What we need from a UK Industrial Strategy

WE’VE canvassed the members of the UK’s North East of England Process Industry Cluster (NEPIC) about what a successful industry strategy looks like and the collective wisdom is that the government needs to begin applying some joined-up thinking – and doing.

We’re pleased that the UK government is now seeking to develop an industry strategy. This is long overdue. Ministers must recognise that industry and individual businesses require policy regimes that are both stable and consistent as they have a very significant impact upon final investment decisions. Asset-intensive industries like chemicals, plastics, pharmaceuticals and bioprocessing need a strategy that’s integrated across industry sectors and along supply chains to underpin sustainable long-term growth that will significantly improve the country’s balance of payments.

Unfortunately, since the Conservative Party took power in 2010 strategies have focussed on individual sectors but to be most effective they must not be developed in isolation.

In 2009, we saw how damaging this lack of joined-up thinking can be. We warned government how the loss of the country’s only ethylene oxide plant owned by Dow Chemicals at Wilton would be felt across industry. We warned it would hit the UK balance of payments to the tune of over £5bn (US$6.1bn).

However, the powers that be could not understand how this could happen and did nothing to help. After all, the unit only employed 70 people.

Six months later they came back and apologised.

With the unit closed, downstream buyers were forced to rely on imports to secure the surfactants needed to produce soaps, softeners, cosmetics, and oil field chemicals. Several downstream factories consequently moved offshore or closed, including those owned by Croda, Shell, and Baker Petrolite. There were also significant supply chain implications for Lotte, Sabic, BOC, Sembcorp, and many logistics and engineering companies.

This more than emphasises the need for an integrated industrial strategy, and the chemistry-using and processing industries believe the following areas to be absolutely vital.

First, we need a strategy that provides secure, long-term, globally-competitive supplies of both energy and feedstock. The government should look to fully exploit and optimise the UK’s shale and coal assets, along with the remaining oil and gas in the North Sea. The strategy should also encourage both energy and material efficiency and exploit symbiotic materials and energy opportunities between companies in the chemical sector and in their upstream and downstream value chains, especially in areas of high industrial concentration where greater physical integration is possible.

Second, we recognise that a call for further use of fossil fuels will trigger alarm bells, but be assured we want any such use to be aligned with climate targets, and any strategy should seek to minimise emissions by incentivising the use of carbon capture utilisation or storage. It should also recognise the need for the chemical industry to transition from fossil-based feedstocks and incentivise the introduction of renewable alternatives. The strategy should embrace the bio-economy and the opportunities it brings to UK-based industry.

Third, we should optimise support for manufacturing clusters, as seen on Teesside, Humberside and Grangemouth, to bolster their competitiveness with similar hubs in Europe and around the world. There is a real opportunity in places like Teesside to develop a powerful integrated supply chain that helps create more wealth and employment. This could be done by creating private wire networks and tax relief for energy created and used in these locations by energy-intensive industries. There’s also effort needed to publicise the industrial capabilities of these regions to encourage industry to collocate and relocate from abroad. Post Brexit this includes the opportunity to create free trade zones as has been done in several competing locations outside the UK.

Fourth, we need to introduce targeted intervention by helping to fund infrastructure, scoping studies or policy changes, to underpin the overall strategic objectives. Any interventions should pass the following tests: Does it help with energy security? Does it support our CO₂ reduction goals? Interventions should also provide direct support to industrial developments and not just research based programmes via universities and other Centres of Excellence.

Fifth, we must align disparate local, regional and national government objectives. It’s a sorry state of affairs here in the northeast, where local support to cleanly develop the region’s large coalfield is met with national indifference. Despite the huge industrial support for clean coal technologies we find technology developed at home is taken abroad and used immediately by our competitors. We need to have industrial leadership on these matters with polices that ensure industry meets the highest standards set by society. Hence we need a strategy which ensures that all relevant government and local government departments are aligned. This should include UKTI, Innovate UK, KTNs and Local Enterprise Partnerships. Supporting structures determined by the strategy must be simple, transparent and built on best practice. Industry regulators should also work with industry to develop mutually-agreed objectives which support industrial strategy and address regulatory objectives.

Sixth, we should recognise the hugely positive impact the chemical industries have on the UK economy. Over recent years its effect has been very much underplayed, as opposed to other ill-defined sectors like ‘advanced manufacturing’. What are chemicals, polymers, biotech, and pharmaceuticals if they are not ‘extremely advanced manufacturing’? Our leading chemistry-based, technological capability needs to be better promoted. And with investors finding it hard to recognise and interact with the myriad of decision makers they have to influence to get their project off the ground, we need a strategy that provides clear and simple ownership of decision-making processes at both national and regional level. It must also address important issues for investors, including marketing the advantages of manufacturing in the UK and its regional clusters.

Seventh, there is much evidence that we need a strategy that reinforces the continuous development of a skilled workforce and also improves productivity and efficiency to meet the challenges of global competition.

Regarding Brexit, the UK’s Industrial Strategy needs to address the loss of EU grants but also use this as an opportunity to use any replacement funding in the most appropriate way. The materials and chemicals sector, as the most significant exporters to EU countries, need to be able to continue to have access to this market and not have tariff barriers.

The strategy needs to be owned in partnership by government, industry, trade associations and industry cluster bodies. Its implementation must be supported financially with appropriate programmes and infrastructure projects. What is more, the voice of individual companies must not dominate in its implementation.

The chemical industry is a diverse advanced manufacturing industry which has ubiquitous, and yet little appreciated impact on all industrial sectors of the economy. A UK industrial strategy must expose its importance to all industrial supply chains such that more of it can be sustained and grown here in the UK. The strategy has to encourage greater supply chain integration and materials symbiosis. With a smart industrialisation approach such as this the chemical process industry has the ability to revolutionise the UK's balance of payments.

- by NEPIC CEO Stan Higgins & NEPIC supply chain director Felix O'Hare