Tony Danker joined the CBI [Confederation of British Industry] as Director-General in November 2020, departing in 2023. Before the CBI, Tony was the first CEO of Be the Business, a business-led movement created to transform UK’s productivity founded by a group of FTSE-100 Chairmen and the former Chancellor of the Exchequer, George Osborne. From 2010-2017 Tony was International Director, then Chief Strategy Officer, at Guardian News & Media. He was previously Policy Advisor in HM Government joining the Cabinet Office and HM Treasury.
Matthew Fell is Chief Policy Director of the CBI, he is responsible for the CBI’s policy agenda and delivery of its Seize the Moment programme spanning decarbonisation, innovation, trade, thriving regions, skills & inclusion and health.
This interview was conducted on 1 February 2022.
Q: What has been your respective roles in growth and regional policy?
TD: I was at McKinsey, thinking about productivity, between 1998 and 2008. I was then a special adviser at the Cabinet Office and then the Treasury from 2008 to 2010. And from 2015 onwards, I was at Be the Business, thinking about regional productivity policy, and the CBI since 2020.
MF: I’ve been at the CBI since 1999. Most of my roles there have been on different policy briefs, of which the lion’s share have been oriented towards national policy but then thinking through the regional dimension. A couple of exceptions to that: at times I’ve overseen a network of regional councils and the insights we get from businesses on the ground in different parts of the UK; I’ve also now got responsibility for our thriving regions agenda where we’ve looked deliberately at regional policy and the drivers of regional growth.
Q: What is your headline evaluation of regional local policy over the past few decades, the key successes and the key frustrations?
TD: As I said in my annual conference speech, there has been an entirely logical shift of economic activity, towards high-skilled services which have been mostly located in the South East. Therefore, there was an inexorable shift, which was natural, market-driven, which aligns with the shift of manufacturing to other parts of the world and the closing of coal etc. Since then, most regional policy has failed to engage with the fundamental economic logic of why high-value sectors and high-value productivity were gravitating to the South East. It has failed to engage with business realities about location. I have characterised the public sector efforts on policy as: if we build it, they will come. And they just didn’t. The way that’s manifested itself right now is for example: the government has long tried clusters policy and when I raised it with Neil O’Brien, when he was writing the white paper this time around, he said ‘Yeah, but we’ve done clusters policy before and it hasn’t worked’ – and he’s right. It wasn’t really a failing of policy design or intent in the first instance, because I think most of the things, they tried to put in place are the things that Michael Porter will teach that you should be doing, and countries have done over the years. However, it was never connected to real firm decision-making and firm intent and firm participation.
My crystallising of this is: if you take some of the catapults which I experienced over the last five years, catapults have done a brilliant job to locate them, they are exactly the kind of institution one would create to increase regional economic development, but they managed to attract small numbers of businesses who were very community-focused. You see that a lot in UK regions: the most active large companies engaged in regional economic policy are doing so for strong heritage reasons. Sage in Newcastle, Brother in Manchester. But they never had a meaningful proposition for companies to engage. So what do I say that means? That means we need to have private sector led cluster policy as regional policy going forward. That is the sum of my learning. What we are trying to do at the CBI is to start with the question: ‘What would it take to believe that companies will locate here, invest here, collaborate here?’ And then design policy solutions to answer those requirements. I don’t believe that has ever been done. Or at least if it was done, it was done in a usual consultative way rather than true first principles way. It was never the first principles consideration.
Q: If you were thinking over the last 20 years in a first principles way about how to support industrial development, what would have been the right way?
TD: Matthew and I both reached this conclusion. The first thing to understand is this notion of the branch-line economy, which is: if you go around Britain’s regions, you will probably speak to and engage with, as well as Mayors, the local region manager of a national firm that’s not headquartered there. Manchester-based businesses, Andy Burnham will have a principal relationship with, they’ll generally have headquarters there and skills there and so on. But most of the time, the business people around the table in the local economic development conversation are branch managers and therefore probably the wrong people to engage with because they’re not really making resource allocation decisions and strategic decisions for the companies. That would be my observation number one. If you were doing it from first principles, you would have the right corporate decision-maker around the table.
