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Invest 2035: response from the IED
To inform our response to Invest 2035: the UK's modern industrial strategy the IED held an online consultation event on 11th November and invited members to email their input. The consultation only allowed answers to questions to be posted rather than general observations, and so discussion within the IED was limited to those questions in which members had specific views. Here, our Executive Director Nigel Wilcock sets out the key themes from our response.
The UK faces a significant challenge: how to identify and prioritise sectors and subsectors that can drive sustainable economic growth. While the government and various stakeholders are working towards a modern industrial strategy, it is crucial to understand the importance of place-based strategies, foundational sectors, and addressing barriers that may hinder investment and growth across different regions.
Identifying priority key sectors for growth
The UK’s approach to growth-driving sectors must be adaptable, considering the unique economic landscapes of different regions. Local industries may share overarching characteristics but differ significantly in terms of supply chains, technical solutions, and business structures. A prime example is the green hydrogen sector: ITM Power in Sheffield operates with a distinct technical solution compared to Ineos in Runcorn, highlighting the nuanced nature of industrial development across regions.
This diversity calls for a flexible approach when selecting which sectors and subsectors to prioritise in the Industrial Strategy. While it is essential to focus on emerging high-growth areas, there is concern that the current strategy may overlook other foundational sectors such as agriculture, food manufacturing, transport, and construction. These industries may not be high-tech but are crucial in maintaining economic stability, providing jobs, and contributing to the supply chain.
Any sector-based strategy must acknowledge the limitations of traditional data sources. Conventional methods of measuring productivity, often based on extrapolated data, are imperfect and may not accurately reflect regional economic activity. As such, new data-driven approaches, informed by both emerging technologies and localised insights, will be necessary to better capture the evolving landscape of the economy.
Accounting for emerging sectors and technologies
As new technologies and sectors emerge, the conventional methods of data collection and classification, such as the Standard Industrial Classification codes, need to be revised. With rapid advances in sectors like AI, biotechnology, and renewable energy, traditional data systems often fail to provide a comprehensive view of economic activity in these areas.
The UK government’s digital transformation is central to addressing these challenges. By leveraging AI and data analytics, it is possible to predict emerging sectors more accurately and ensure that future policies are informed by up-to-date data. This would enable policymakers to make more informed decisions about where to invest and which technologies and industries should be prioritised.
Integrating foundational sectors into economic growth
While high-tech and emerging sectors often grab the spotlight, foundational sectors such as food manufacturing, care, and transport form the backbone of the UK economy. These industries provide essential services and products, particularly in rural areas, where economic growth is often slower.
An essential part of the Industrial Strategy will be to recognise and support these foundational sectors. By investing in technological improvements and productivity enhancements in sectors like food manufacturing, the UK can not only create new jobs but also help these industries compete on a global scale. Such support should be cross-departmental, drawing on expertise in skills development, infrastructure, and long-term planning.
Addressing the challenges of the foundational economy will require a comprehensive and coordinated strategy. This includes long-term investment in skills, addressing workforce shortages, improving infrastructure, and tackling inequalities in areas of stagnant growth.
Removing barriers to investment
Investing in regional growth across the UK is often hindered by several key barriers. One of the most significant is the lack of local business support mechanisms. Not every region in the UK has access to the necessary resources or expertise to engage effectively with businesses and attract investment. This gap in support services leaves many areas underdeveloped and underfunded.
To address this, the UK government must prioritise business development and investment support at the local level. For example, devolution of business development funding, alongside clear and consistent infrastructure planning, would enable local authorities to create targeted strategies to attract businesses, boost productivity, and create jobs. The Growth Hub model, which fosters local business development, should continue to be supported, along with multi-year funding streams to provide long-term stability.
A significant barrier to investment remains the lack of business confidence. The government must foster an environment of certainty, with clear and predictable policies that provide a stable foundation for businesses to invest and grow. This also involves creating a more integrated and collaborative approach to policymaking, ensuring that government departments embrace digital transformation and align their policies with the needs of businesses.
Developing people and skills for a growing economy
To ensure that the UK’s growth sectors are sustainable, there must be a focus on skills development and workforce readiness. The UK’s future workforce needs to be equipped with the skills demanded by modern industries, from AI and digital technologies to green energy and healthcare.
The government can support this by devolving skills funding to local authorities or Mayoral Combined Authorities. This would allow regions to tailor their skills strategies to the needs of local industries, ensuring that the workforce is prepared for emerging sectors. Local authorities would play a central role in assessing skills gaps, providing training, and creating clear pathways into employment.
In addition, the Apprenticeship Levy should be reformed to provide greater flexibility, enabling employers to better align training opportunities with their specific needs. By fostering stronger partnerships between local government, businesses, and training providers, the UK can create a more agile and responsive workforce, better suited to the demands of the modern economy.
Fostering innovation and technological adoption
Innovation is a key driver of economic growth, and the UK must foster an environment where technology adoption and diffusion are encouraged.
However, challenges remain in terms of integrating new technologies into established industries. To address this, the UK should strengthen its research and development programs, focusing on collaboration with international partners, particularly in areas like nuclear fusion, where the UK can collaborate with the EU to develop competitive research programs.
In addition to fostering innovation at the national level, there should be more efforts to support local businesses in adopting new technologies. This could involve government-backed schemes to SMEs invest in research and technology, ensuring that innovation is not limited to large corporations but reaches every corner of the economy.
Strategic infrastructure investment
A critical aspect of the UK’s industrial strategy is the provision of infrastructure. For regional growth to be sustainable, the UK must address decades of underinvestment, particularly in energy and digital infrastructure. Strategic investment in these areas is essential for supporting growth-driving sectors such as green energy, digital technologies, and manufacturing.
The UK must ensure that infrastructure projects are not only ambitious but also well-funded and aligned with international standards. A long-term, consistent approach to infrastructure investment will provide businesses with the confidence they need to expand and innovate, particularly in sectors that require significant capital and resources.
Ensuring that industrial sites across the UK are ready for investment is crucial. Many older industrial units need to be retrofitted to meet modern standards, and areas designated for industrial use must be carefully planned to avoid future conflicts with housing and other developments. Strategic planning will be necessary to identify the most critical sites for investment, ensuring that they are equipped with the necessary infrastructure and resources.
Concluding thoughts
The success of the UK’s Industrial Strategy will depend on a holistic approach that balances emerging sectors with foundational industries, addresses barriers to investment, and empowers local authorities. By creating a more flexible, place-based strategy, fostering innovation, and investing in skills and infrastructure, the UK can unlock the potential of its regions and drive long-term, sustainable economic growth.
As first outlined in our Grow Local, Grow National manifesto, local authorities play a central role in driving regional growth, and giving them statutory powers over economic development would allow them to respond more effectively to local needs. Local governments have a unique understanding of their communities and economies, and by empowering them with the tools and resources they need, the UK can unlock growth potential across the country.
The IED, in representing practitioners who will be at the coalface of supporting the execution of the Industrial Strategy, is actively seeking a place on the Industrial Strategy Council or be consulted as part of a taskforce reporting to Council on national strategy, local growth plans and other policy mechanisms.