Richard Partington | The Guardian 12 Aug 2023
UK governments let processor manufacturing drift overseas for years. Now Covid and war have shown how vital homegrown capability is, the country is scrambling to catch up. But so is everyone else
For a short time in the late 1990s, passengers stepping off the train at Newcastle station were greeted with a bold slogan: “Fish Into Chips – From Mackerel Economy To Micro Technology. Invest In North Tyneside – Siemens Did.”
As globalisation marched ever onwards after the fall of the Berlin Wall, this painfully British pun spoke of a swagger on the world stage. It referred to a vast £1.1bn microchip factory that the German industrial giant had just opened in the Wallsend area of the city, in a deal greased by taxpayer funding and personally brokered by John Major.
However, less than 18 months after a grand opening by Queen Elizabeth in May 1997 – weeks after Tony Blair’s landslide election victory – Siemens closed the site, axing 1,000 jobs and refusing to repay millions of pounds in taxpayer support.
“It didn’t go down very well. It was open for about two years, but we spent a fortune on it,” says Jonathan Blackie, who led the project locally as the government’s top civil servant for the north-east at the time.
“I was pretty much in the thick of it, from arrival to construction, then departure. Sunrise to sunset.”
Fast-forward to 2023 and Britain is again pushing into microtechnology amid an investment subsidy arms race involving the US, EU and China. After the world was hit by crippling semiconductor shortages during Covid, billions of dollars are being pumped into developing domestic production to keep supplies of these ubiquitous components flowing.
Geopolitical tensions are also a big factor, with the US and China trying to limit each other’s industries. The White House last week revealed plans to ban US investment in advanced Chinese microconductors, while in May, China said chips from US manufacturer Micron were a security risk.
In the UK, Rishi Sunak’s government announced plans in May to invest £1bn over 10 years in semiconductor research, design and production. However, his plan risks being blown out of the water by the vast subsidies on offer elsewhere, including Joe Biden’s $52bn (£41bn) Chips Act, and €43bn (£37bn) of EU subsidies.
Years of offshoring and gradual drift in the UK industry make the task harder, as was highlighted by Newcastle’s brief foray into the sector. While Britain has about 25 “fabs” (as microchip factories are known), the UK industry accounts for just 0.5% of global semiconductor sales.
The UK government does acknowledge that chips are important. Last year, it blocked the takeover by Chinese-owned Nexperia of south Wales’s Newport Wafer Fab, the UK’s biggest such factory (though making relatively low-end chips), citing national security grounds.
Yet it has ruled out trying to match the subsidies on offer in other countries. Paul Scully, the digital economy minister, last week told the Financial Times the UK should focus on strengths such as chip design, in which Cambridge-based Arm is a major player. Arm is planning to float on the New York Stock Exchange, having rejected the idea of a UK listing.
“We are not going to recreate Taiwan in south Wales,” said Scully. “It’s just not going to happen.”
Scott White of Pragmatic Semiconductor: ‘We could go to the US to get significant incentives – or the EU, or India, or other places.’
Scott White, founder of Pragmatic Semiconductor, a leading UK manufacturer, said: “Early innovation happened as much either [here] as it did in the US. In the 1980s and 90s we had a good base of silicon manufacturing here. A lot has basically moved overseas now.
“The government at the time didn’t do anything to try and stop that. There was basically no support to try and retain that in the UK, so it gradually drifted overseas.”
Based in Cambridge, with production facilities in County Durham, Pragmatic has incorporated a US business to take advantage of Biden’s multibillion-dollar microchip subsidies. While broadly supportive of Sunak’s attempts to keep up, he warns that investment incentives are vital.
“We could go to the US to get significant incentives – or the EU, or India, or other places. It drives an interesting decision: while we’d love to scale up in the UK, if we don’t have the same support incentives as elsewhere, how do we make case to our shareholders to do it just because we’re British?”
Investments in the semiconductor business are grounded in economics and geography. Fabs require large amounts of space, skilled workers, energy, access to water, and transport infrastructure. As globalisation advanced and China opened up to the world in the 1990s, offering new, low-cost competition, the industry steadily migrated offshore.