Number two, I think you would follow existing success and potential, rather than try and do a desk-based exercise. You would chase momentum and move with the fastest. This is what I think some of the failing has been: we all want professional services everywhere; we all want digital everywhere. You would go where there is existing opportunity. Today, the way we think about that is that there is a place-based advantage that in turn has created a place-based story or momentum behind which policy should follow, rather than be centrally templated. We need Britain to be more digital, and we need that to happen in Manchester, Edinburgh, etc. The most obvious examples of that are: why we are now all of a sudden excited about Teesside and Humber and renewable energy? There’s a straightforward reason why that is true. There might be an opportunity, for example, to think about cybersecurity in the West of England and the M5 corridor. I think that idea of following momentum where there is already existing factor conditions and private sector success, I don’t think that was always true.
I’m trying to think of another first principles way: I think the policymaking process would begin with getting businesses – national, local, global businesses – to be very direct about what it would take to make investments in a place and to lock that into the policymaking process. Remember, businesses don’t act in concert, they need some kind of convening, which is why in places like the US you often build entities that become the collective engine of the private sector for that endeavour – which I don’t think we’ve ever done in the UK. We built local government institutions like RDAs, which I don’t think were quite as good at that. The second thing you would do is get them to have skin in the game. Our template for this would be: you would get ten companies who agree that they are all going to each invest in building, say, a local skills programme of a certain description over a three-year period. They would all have skin in the game: they in turn, were all going to invest R&D facilities in this place. Once you’ve done that, you would then be able to do policies like, say freeports, or cluster policy or HEMFE support policy. Because you had a set of stakeholders who had highly believable and commercial self-interest in coming together to make these investments. I think that’s what first principles would look like.
MF: One of the successes: it feels like there is more focus on it now than there was two decades ago. That might be a reflection of the fact actually that the situation might have got quite acute and bad. But I think there is more focus on it now, people are thinking about it. In terms of failures: I think chop and change is failing, we try an approach, and then we change it too quickly. I would also say, quite often, we have not found natural economic geographies to try and put bodies and groups around – sometimes too big, sometimes too small. Quite often the approach has been one of setting up places or regions to compete against one another, rather than playing to their own competitive structure. My final thought would be that there’s a devolution conundrum for business. For some companies, if you are a decent sized SME, a classic biggish fish in a smallish pond, you’d say ‘Actually bring on devolution because I fancy my chances and I can really influence that agenda.’ Whereas if I’m a multi-national, multi-site retailer, the thought of devolution could be my idea of a red tape nightmare because it’s all a little bit different in different places.
TD: On the chop and change point, Matthew is absolutely right. Charlie Mayfield and I went to Germany in 2017, to Bavaria, to try and discover what is the story of the German productivity miracle. One of the things we learned, and I also learned this in my McKinsey MGI [McKinsey Global Institute] days: consistently the Germans all believe that having consistent industrial policy for decades, since the war, is the cornerstone of their success. They still have a lot of chaos and initiatives and people trying stuff and so on. But the fundamentals of vocational training and the relationship between employers and university, institutions and mandatory chambers, the institutional framework and consistent policy framework, we just haven’t had that.
Q: In the 1980s there was a lot of industrial relocation and change happening. Industrial policy was a combination of privatisation and a focus on foreign direct investment but without a regional or local focus. Was that an example of focussing on strengths and going with the momentum?
