Industrial Strategy – taking a punt?
ANDY WESTWOOD AND BART VAN ARK
A few hours after its publication a very smart colleague asked what were the differences between Labour’s new Industrial Strategy and a Conservative version under the last government? Our first reaction – perhaps inevitably – was to ask ‘which one?’, as there had been multiple growth strategies during their time in office. We settled on the Greg Clark era and the period between 2016-2019 when he had been Secretary of State at the newly created Department for Business, Energy and Industrial Strategy (BEIS) under Theresa May. Prior to that he’d served as first Universities and Science minister in 2014-2015 and then in the Cabinet as Secretary of State for Communities and Local Government, both of which helped to shape his thinking when he oversaw the launching of the then industrial strategy in 2017. We quickly agreed that there are many similarities with that era and with Clark’s overall approach. Unsurprisingly then, he now serves on the current Industrial Strategy Advisory Council (ISAC), after Labour revived the body that he had first established at that time.
The focus on missions, sectors and places is familiar and nearly a decade on, Keir Starmer and Jonathan Reynolds, like Clark and Theresa May at the time, are hoping that this is a strategy for the longer term. We already knew the now called ‘IS-8’ sectors from the publication of the outline strategy in October last year, but now this is followed up with much more detailed sector plans and a further refined analysis of where clusters of these activities actually operate. Alongside it lays out various foundations that will support all of the sectors and sub sectors and the rest of the economy.
The strategy sets some ambitious targets. In other words, it will be easy enough to monitor and to judge its success. Business investment in advanced manufacturing, clean energy industries and business services is expected to double by 2035 to £39bn, £30bn and £65bn annually. By 2030, the UK will have the biggest life sciences sector in Europe and with defence spending increasing to 5% of GDP.
The challenge of implementation
The long-term success of the UK’s new industrial strategy will hinge on three critical, and politically delicate, balancing acts. First, it must effectively integrate targeted sectoral strategies with broader horizontal policies across sectors. Second, the strategy’s emphasis on place-based development must be delivered without losing sight of national economic objectives. Finally, the government will need to maintain a steady, long-term commitment to implementation and funding, even while navigating short-term pressures like energy costs (and there will be many more as we go along) that risk diverting attention. Achieving all three will be essential to turning strategic ambition into lasting impact.
Industrial strategy can’t be all things to all people. At its core, it’s about reshaping the sectoral makeup of the economy to drive long-term growth through more productive use of resources – across the workforce, business landscape and regions of the UK. Frontier and foundational industries have been identified through extensive consultation and careful analysis of where economic potential aligns with credible opportunities for government intervention. Each of these industries requires its own tailored agenda, but success hinges on aligning cross-cutting policies, notably on skills, infrastructure, planning and innovation. While there is broad support for the strategy across government, its real test lies in implementation: whether policy silos can be broken down and departments can work together to manage inevitable trade-offs and unlock complementarities. Strong analytical capacity will be essential to support the tough decisions ahead.
A place-based strategy
The white paper goes considerably further on regional growth than the initial green paper on the industrial strategy last year, describing its approach as ‘unashamedly place based’ and focusing on the ‘city regions and clusters with the highest potential to support growth driving clusters’. This feels like a slight but welcome change in approach from the “South East heavy” growth speech that Rachel Reeves gave in Oxfordshire in January. It continues the emphasis set out in the Spending Review – when the Chancellor not only set out investment in larger city regions such as Greater Manchester, the West Midlands and West Yorkshire but also in towns like Barrow, Stevenage, Scunthorpe, Rochdale, Blackpool and Doncaster. Labour entered government promising growth and improved living standards everywhere and the rise of Reform in the polls and local/mayoral elections has strengthened their resolve.
But it is more than good politics to focus on a wider geographical approach in the strategy. Much industrial strategy ultimately happens in places and as the detail (and the explanation of the methodology for refining and identifying clusters in the technical annex) demonstrates, there are clusters and assets throughout the UK, with the IS-8 sectors reasonably well distributed across all regions. This offers both a political and economic opportunity and newly designated Industrial Strategy Zones, ‘investable sites’ and ‘recyclable growth funds’ for Mayors all follow hot on the heels of the major transport and infrastructure investment announced in the Spending Review.
