An engine for economic growth

At first glance, seed potatoes and aeroplane wings have little, if anything, in common. But there is a link: both are products of sectors in which government and business are building strong partnerships to achieve a shared goal. More on that later.

Let’s start with wings. The UK makes wings for about half of the world’s aeroplanes – one of the reasons why the £24bn UK aerospace industry is the second largest in the world, after America. But the sector cannot be complacent: there is increased global competition and “some of the conventional structures and systems that underpin commercial aircraft are subject to substantial changes,” explains Professor Keith Hayward, lead researcher at the Royal Aeronautical Society. “Radically new technologies will appear in the 2020s, that will affect design for products for the 2030s.” With lengthy product development timescales, British firms must move quickly to ensure they maintain a competitive advantage as technologies evolve.

According to Huw Walters, director of aerospace, marine and defence at the Department for Business, Innovation and Skills, competitive advantage “depends on your understanding of aerodynamics technologies, and this is an area where over the last 20 years capabilities in UK have become really fragmented”. This fragmentation was identified by the Aerospace Growth Partnership (AGP) – a government-industry forum – as an immediate challenge when it first started meeting in 2010. So the AGP developed a business case and secured government funding, announced in the 2012 budget, to set up a UK Aerodynamics Centre. This organisation has a £60m budget over two years and has paved the way for the much larger, longer-term investment announced in the recently published aerospace industry strategy.

This strategy is a “bold, ambitious” document, according to Alex van Besouw, a senior policy adviser at the CBI, and was published in March. It has been widely welcomed: Hayward, for example, wrote shortly after its release that it “has radically changed my outlook”, making him much more positive about government’s commitment to aerospace. Indeed, he believes that there has been “a step-change in the government-industry partnership”.

The nitty gritty
This partnership starts at the highest level, with an Aerospace Business Leaders group, chaired by business secretary Vince Cable, that meets once a year. Beneath this sits the AGP, whose steering group is jointly chaired by business and enterprise minister Michael Fallon and Marcus Bryson, chief executive of GKN Aerospace and vice president of trade association ADS.

Beneath the AGP’s steering group sit five working groups looking at strategy; technology; manufacturing; supply chain development; and external engagement. These groups together comprise around 80 senior executives from aerospace businesses and relevant trade associations, and they meet about every fortnight. Secretariat support is shared between BIS and ADS, though it is largely carried out by eight industry secondees working in BIS. “It is a genuine hybrid relationship,” says Paul Everitt, chief executive of trade association ADS. “It’s not government running a process; it’s not industry running a process. That has some challenges – sometimes you don’t move as quickly as you would like – but the quality of [the relationship] is very important.”

Building trust
The close relationship between government and industry is also recognised as a strength by Van Besouw: he’s pleased that “business was in the driving seat” as the strategy was written, rather than government dictating the agenda. Asked what was important in making the partnership a success, BIS’s Walters echoes this: “We wanted to really understand what drove companies,” he says, and his team kept an open mind: “We didn’t come at it with any preconceptions; we started this after the election when it wasn’t quite clear where the coalition was going to be on their industrial policy.” It was, therefore, a good opportunity to “go back to basics” and understand the strategies of individual companies as well as the dynamics at work across the sector.

The need to understand companies’ aims is also emphasised by Helen Crews, a civil servant who has been seeking to build government-industry partnerships to improve the efficiency of the plant health inspection regime. Here’s where the seed potatoes come in. Crews, head of better regulation at FERA, an executive agency of the environment department, co-ordinates seven taskforces that were set up after the Treasury required all departments and agencies to increase fees for regulatory activities, aiming to recover the full costs of these activities within three years. The taskforces, covering areas such as plant importing and seed potato classification, set out to find ways to make FERA’s work more efficient – so that fees would not have to rise too much – and to keep industry informed about the planned changes. So far the taskforces have found ways to reduce costs by about 20 per cent, minimising the charges faced by industry.

Crews describes how, in early meetings, she sought to establish a good understanding of the issues facing each group: “The first thing I did with the taskforces was brainstorming to find out what were their key issues and then to find out whether they thought they could be achieved in the short, medium or long term.” She then asked participants to use this information to identify their priorities, encouraging them to realise “government spending is finite; it’s not an open purse and if you spend money on one thing something else has to be put on the back burner.”

Overall, she says, the feedback has been that industry values the “transparency of the approach in terms of understanding how civil servants and ministers have to work, and giving [businesses] as much financial information as we can to explain the background to some of these fees and charges and how they are calculated.”

Walters also advises being open with industry partners about the challenges facing government – whether financial or political. This isn’t always easy, he says: “We were quite nervous about how open we were initially about some of these things, because they can occasionally come back to bite you, [but] what we found is that the companies have responded very well to that; they’ve appreciated the constraints and the many things they can do to help us deliver.”

Walters describes how, as government demonstrated openness and a desire to understand industry needs, its partners also became more open. “We moved from what could be quite a transactional relationship, with companies just coming to government with shopping lists, to genuinely talking about strategy and how we could deliver those bits of it where government and industry both have levers that they can operate together.”

Different horizons
Moving away from this transactional relationship was important as the aerospace partners sought to prioritise their activity to match limited resources. Walters says that previous attempts to work with the aerospace sector were “probably too diffuse in the sorts of issues they were looking at; there was a philosophy of trying to keep everybody happy and do everything”. In the current partnership, they “had to prioritise pretty ruthlessly,” which, “given that you had companies within that group doing quite a wide range of things, was quite a hard process”.

Similar to Crews’ brainstorming, one of the first pieces of work the AGP completed was to divide the challenges facing aerospace into short, medium and long term challenges. From these discussions it became clear, says Walters, that it’s not just the amount of money invested by government that’s important, “but it’s the predictability and the long-term stability of funding: in aerospace it takes you seven years to produce a new technology.”