TD: Yes, in my speech I critiqued Thatcher and benign neglect. The Daily Mail are now going for me for saying it. But it was economically logical – it gave birth to the city of London, it also allowed Edinburgh to be really good at financial services and it probably allowed Oxbridge to be really good at the things Oxbridge does. So, I think it is worth exploring whether or not those things shifted. First of all, technology and the labour market – and Covid will exacerbate this – allowed talent to be dispersed. The physical location of talent is less important than it used to be. Which is why you will have seen over the last 10 years the growth of at least sub-scale digital businesses all around the country, serving not just local clients but serving national clients. I remember Peter Mandelson, doing New Industries. There wasn’t a lot about it that had a regional flavour. It was probably new industries, new jobs that were yet again in the South East. If you were to do New Industries, New Jobs today, and you were to look at the green opportunity, that green opportunity is dispersed, genuinely dispersed. All of a sudden Liverpool’s alive with tidal power; the North East’s alive with renewables; the advantages the West Midlands had in automotive suddenly come alive again. I think it’s the first time since the 1980s that essentially, you’ve replaced manufacturing and mining with a natural economic opportunity for sectors to be somewhere else.
Q: Are you saying you end up with more regional balance by taking quite a sectoral, national approach to industrial policy?
Talking to people in Manchester and Leeds, for example, they’ll tell you: ‘On the face of it, we have sector penetration in financial services and professional services. But when you look at it, what we are is the back and middle office to London. So, all the high value productivity activity is still happening in the South.’ And I think shifting that is the only way that you will create value-add in a place. David Ross in Grimsby basically landed upon this idea that he needs to find a way to bring value-add into Grimsby because it’s got plenty of retail and it’s got plenty of fish, but all they do is spend the same amount, the same pound goes around the village, and there’s no new value-add coming into a place. Value-add doesn’t have to be sectoral, or isn’t only sectoral, but 80 per cent of it is sectoral. If you can’t attract high-value sectors to these places, you won’t grow productivity.
Q: On skills, R&D, business support, technological business support, do you want those being decided at the centre – rather than handing over the power and the resource and trying to get people to come up with their own local plans?
TD: My take would be that the centre is good so long as the centre buys wholeheartedly into the idea that ‘I cannot impose a certain type of competitiveness upon a place. I will follow its existing momentum and success rather than believe I can change it from above.’
MF: That combination of things, whether it’s skills or it’s R&D and so on, I think we would say, rather than imposing a sort of set quota of those or a set amount of each of those from the centre, you’d more be saying to the individual place, ‘What is the right combination or cocktail of those things that you require, and how much weight do you think you need to put on those, on skills, or R&D?’ And then be agile to that need.
Q: If you take your branch economy idea, the problem for the CBI is that most of your regional members are branch economy members, and most of your strategic guys would be on the President’s Committee at the centre. So, asking to have regional or local business-led development would mean handing power to your members regionally and locally who, as you said, aren’t the strategic, resource allocation people. Does that explain why there is scepticism among your senior members about that?
MF: I think there’s an element of that. It Is the big-volume employers in the country who more fit that description, deliverers, people, retail or big professional services firms, people who do big contracting, they tend to be those kinds of firms. That’s the conundrum I was talking about earlier – the more you do different style of approaches in places, that is a headache for them.
TD: I also think there’s an issue here about scale. One of the big arguments for a nationally coordinated approach is to avoid the subscale. I think there’s a real risk that everybody becomes subscale. That is my assessment of the failings of Greg Clark’s industrial strategy in 2017, where essentially everybody had to become green, digital, creative, etc. The truth is scale is important to cluster success and, confusingly, the right level of scale is actually different across sectors. I’ve done the creative services and television, right and it’s interesting that we should all fight to have a bit more TV production in Belfast, and we should also have it in Glasgow and Edinburgh. The truth is our long-term global competitiveness in television is at the England level, the UK level. So, one of the arguments for central, for national, is that I don’t think it is good for the competitiveness of each – it’s a market failure of regionalism, so to speak. I don’t think it’s good for the competitiveness of the UK or those regions to be sub-scaling stuff. I don’t know what we do about that, but I think there has to be a role for the centre, because otherwise every mayor is going to build a digital cluster and a green plan and, because we don’t have full fiscal devolution, the market won’t take care of that allocation of resources and the winners will win. You’re still relying on central government to fund universities, to fund research institutes. That is a recipe for low scale unless you have full fiscal devolution and a probably a bit more like the US where states genuinely compete against each other.
