One of the world's top investment banks has called on Theresa May to embrace a new industrial strategy and help revive British manufacturing to its former glory.
Chief economists at Deutsche Bank have put together a dossier for the new Prime Minister on how she can make the most of the post-referendum opportunities, to pull back the dominance of the services sector and finally achieve the long-heralded economic rebalancing.
The plan involves everything from accelerating fracking to an £80bn energy efficiency spending spree, tweaks to corporate financing and a big roll-out of faster broadband.
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The note, written by Deutsche Bank economists Mark Wall and George Buckley, states: "The sizeable depreciation of sterling and relatively low production costs give UK industry an advantage. These cyclical benefits can be secured with a structural policy aimed at maximising research and development and high-skill manufacturing.
"An industrial renaissance is the objective".
The pair's plan for May rests on policy proposals in four key areas: Infrastructure, energy, skills and innovation.
Business groups have given a tentative welcome to May's new focus on industrial policy and focus on boosting the UK's manufacturing sector.
The CBI said: "Manufacturers will welcome the new government’s focus on industrial strategy as well as the Chancellor’s recent guarantee over EU funding, which will help to provide certainty for universities and businesses investing in innovation and research and development."
"The component of GDP most likely to suffer from uncertainty is investment spending," Deutsche Bank said. To correct that, the bank wants the government to get much more actively involved in the financing of big projects, without forgetting the need for digital as well as physical projects.
For instance, "boosting broadband could boost productive more quickly than HS2," the bank states.
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Recommendations include the government using the boon of record-low borrowing costs to go on a spending spree, financing projects that the private sector might have started thinking twice about.
Alternatively, the government could simply increase its finding guarantees for large projects. The guarantee is currently capped at £40bn, but Wall and Buckley see no reason this couldn't be increased.
Employers' group the CBI also want to see the government ramp up infrastructure spending. It said: "If we believed infrastructure decisions were important before the EU referendum, they are even more important now.
“In these times of economic uncertainty, we know that economic stimulus will be vital. And infrastructure is a powerful way to achieve this."
Part of the industrial renaissance has to include a more modern energy policy, Deutsche Bank reckons. It says the UK should seek to stop being a net importer of energy, given its vast oil and gas reserves.
That means a whole-hearted embrace of fracking to create a steady and stable source of power. The bank also raises the prospect of an £80bn splurge from government on energy efficiency measures.
The pair note eight million homes across the UK do not have solid wall insulation. If the government simply funded conversions for everybody that wanted one if would create a swathe of jobs across the economy, be a massive short-term stimulus - especially across the north of England - and also drastically improve the UK's energy efficiency profile.
Deutsche Bank also recognises the need to make sure the UK labour force is equipped with the skills it needs to harness this new potential for better productivity. It highlights how funding of universities and research outfits plays a massive role in this regard, and notes the potential for chunky EU revenue streams to be disrupted after the UK leaves, despite Philip Hammond's guarantee of funding until 2020.
However, it is not all about training the workforce of tomorrow. The housing crisis is also a big barrier to raising productivity, Deutsche Bank notes. It points out the cost of moving or relocating to a job in a different part of the country is prohibitively expensive, meaning mobility in the labour market is weakened, potentially leading to mismatches and drags on productivity.
The funding landscape across the UK has been supportive for innovation, Deutsche Bank notes. However, it thinks measures such as the enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) could be super-charged to help realise the potential of the UK's startup scene.
The bank calls for much more engagement from big corporates in the venture capital scene, with large companies investing into smaller counterparts. The bank also thinks institutional investors should be able to claim some of the similar tax breaks on offer under the EIS/SEIS, which give individuals an income tax refund on any money invested through the scheme to small UK companies.
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