With this in mind, a particular, “unprecedented” success of the AGP was “getting the Treasury and ministers to sign up to funding [an Aerospace Technology Institute (ATI)] that goes beyond not just the life of this Parliament but beyond the life of the next one as well,” Walters says. The ATI is backed by £1bn of government funding, and £1bn of private funding, over the next seven years. It will consist of 30-50 staff, mainly seconded from industry and academia and will, says Everitt, act as a “board of directors of UK aerospace R&D, to ensure that we’re investing in the right things and have maximum competitive advantage.”

Securing this agreement was made easier, says Walters, because the AGP had already demonstrated the success of the ATI model – though on a smaller scale – through the UK Aerodynamics Centre. So the early work in identifying short term priorities also fed into the longer term strategy. Everitt advises civil servants to keep these long term challenges in mind right from the start of any partnership and cautions them not to go looking for “low-hanging fruit”, adding: “One always understands the motivation – ‘We want to get some wins under our belt’ – but actually, what that too often does is divert attention from building a better understanding of the long-term requirements and needs. Some of the stuff [industry needs] is difficult. It does take time, and you have to be prepared to commit to putting in that time in order to get the rewards out.”

Convening power
Though the government funding commitments in the aerospace industry strategy are impressive – £1.6bn over the next 10 years, with £1bn of new money from the Treasury – Everitt says that the value of government support for industry doesn’t just boil down to funding. Sometimes the value government brings is “not money at all: it’s their convening power,” he says, explaining that it’s the “ability to bring everyone together and create a serious and structured dialogue which is the value; not launching another scheme.”

This is particularly true with regards to the financing challenges, he says, pointing to the Aerospace Finance Forum, set up as a result of the strategy. This includes representatives from finance institutions as well as the industry, and will be “debating and discussing why there are challenges [for firms accessing finance] and possible routes to overcome them,” says Everitt. A “particularly positive” outcome from the forum’s early meetings is that RBS and Barclays have agreed to set up a network of aerospace specialists who will have a better understanding of business cases submitted by companies in this sector.

So how do civil servants make sure they have the right people in the room when they set up these partnerships? Start with the people you work with regularly, says Crews – whose team began with “the people on the receiving end of our invoices”, that is, companies who must comply with plant health regulations – and then include trade associations or unions, and colleagues from other parts of government. Then, she advises, be flexible. Some people have been referred to FERA’s taskforces by word of mouth; some by existing participants: “We ask the membership: ‘Is there a gap here?’ and where we are able we invite somebody along who fills that gap.” She cautions, though, against making the group too big – FERA’s taskforces have between 10 and 20 members each.

Political consensus
Everitt also emphasises the need for political continuity: “Business is looking for the long term horizon and as much certainty as it can get, so having a common appreciation [among political parties] of what government needs to do and a commitment to do that is clearly important from a business perspective,” he says. He sees broad continuity between this and the last administration, using the Automotive Council – another government-industry partnership, established under Labour – as an example. “We have seen a significant amount of investment made into the automotive sector by key global players,” he says. Companies recognised that the transition between governments hadn’t created a major break in policy direction and therefore had “much more confidence that the UK was going to be a stable environment to invest in.”

Trade association ADS tries to foster this sort of continuity by ensuring that all political parties are regularly briefed about the work of the AGP and the progress of the industrial strategy, says Everitt, “so that it’s not seen as a party political discussion but a national project which is about ensuring that we have a bright industrial future.”

Civil servants can also help to provide continuity over time through their own staffing choices. Walters notes that the people he deals with in industry have often “seen off my two predecessors”, having been in post for many years. Businesses “like to engage with people who understand the issues and who understand the sector,” he says. “Sometimes we do move people around a bit too quickly so we don’t have that sort of informed, intelligent interface with industry.”

Ministerial buy-in
Another aspect of the non-financial value provided by government is the clout of ministerial backing. The CBI’s Van Besouw believes that strong political buy-in – “ having a minister around the table who is committed to the agenda” – has been critical to the success of the AGP so far, and will carry on being important as the strategy is implemented and ministers play a continued role in championing the aerospace sector across government.

Everitt notes that ministers can bring a particular value in encouraging overseas investments in the UK. He praises the current government for its appreciation of this: “We’ve seen, from the prime minister down, a much greater willingness to be seen to be promoting UK businesses abroad,” he says, suggesting this is in part a response to messages from industry. “Particularly where you’re dealing with major investors or relationships that take a long time to build, it’s important that the UK government is seen to be on the side of industry; working with industry and engaged in helping us to win business.”

While the AGP and FERA’s taskforces may have made good headway in building joint working between civil servants and their industry partners, the work is not done. For FERA the challenge will be in continuing to find efficiencies and using the mutual understanding developed by the taskforces to improve the operation of the inspection regime. For the AGP, says Walters, “we all realise that the real challenge and real work starts now in delivering [the strategy]. The really positive thing is that there is still, even two and a half years into this process, a huge amount of enthusiasm both on our side and the industry side.”

Crews, too, mentions the enthusiasm of industry partners. “If people are bothered to come onto a taskforce they’re interested; they’re enthusiastic; they take it seriously,” she says, “so don’t underestimate their willingness to try and make things work.” Everitt agrees, and urges civil servants to put aside any cynicism they may have about working with business people. The senior executives who are “engaging in these kinds of activities are doing it less because of their business and more because of a genuine desire to see the UK do well,” he says. Stop worrying about ulterior motives, he suggests, and “engage on some pieces of work that build a common understanding of the environment, which then allow some joint working on overcoming key barriers.” Finally, don’t be daunted by the challenges which this may throw up: “You have to recognise that some of this stuff may not change overnight, but it will never change unless you start.”