Renewed calls for a UK industrial strategy

Why Britain needs an improved industrial strategy

The UK’s lack of industrial strategy is its “Achilles’ heel”, according to Make UK, “the Manufacturer’s Organisation”. From data released from their report, 56% of firms don’t feel there has ever been a “robust government vision” for manufacturing in the UK, and that 99% of manufacturers believe the UK should have an industrial strategy. According to the report findings, 6 in 10 manufacturers believe the lack of an industrial strategy was “affecting growth in the manufacturing industry”, with 87% stating that a strategy would provide their business with a “better long-term vision”.

Incentives for investment into manufacturing

The UK may be falling behind other countries as large-scale firms are commercialising their research under more attractive tax systems overseas. According to the report, not one FTSE 100 company built a new manufacturing plant between 2003 and 2023.

Whilst neighbouring countries are prioritising attracting capital through investment decisions, the UK has failed to incentivise industrial strategy. As a result, start-ups are moving abroad where access to capital is more freely available, and only 2 of the 10 UK life science start-ups worth $1bn to float in the decade to 2021 chose to list in the UK.

Change required for UK industrial strategy

A new UK industrial strategy must take into account shifts in recent policy, from the aftermath of post-Brexit and Covid-19, to the transition towards Net Zero, developments in technology, and emphasis to spread growth evenly across the nation. Manufacturers have also stressed the importance of developing the skills gap, with 7 in 10 calling for skills to be “a core focus” within the strategy.

There is agreement amongst shareholders of 5 key areas in which the UK must take action to develop a successful industrial strategy, including skills, infrastructure, finance, innovation, and the business environment.

Industrial strategies outside the UK

The UK faces risk from international competition where other governing nations have introduced policies to draw investment. The US Inflations Reduction Act 2022 (IRA) has drawn major green investment. The law aims to increase investment in domestic energy production whilst promoting clean energy.

Similar policies are also being introduced across the EU, with a new industrial strategy aiming to have 40% of green technology homegrown by 2030 under the Net-Zero Industrial Act. Amongst these policies, the UK is the only developed nation without a formal industrial strategy, posing a major threat to green energy investment and the ongoing transition towards Net Zero. The government must take action to implement a strategy and encourage the development of green energy.

Market performance of manufacturing sector

The manufacturing sector has seen a faster decline in Britain since the mid-1990s than any other European economy according to figures from ONS. The decline of manufacturing has also coincided with the growing increase of the services sector, accounting for 81.2% of Britain’s economic input, increasing from 80% from before the pandemic. The ONS are due to release updated information of industry shares on 30 September.

Commenting on the performance of manufacturing, Make UK senior economist, Fhaheen Khan, stated their concerns are with “how manufacturing is perceived in the UK, to the rest of the world”. The total volume of the UK industrial and logistics market amounted to £6.6bn in 2023, down by 44% from 2022, and significantly lower than the 2021 record high of £15.2bn.

Despite this, the sector outperformed in both activity and returns in Q2 2024, accounting for 30% of the commercial market. Future interest rate cuts may result in a boost to market activity, and whilst overall investment volumes have stopped, increased business confidence could lead future growth.

Key recommendations for UK industrial strategy

For a successful industrial strategy, Make UK acknowledges that whilst the nation may not be able to compete with financial incentives offered by the US or EU, Britain can compete with innovation through a comprehensive strategy across technology, robotisation, renewable energies and training for implementation.

According to research by the Society of Chemical Industry (SCI), there is a need for “better job creation and productivity growth”. In their Manifesto for Industrial Science and Innovation Strategy, the SCI outline 4 key recommendations to increase growth, as outlined below:

• Introducing a single united body to represent all innovation and science-based businesses which the government can use for direct advice.
• Provision of funding through all stages of scaling a start-up from venture capital, pension fund and R&D funding.
• A competitive global tax regime to attract large scale investments in research and manufacturing, alongside large scale R&D centres, and access to green and competitive energy.
• Introduction of an innovation visa for highly skilled UK and overseas industrial scientists and engineers working on global projects and issues.

In response to government strategy, Rob Wood, chief UK economist at Pantheon Macroeconomics stated that they can “take decisions that would change the industrial mix- you can change education, you can change infrastructure, you can create incentives for investment”, though “there aren’t any on the horizon”, so the shift in the manufacturing sector “is likely to continue”.