MF: On people and places competing against one another, in the RDA time, it was a bit confusing, if you’re looking into the UK internationally and you’ve got multiple places showing up saying, ‘Come here, we’re the best place to do this kind of thing.’
Q: Aside from institutional design, scale and how fragmented you go, what do you think of the policy bundle that the UK government has traditionally looked at and what should be the right set of policies?
MF: Over the last 12 months, when we’ve been talking about putting a focus on economic clusters, and then the first question is, ‘Okay, what policies do we need? What do we put in place?’ And the point is we don’t yet know. You need to get it going and ask that from bottom up. But there’s still the temptation to want to impose the policy.
Q: Isn’t this the fundamental question, if you don’t want to prejudge it, do you tell local areas to come up with a local plan and bid for you to decide at the centre? Or do you hand over the resource and let them decide?
TD: I personally think that you have to be prepared to go the whole hog and become essentially federal or state-based, because I think that places, regions will make effective choices about how and whether they can compete in a market-style way if they’ve got full autonomy and they have to make choices about where to compete.
Q: And that includes over tax?
TD: Yes, I think it’s already starting to happen in quite a soft way. That’s what’s really happening in the North West. Greater Manchester has won its share in certain industries, and there’s Steve Rotherham down the road trying to think, ‘Where’s the Mersey competitive advantage here?’ I think you’re starting to see it. It’s true to say that Mayors are starting to get into meaningful conversations with local industry against data about how to globally compete for FDI, where their strengths are. I don’t think I saw that happening during the 1980s and the 1990s. Maybe Howard [Bernstein] and Richard [Leese] decided to think about it that way, although I’m not even sure they did think about it that way. I don’t think they were thinking about globally competitive FDI. They were just thinking about momentum and good governance and private sector engagement.
Q: To do what you just said is very big and radical, you’d be redrawing the whole government map. You’d have to have big enough areas that can have a tax base you can tax. That’s a step beyond subregional mayors?
TD: I’m thinking out loud: how far do you have to go in order to have what I would call an effective regional marketplace, where everybody is in subscale and people pick where to compete? Does that have to involve tax-raising powers? I don’t know. It’s a good conversation. I’m not sure. The policy of the 1980s and the 1990s was characterised by: the North has been deindustrialised, mining and manufacturing is going away, skills are good, knowledge-based industries are good, therefore education funding should try and disperse as widely as possible STEM, engineering, technology-based skills; everybody needs to switch from manufacturing to services, everybody needs to switch to knowledge-based industries. In that sense, from a sort of maturity curve point of view, it was a pretty immature, phase-one response to economic realities. But it was nowhere near where I think we are now, which is to think about actually genuine competitiveness and whether or not you can be an at-scale player.
Q: Michael Heseltine would say that is exactly how he and the civil servants around him conceptualised this in the 1990s. They had a competitiveness agenda, they were saying, ‘Look to the strength of places and try and nourish it.’ The same was true in the 2000s in the RDAs, with nominally business-led boards. The coalition would say in the early 2010s, that LEPs were an effort to establish a genuine business-led voice.
TD: If I may, this really comes back to my opening point. Speaking to people who were on RDA boards and LEP boards, they all end up becoming the same thing: ‘How do we as business people have a say in the administration of public funds?’ I don’t think that is the same as: ‘How is this region going to compete and what will it take?’ Even though they would have those conversations on the annual strategy off-site. Essentially, what we’ve done in regional policy for years – and we are still doing it – is bring in business people to act as committees for the deployment of centralised government budgets, on the things that government can control. By the way, Michael Gove is about to do exactly the same thing. It’s going to be, ‘Right, what do you do with your skills budget? What do you do with your transport budget?’ It’s not been, and this is where I think mayors have started to make a difference, or Richard and Howard made a difference, they genuinely sat down and said, ‘Do you know what? I’m going to start with a private sector vision of the place. And then I’m going to try and get the things we do around the RDA table or the council table to feed that agenda.’ That is a late evolution.
