How the UK can help solve the semiconductor shortage
The EU’s plan to build a semiconductor manufacturing industry will fail, but the UK should take advantage of that, says Matthew Lynn


There is no faulting the ambition. Last week, Ursula von der Leyen, the president of the European Commission, announced a new “Chips Act” to coordinate European efforts to create a microprocessor industry.
After falling way behind Taiwan, South Korea, the United States and China, the EU plans to take control of its member states’ industrial policy, and make sure the bloc takes at least 20% of the global chips market by the end of the decade.
Billions of euros will be made available for investment in research and development (R&D) and factories, and markets will be protected if necessary, while officials in Brussels will no doubt steer the continent’s car makers, electronics companies, and telecoms suppliers towards EU-based manufacturers.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The EU’s problem
There is certainly space for more players in this market. The challenges of the pandemic have created critical supply shortages this year. Even once that sorts itself out, as it will, there will still be huge and growing demand for processors. However, the EU is not nearly as good at creating new industries as it likes to pretend it is, and the more high-tech they are the worse its record.
Most recently we have seen that in vaccines. The EU hijacked control of the procurement of inoculations to deal with Covid-19. It ordered the wrong vaccines, in the wrong quantities, and found itself in a war of words with AstraZeneca, the manufacturer of the most cost-effective jab on the market. Far from boosting European industry, one of the intentions, it ended up completely reliant on the American-controlled Pfizer and Moderna vaccines, and while it caught up eventually it was way behind the US and UK.
We’ve seen the same with other projects. Remember Quaero? It was the alternative European search engine to Google that received hundreds of millions of euros in EU funding. Launched with huge fanfare, it quickly disappeared without trace. Or take the Europe 2020 strategy, launched in 2010, to create an “Innovation Union” that would be a world leader in new technologies. In the subsequent decade, it has fallen even further behind. The UK has as many tech “unicorns’” as the whole of Europe put together. The EU’s record is only consistent in one respect. It always fails. There is no reason it will be any different this time.
The EU doesn’t have the expertise to create a microchip industry. It will move too slowly, back the wrong technologies, and invest money where it is politically expedient rather than where it is needed. However, that creates an opportunity for the UK to fill the gap that undoubtedly exists. Britain has produced some huge microprocessor companies such as Arm, and promising ones such as Newport Wafer Fab – but it allowed them to be sold off. There are three obvious steps the government should take to repair that damage.
Three steps to a better strategy
First, expand the freeports so that chip plants can be built tax free. We are already building low-tax, low-regulation zones around the country. Let’s expand three or four of them and encourage microchip0- manufacturers and start-ups to base themselves there.
Next, create an R&D hub modelled on the new Vaccines Manufacturing and Innovation Centre in Oxfordshire. This would be a centre of excellence, bringing together cutting edge science and state-of-the-art manufacturing.
Finally, target state aid at selected manufacturers in computing. Even better, the Treasury should use its new Breakthrough fund, which invests in early-stage businesses that might struggle to attract funding elsewhere.
Most of all, a UK microprocessor strategy should be market-led, and work with the US and China instead of against them. Small countries can do well in this industry: Taiwan is a world leader. But top-down, statist, politically compromised industrial strategies almost always fail. The Chips Act will be added to that list, quickly bogged down in politics and suffocated in red tape. The UK should seize the opportunity. We might even be able to sell some processors to the rest of Europe.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
-
Trading terms: The Santa Rally
Glossary Will the Santa Rally result in its traditional December effect on global markets?
By Dr Matthew Partridge Published
-
Lock in high yields on savings, before they disappear
As interest rates peak, time to lock in high yields on your savings, while they are still available.
By Ruth Jackson-Kirby Published
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
By Jane Lewis Published
-
UK millennials are worse off than previous generations
The evidence shows that millennials today are getting a raw deal. And, ultimately, that's a political choice.
By Simon Wilson Published
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
By Jane Lewis Published
-
The jury's out on the AI summit at Bletchley Park
World governments gathered for an AI summit at Bletchley Park in November, but were they too focused on threats at the expense of economic benefits?
By Simon Wilson Published
-
As a market correction begins, money is on the move.
The force of a market correction is equal and opposite to the delusion that preceded it, so we can imagine that the correction will also be unparalleled.
By Bill Bonner Published
-
How small businesses can retain staff in a competitive job market
Small businesses are struggling to retain staff and compete against large companies with deep pockets.
By David Prosser Published
-
The French economy's Macron bubble is bursting
Cheap debt and a luxury boom have flattered the French economy. That streak of luck is running out.
By Matthew Lynn Published
-
K-pop hitman Bang Si-hyuk aims to repeat BTS phenomenon
Bang Si-hyuk created the world’s biggest boy band, BTS, making K-pop music a global sensation and himself very rich. Can he repeat the trick with a girl band?
By Jane Lewis Published