The industrial strategy and target culture

In the coming weeks the government will publish a discussion paper outlining some of the policy direction behind its industrial strategy. Up until this point the only hints as to what it will include have been the occasional speech and select committee hearing. From these, we have learned that the new strategy will favour policy that is localist, cross-sector and long-term in nature. But while we await more detail of this approach it is worth picking up on something else that Greg Clark - the Secretary of State responsible for creating this new model of intervention - has said. Responding to a question about how metrics would be used to evaluate the success of the industrial strategy he explained that he did not want to establish targets just for the sake of it. 

At this early stage of policy development it is entirely sensible to resist the tendency of politicians to announce that they intend to reach an ambitious target. These targets can take different forms, such as the number of people affected by an initiative, or the amount of money that is to be spent or saved; they are almost always a round number and almost always have a set date by which they will be achieved. David Cameron's administration had an aspiration to export £1 trillion of goods and services by 2020, a commitment to create 3 million apprenticeships by 2020 and a manifesto pledge to reach a fiscal surplus by 2018-19. Looking back further, the famous New Labour "pledge card" in 1997 outlined how it would cut class sizes to below 30 for 5, 6 and 7 year olds and get 250,000 under-25s off benefits and into work. This list could go on and on.

Creating targets can be a positive addition to the policy debate if they are set in the right context. Firstly, they can provide a clear indication of a government's ambitions and priorities. As Sir Nicholas Macpherson, the former Permanent Secretary to the Treasury, noted of George Osborne's surplus target, "I’ve only had four years in 31 at the Treasury when there has been a surplus. If you don’t aim to get the surplus, you’ll never get there". Secondly, they can create focus on solving a particular problem. The collective talents of civil servants, industry, think tankers, rep bodies and academics will have a specific policy question to put their minds to, potentially reaching new answers in the process. Thirdly, they can provide accountability. Take the Conservative's failure to reduce net migration to below 100,000 as an example - migration is a big issue for the public and the 100,000 figure has meant senior politicians being held to account on that issue.   

Despite these positives, if the consequences of targets are not thought through, or are simply arbitrarily set, they can act to restrict the flexibility and effectiveness of policy. An example would be the last Labour administration setting a child poverty reduction target predicated upon narrowing relative income levels, with the best policy lever to achieve it being to ratchet-up the value of Tax Credits. This approach was expensive, some would argue ill-conceived, and meant that the ability to focus money on the root causes of child poverty was hampered. A closer look at the net migration target offers another example of the undesirable policy outcomes of a target. EU membership means that no policy lever is available to stop EU citizens coming to live and work in the UK, hence other groups, such non-EU students, facing more stringent migration controls. This is potentially damaging to both universities and to the economy.

It is also worth mentioning one specific additional point related to the setting of targets, which is that there has to be the ability to robustly measure success against them. This is not always the case. For example, the government has said that it wants to build one million homes in England over the course of this Parliament. And yet the Home Builders Federation has convincingly argued that the house building statistics being used to measure success against this target are methodologically flawed, underestimating the supply of new build homes by around 30,000 each year.    
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It is clear that the new industrial strategy will take some time to be fully configured – the discussion paper soon to be published by the government may be followed by a White Paper at some point later in the year. There is nothing wrong with this type of slow and steady policy development, especially given that the stated aim of Greg Clark's is to build something that will last for decades. So far, the temptation to create an arbitrary set of targets against which to measure success seems to have been avoided. This is a good thing and should only change if the government is confident that setting targets will not negatively skew the policy response to important economic issues.