Q: Do you think you should have sounding boards and local accountability, but have a national plan which you implement area by area? Or should you be handing over the planning and the resource to local areas and let them get on with it?
TD: There are two flaws with all this. First, we are assuming that a local plan for economic growth and the use of public money and public services are the same thing. What happened to RDA boards and to LEP boards as well, they may have a plan for what the region is, but what they then resort to as a daily job is the spending of government money on the things that government can do. I just don’t think those are the same things. What we’re talking about is local governance of local expenditure against government categories that impact an economy. I don’t think that’s the same as regional competitiveness. Why all of a sudden is the Humber and Teesside really exciting? Is it because they pulled off some kind of governance trick? No, it’s because the global economy has shifted towards areas where they are suddenly competitive. Second, the private sector is a poor collective actor and therefore ineffective at speaking to the other drivers of productivity growth, that aren’t controlled by government expenditure. It is structurally unable to act in concert. And I don’t think that government has ever tried to solve that problem through any other mechanism than, ‘Come to the table, we can talk about that, but then let’s just administer public funds some more.’ I think that’s a missing gap that needs to be solved. We’re trying to solve for that a little bit, but I think that’s quite hard. I think the only thing that overrides that issue of essentially economic policy driven by whatever government spends money on, not by a holistic view of economic policy, is if there is a structural shift in the economy which all of a sudden makes sectoral competitiveness relevant.
Q: Universities have a lot of resource and a lot of autonomy and they’re across the country. Whether universities work to support, nurture, encourage those big economic competitiveness shifts or not might make a difference to whether places succeed or not. But at the moment, universities aren’t really part of any business conversation about what they do or what they should do.
TD: There are a couple of things interesting about universities in this discussion. First, the whole university incentive structure is around filling courses. So, the ability of universities to use any other lands other than frankly their PnL, their ability to attract foreign students, the ability to get HEFCE [Higher Education Funding Council for England] money, this is all in their discretionary remaining budget. Secondly, the best universities compete globally, and so they think about this globally. The most interesting recent example, I think, is Exeter University which has got three of the top 10 climate professors in the world and, by the way, happens to be co-located with the Met Office. That’s a pretty interesting story. What does that mean? I think it means that if we’re not going to use the funding system, if we’re not going to use financial incentive to move universities towards more place-making, then there has to be something about that place that they find of long-term strategic interest, for them to actually do anything other than fill bums on seats.
MF: The funding piece drives the demand and therefore drives the offer that they provide. If that is entirely as it is at the moment, driven by, individuals and the students, it’s going to be driven by what they want, as opposed to the incentive to link with the companies on location on the ground and ask: ‘What’s their current and future skills need?’
TD: Both at the central level and at the regional level, my critique would be: policy has never really thought smartly enough about the incentives of firms or the incentives of, say, universities. And therefore, a statement of what we hope will happen that is not rooted in how people are currently incentivised; usually therefore, what that leads to is leaving the systems in place and the incentives in place because that’s too hard to change and having small pots of funding and small initiatives layered on top to try and work against what the systems are, what the national systems are already trying to do. That for me would probably characterise a lot of regional policy.
Q: Can we ask about the attitudes of Whitehall to working regionally and locally. Often people criticise the centralisation of the post-16 skills and FE over the period, is that something you would criticise?
MF: I think the FE question is still: effectively, is it hooking up to the current and future skills needs of the economy? That is all the conversation that we would have. And it gets stuck because the colleges, would say, ‘Well, we’ve got a pretty good insight about what are the future skills that we need.’ But companies are optimising for now rather than future need, and therefore there’s a bit of a trap about who invests in it and who funds the provision.
