In the scramble for chips, Britain needs to come out on top
Rishi Sunak wants to put science at the heart of his government, but as the US and the EU scramble to stay on top of the semiconductor supply chain crisis, the UK has a hefty hill to climb, writes Gerard B. Lyons.
Earlier this week, the prime minister rebooted his government with technology right at its heart. And there is no more technology more critical than the computer chip. These chips, or semiconductors, are found in almost every electronic device on the planet. Without them, the digital revolution and the dawn of the computer age would have been impossible. They will also be essential to the net zero transition and proliferation of artificial intelligence.
Semiconductors rose up the list of key technologies after pandemic-induced industrial shifts and natural disasters boosted their cost. Geopolitical tension between the US and China, linked to Taiwan’s extraordinary dominance of high-end chip manufacturing, has added to political concern. Any disruption to these delicate supply chains has significant consequences for the world economy.
In response, the US passed its CHIPS and Science Act, injecting more than $70bn into its semiconductor sector. The EU has also announced an unprecedented level of support to double its global market share by 2030. South Korea is aiming to build the world’s largest supply chain by 2030, while Japan recently approved a further $6.8 billion in funding for the sector. Tellingly, China is thought to be preparing over $100bn in subsidies.
For the UK this sector of huge strategic importance and its trade alone is worth $1.7tn a year globally. Taking advantage of this wave of retrenchment is not just in the interests of our national security, but of our economy too.
The government has set its sights high, saying it wants the UK to be a science and technology “superpower”. But while the creation of a new Department for Science, Innovation and Technology is welcome, a new department alone is not enough. Successive administrations have promised a formal semiconductor sector strategy but it is yet to be published, and the UK runs the risk of being left behind in a global scramble for chips.
But we need a targeted approach. It would be foolish to join the ongoing subsidy arms race or try to select national champions only to see them crushed by their Taiwanese, American or Dutch rivals. And frankly, the state of the public finances means we cannot afford to either. Instead, we need to deliver market-led, investment-friendly policies to attract more capital and talent into the British sector.
The history of UK industrial policy is littered with firms who have grown fat on public subsidies before finally succumbing to market forces. To create an environment to enable a healthy semiconductor approach, we need an environment which fosters all R&D intensive sectors.
By doubling-down on the UK’s existing advantages – including world leading early-stage R&D, basic IP and chip design – we can lead the way in the next generation of semiconductor technologies. The UK’s extraordinary strength in areas like AI, quantum computing and life sciences can be turned into valuable global businesses.
There are practical policies which will help, such as bespoke R&D tax credits for companies in emerging technology selectors, as well as a dedicated fund, within the British Business Bank, to court international capital for those industries. None of this can be done without the talent, as we outline in the report, published by the Centre for Policy Studies today. Our immigration system can be flexed to our needs post-Brexit and we need to take full advantage of that to encourage highly skilled graduates to move to the UK.
The lines between industrial strategy and national security are increasingly blurred. They have led to a volatile landscape for the technologies of the future. Governments around the world are using national security to interfere with routine business transactions, as well as pouring billions into directly funding private enterprise. Rather than relying on inefficient, unaffordable and market-distorting subsidies, we should remove the barriers preventing our brilliant scientists and existing firms from getting going themselves. Then, it won’t just be an ambition to make the UK a scientific superpower, it will be reality.