Will 2025 be the year when a UK industrial strategy finally takes shape?

This year will see the return of a fully-fledged industrial strategy from a UK Government, and will also herald in another round of devolution.

Conservative Prime Minister Theresa May announced an industrial strategy in 2017 but it was soon ditched by her successor, Boris Johnson. This year will see a Labour Government bring it back.

However, far from ‘picking winners or propping up losers’, the latest attempt at an industrial strategy will recognise a number of key issues.

The first of these is that one cannot separate skills, innovation and investment, and one cannot deliver a skills strategy for Bolton from 10 Downing Street in London.

As a result, Labour’s version will recognise that national strategy can be no more than a framework for local or regional strategies, backed up by devolution deals.

Thus, the Mayors of England’s 10 combined local authorities, the Governments of Wales and Scotland plus the Northern Ireland Assembly will have agency, but also responsibility to deliver a joined-up approach to skills, business support, inward investment, supply chains and clusters, with UK Government departments enabling rather than setting the approach.

It is entirely possible that I am being far too naïve in hoping for this, but it is the only way that the UK will plan its way out of its long-term productivity slump, and based on the responses to the green paper for the industrial strategy that the UK Government has collected, Whitehall may be faced with no choice but to finally deliver.  

And this is because governments intervening in markets is not isolated to incoming US President Donald Trump’s much-heralded tariffs.

Industrial strategies are once again in vogue across the globe. As outlined in former Italian Prime Minister Mario Draghi’s report for the European Union on the future of European competitiveness, there have been about 4,000 trade-distorting industrial policy measures worldwide in the last two years.

As such, one needs to see the UK’s version of this as being both pro-active, in terms of the specific aims of the UK, and reactive, in terms of considering the policies of its competitors.

How do we tackle under-investment?

At the simplest level, the nature of the UK’s problem revolves around productivity growth. Firstly, the UK’s growth is low when compared with other countries and there is also the seemingly ever-increasing disparity between the south east of England and the rest of the UK.

However, another problem that is often ignored is the disparity in earnings that often exists over very small distances, between, for example, north and south Nottinghamshire, or Solihull and Dudley in the West Midlands.

The explanations for this are multi-faceted, but they lie at the heart of what industrial strategy should seek to deliver.

At its core, the UK’s problem is one of under-investment, not just in capital equipment or in technology, but also in skills and infrastructure.

The explanations for this are again multi-faceted, ranging from the nature of our labour market, which does not prioritise investment in skills within the private sector, to low capacity for investment in many of our crucial supply chains, with commuting areas that are suboptimal due to low levels of transport infrastructure.

These in turn all feed the UK’s productivity problem that an industrial strategy should seek to address.

Taking the private sector investment problem as the main focus, it is clear that for at least 40 years, the UK has, as a society prioritised efficiency and the need to cut costs.

This has led, for example, to firms within supply chains seeing their margins squeezed in search of greater efficiency by firms higher up the chain, thus providing little financial or human capacity for investment or innovation.

There is a lot to like about the UK Government’s green paper, Invest 2035, including a stronger footing for the Industrial Strategy Council, the need to address regional inequality, and the emphasis on innovation and R&D.

It also places a great deal of emphasis on the need to address this lack of investment, correctly identifying the fact that there is no easy solution, and that addressing this requires both a sector-based and place-based approach.

In order to address this, one needs to consider the value proposition for investment, at either a local or national level. For example, large firms contemplating investing in the UK will consider phenomena such as skills provision, or the capacity of local supply chains to deliver required inputs, while SMEs will consider the nature of demand as well as the ability to raise capital and support in finding new markets.

A UK industrial strategy needs to bring this all together.

Are regional clusters the way forward?

The solution proposed in the green paper, for good reasons, is one centred on clusters. Too many industrial strategies have floundered on either seeking to pick winners or providing essentially short-term support for sluggish employment growth.

Even if these strategies had proved successful, it is impossible to do all of this everywhere, so identifying clusters and seeking to develop wider investment propositions based on areas of strength would, on the face of things, be a sensible proposition.

Moreover, it offers a solution to the need to be both place-based and sector-based.

This is provided, of course, that the complexities of this strategy can be met. Not only will it have to cut across a whole range of Government departments – from the Department for Business and Trade to offices of state holding briefs for education, investment and possibly energy and net zero, and science and technology too – but it will also have to co-operate at a local level with devolved administrations.

This will bring together the case for investment at a local level, as well as interventions on transport, energy, skills, supply chains and business support, but these still need to be better aligned and local Mayors need to have more agency over the large financial decisions that accompany them.

It is a mammoth task for the new UK Government and one that starts in 2025.

Further reading:

Predictions for 2025: a bleak outlook but with glimmers of light and hope

What will 2025 bring for energy and climate action?

How employee wellbeing will move up the agenda in 2025

Social economy to gain ground in 2025 as companies see the benefits

The EU will lead the way on sustainability reporting in 2025

Navigating AI in 2025: the promise and the pitfalls

The NHS in 2025: A tale of targets, technology and transformation

Nigel Driffield is Professor of International Business and Deputy Pro Vice Chancellor for Regional Engagement. He is also Midlands Lead for The Productivity Institute and teaches on the Undergraduate programme.