Q: That answer just begs the question: is the best way to think about that strategically through a national view of the provision we need, through a national sectoral view of the kind of provision we need across the country, or should you be gauging the views of employers at the regional, subregional and local level and devolving budgets and giving them the power to do so? Where do you think those strategic decisions are best made and who should they be consulting? If you talk to the Chambers of Commerce, they would say locally, and if you talk to CBI, you would probably say it’s good to get the local input, but frankly, we’ve got more capability centrally?
TD: I think the nuance is, who determines the place’s competitiveness. Obviously, it’s a bit iterative. But I think that the centre should be responsive to a local competitiveness strategy and, in as much as it is credible, it should back it. So, I think the centre as follower rather than leader. I’m sure ‘strategic enabler’ is probably the phrase. I don’t believe that the centre should determine the map. I think that the centre should critique the map. But I think that the centre should be minded to back different regional economic strategies and it should therefore coordinate a smart deployment of central funds that therefore has a regional bias. Take green R&D funding to the South West because that’s a region which has decided it’s going big and is aligning its skills strategy. It’s relationships with business, it’s government assets, in a smart way that makes this a believable investment. A pretty good example might be to think about investors. To think about central government as investors. Whether it’s PE [Private Equity] or VC [Venture Capital] or institutional investors, they back credible plans from others, from regions. But in the end, I have the power because I’m controlling a lot of the resources.
MF: What’s the equivalent of an air traffic control? All that, ‘That isn’t bureaucratic’ or ‘Centre knows best’ kind of thing. It would do a lot of the pushing down, and then it would just say, ‘Look, there’s the sense check’. And also, ‘Is anyone inadvertently just completely replicating what’s going on down the road’.
Q: We’ve spoken about tax in the context of fiscal federalism. You’ve several times mentioned incentives. Should the UK have made more liberal use of the tax system to incentivise investments in regions in people or forms of capital in regions?
TD: We are going to get a group of multinational, national and local businesses and universities together in the Humber to ask ‘What would it take to believe we’d all invest more and make this the most successful green cluster in the world?’ If tax comes up, then it’s the right answer. If it doesn’t, it’s the wrong answer. I always say about freeports: it’s an answer to a question that no one was asking. If, all of a sudden, out of a conversation with the private sector with some decent analysis, that turned around and said, ‘You know what, we really need tax incentives around here to attract FDI or to locate people in a cluster effect’, I’d say it’s the answer. But I would have thought that the story of successful clusters didn’t begin with the tax cut, but maybe a tax cut was used as an accelerator.
MF: A flip side of that, of course, is tax-raising powers. All the companies would say: give me a level of confidence that I’ve got a say and an influence over it. How well spent is it? And is it channelled into the right productivity-enhancing, investment-enhancing stuff?
Q: Is there a particular innovation or success story from policy over the past few decades in the UK that we should really treasure and seek to replicate and scale?
TD: Personally think it is that you follow the inbuilt advantages of a place. That’s the Cambridge story. You build out science and innovation opportunity around Cambridge because of the university. It is the story of Exeter and climate and the Met Office. It’s now the emerging story of the Humber and renewables. There is a characteristic of a place which make it a natural magnet for investment and momentum. And policy – central, national policy – needs to back local logic.
Q: Following on from that, do we need a spatial plan for the country to allow for the growth of places like Cambridge and potentially the relative decline of other places?
TD: My view is there a bell curve distribution of places based on their inherent advantages. Let’s have that bell curve be better than London and everyone else or London, Manchester and everyone else. But does this mean that every town in the country can be part of a phenomenally successful cluster? No. I don’t know what to do with Blackpool. I haven’t got a good answer. The truth is they probably all should drive down the road to do manufacturing jobs.
MF: That’s where your transport ecosystem plays in. London is really successful because it’s got this giant labour market pool that it can tap into, whereas the reality at the moment if you live in the West of Leeds and you want to take a job in Manchester is that you’ve pretty much got to move house.
ENDS