This – for some at least – remains controversial but shouldn’t be. Key sectors and assets, e.g. universities and clusters, can in fact be found in lots of places. Some don’t want to believe that – instead thinking there is OxCam and London, and that everywhere else is a huge drain that government can only throw money down. It’s not true of course as shown, for example, in The Productivity Institute’s recent Regional Productivity Agenda. Whilst both financial services and the creative industries can thrive and grow in London, it’s not where we will manufacture submarines or build nuclear power stations. Oxford and Cambridge offer world leading ecosystems in sectors such as life sciences and AI but less so for offshore wind, manufacturing electrical vehicles or steel and chemicals.
Keeping the strategy alive through political cycles
Perhaps the most important thing about the Industrial Strategy is the stability and certainty that it promises. In Keir Starmer’s words – writing in the FT – it is ‘robust, strategic and unapologetically long-term’, a ‘ten-year plan to make the UK the best country to invest in anywhere in the world’. That will be some achievement if it is pulled off. Writing new economic strategies and creating new institutions and programmes has not been our problem – but sticking to them has been. The UK has had eleven growth strategies and seven sets of fiscal rules in the last decade.
As Giles Wilkes warned before the Spending Review, ‘stability, grown-up government, renewed respect for institutions and relentless repetition of their desire for growth’ might be called the ‘we’re not Liz Truss’ theory of growth’, but is unlikely to be sufficient on its own. The active measures to support sectors and clusters need to work too and be sustained over time. Here there is still much to get right. Departments such as the Department for Science, Innovation and Technology with research and development and innovation spending and the Department for Education overseeing the supply of skills need not just to lean into these sectors and clusters but to ruthlessly prioritise them. Mayors will need to develop effective Local Growth Plans full of ‘investable projects’ and find ways to build bigger and better innovation ecosystems and the policymaking capacity to identify and support them. Their partnerships with central government departments and their agencies will be critical.
This is now a test of implementation and how the strategy is delivered on a day-to-day basis. Writing it is the easier part – from here on it will require a relentless focus to make it work as government factors it into everyday decisions, buying and delivering services and developing further policies, projects and announcements. That requires improved co-ordination and knocking heads together when parts of this strategy are downplayed, forgotten or ignored. That oversight and responsibility must come primarily from No 10 and No 11 although the Department for Business and Trade (DBT) will still lead and coordinate day to day efforts, including overseeing relationships with business, firms and investors, as well as monitoring its effectiveness. All of this must happen consistently and effectively over the long term – and alongside the infrastructure plans set out in the Spending Review, it is as much a plan for government as it is for the economy. It sounds extremely challenging, but is only what many countries, with more productive economies, also have been trying to do.
The biggest test really comes in a few years when there might be different ministers at DBT and other major departments. Likewise different mayors in England – including from different political parties – or different administrations in Wales, Scotland and Northern Ireland. Successors – even of the same political persuasion – typically want to do their own thing. Culture trumps strategy and there are countless organisational and system norms in play here – constant policy churn from Whitehall silos, a disinterest in local and regional government and a preference for policy design over delivery in career development – all together for ripping things up and starting again when different priorities take over or the going gets tricky.
Then there is the ballot box. These plans will have to survive several elections (including a general election in around four years’ time) if it is to remain intact and relevant in 2035. Industrial Strategies – partly because of their long-term nature – have not proved to be great political strategies especially in poorer or former industrial regions. Failing to deliver growth and improvements in wages, living standards as well as in local infrastructure and public services, will come with a heavy price. The election of Donald Trump has simultaneously cast doubt on the effectiveness of industrial and regional policies under Biden while at the same time forming the case for redoubling the adoption of the same strategies here in the UK and in Europe. The UK’s industrial strategy is then much more than a plan for economic growth or taking a punt on key sectors and clusters. A great deal rides on it, so let’s hope that it works and that it lasts.
