The Modern Industrial Strategy: Time to focus

The government yesterday set out its Modern Industrial Strategy. Against a backdrop of technological change and rising global instability, the document is intended to act as a blueprint for the UK’s growth over the next decade.

At its heart is a focus on eight sectors which the government believes have the greatest potential for growth, dubbed the ‘IS-8’: advanced manufacturing, creative industries, clean energy, digital technologies, professional and business services, life sciences, financial services and defence.

Measures include a flagship plan to reduce energy costs for the IS-8 by creating a new British Industrial Competitiveness Scheme, channelling R&D and skills funding to the IS-8 via existing institutions such as the National Wealth Fund, and further regulatory and planning reform.

The focus on the IS-8 is clearly welcome for businesses in these sectors. But there are a huge number of businesses that are not included in them: the government expects around 7,000 firms to benefit from the British Industrial Competitiveness Scheme, out of around 250,000 manufacturing businesses in the UK.

These may reasonably feel like there’s little in the strategy for them. In reality, the government will see itself as having little choice but to target intervention. It has been clear over the last year about the financial constraints it faces: any spending needs to have a pay-off. Picking winners has worked in the past for Germany and South Korea. Government is making a similar bet here.

The country’s fiscal constraints are also visible in the limited number of new initiatives in the strategy. Many of the spending commitments are repurposed from existing announcements. The £4 billion of additional capital to be delivered to the IS-8 via the British Business Bank, for example, has been found from £25.6 billion previously announced for an increase in financial capacity.

Notably, the Modern Industrial Strategy does not promise many quick fixes – perhaps appropriately given its long gestation. The British Industrial Competitiveness Scheme will not arrive until 2027. This may be too late for some firms struggling with energy costs. 

There is much that is welcome in the Modern Industrial Strategy. It provides clearer direction than its recent predecessors and responds to a challenging environment by seeking to get the greatest possible bang for the UK’s buck.

It also involves two big bets. Picking winners is great, but it does mean picking the right ones. Government is putting its faith in the UK becoming a technology leader in electric vehicles, defence and AI.

But the government is also betting that it has time for its strategy to starting yielding results. Some Labour councillors and Assembly Members facing election over the next couple of years may have hoped for a few quicker wins.