen under the roving eye of a number of companies who see an opportunity. At the end of 2019, two Swedish entrepreneurs founded Britishvolt, a would-be battery manufacturer which eventually planned a gigafactory at Blyth in Northumberland. Construction began in 2021, and optimism was all around: 3,000 jobs would be brought to the area, and by 2027 the facility would be producing 300,000 battery packs a year. Mining giant Glencore had invested significantly that summer, and in January 2002 the government’s Automotive Transformation Scheme pledged £100m to the project.

For a number of reasons, all was not as it seemed, and Britishvolt went into administration in January owing £160m. But five weeks later it was acquired by Australian concern Recharge Industries; yet by the end of August they too were defaulting on payments.

Now, another lifeline may have appeared: Melbourne-based EDEA Energy sees Blyth as a potential site for its AUS $161m deal with the Australian Defence Force to supply power units for its Redback infantry fighting vehicles and Recharge as ideal partners.

The business community is cautious. Britishvolt has had more reboots than Batman, and this current iteration has some challenges. Recharge has limited experience in battery manufacture, and some question whether it can be efficient to make power units for the Australian Army in northern England.

For the UK government, there is promising mood music. The parliamentary constituency of Blyth Valley is characteristic of the Red Wall: solidly Labour since its creation in 1950, it was snatched narrowly for the Conservatives in 2019, and to boast of delivering thousands of new jobs in a booming sector would be a Godsend. More broadly, the manufacturing of a key component for Australian military vehicles would be a concrete example of the AUKUS agreement and its potential benefits beyond the core terms. If that has not caused some ears in Whitehall to prick up, the government deserves to lose the election.

But there is something so much more general, so profound and so innate that it should hardly need noting. The government promised substantial financial support for the gigafactory project: £100m, dependent on various milestones. We can argue endlessly about subsidies to industry: their history in the UK is not happy or particularly successful. My own view is that they distort the market and can indirectly protect inefficiencies and bad practices.

Whatever one’s view, it seems incredible that hidden away mid-paragraph in most coverage of the potential Britishvolt deal is that the company is not seeking the assistance from government which had been pledged. Let us just reiterate that point: if – if – this new deal were to save Britishvolt, it would do so without needing £100m of taxpayers’ money. Yet for many it hardly seems worth mentioning that Recharge is not requesting that money.

This is jaw-dropping on a practical scale, but more so, surely, on an ideological level. Have we now reached an economic climate in which we assume that major projects will need major financial support from the government, or, at least, that the existence of such support is not noteworthy? There is a school of thought now which tells us that an industrial strategy is a sine qua non of a sensible modern economy, usually as it redefines “industrial strategy” to mean something which happens to meet its approval, but I am not alone in deep scepticism.

There are instances in which the government will intervene, with whatever degree of reluctance, in the working of the economy. We bailed out the banks in 2008/09, at enormous cost, but that was an act of near-existential importance; the whole financial system could see the end of the conveyer belt. More modestly, we might offer tax and regulatory arrangements to encourage investment in specific sectors like technology. That is a long way from  ‘picking winners’.

Recent economic decisions make you think Margaret Thatcher had remained a food research scientist, or that no one in the Treasury or the Bank of England has heard of Hayek. Theresa May brought in her industrial strategy, Rishi Sunak has toyed with price controls and some merely wonder aloud whether the current inflation rate of 6.7% – high but down from 10% a year ago – might conceivably have any ancestral roots in the policy of quantitative easing which, since 2009, has introduced £895bn into our economy.

Are we going to have to learn this all again? Did we imagine that the £70bn then-chancellor Sunak spent on the Coronavirus Job Retention Scheme in 2020/21 would somehow just fade away? The UK is now one of a very select group of countries whose national debt is larger than GDP, and one in every ten pounds of public expenditure goes to servicing the debt.

Of course it has been a tough four or five years. Any sensible observer accepts that, and one of the Prime Minister’s five priorities is to bring down the national debt. But I fear there has been a more creeping contagion, a twisting-away from what we know, what we saw, what we grudgingly accepted over years, instead thinking that there is a new economic model, that the world is changed, changed utterly. If gloomy Conservatives say that 2023 feels like 1996/97, we cannot let it start to resemble 1973/74. Because in that foreign country, they really did do things differently.

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

Eliot Wilson is co-founder of Pivot Point Group.

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