The UK Government Industrial Strategy: Was it Worth the Wait?
Economists and policymakers have recently renewed their interest in industrial strategies; that is, the coordinated policies designed to influence a nation's industrial composition. Continuing this recent trend, the UK Government has released its long-awaited industrial strategy.
Rethinking government's role in shaping economies
Over the course of the late 20th century, overt industrial strategies lost popularity due to growing political scepticism about the state's capacity for successful market intervention. A key reason for this scepticism is that the future is quite difficult to predict. There was criticism of government's ability to see into the future and 'picking winners' to support through industrial strategies, and the adverse impact of lobbying by influential groups.
However, there are several significant challenges facing all economies that governments will have to address (the green transition serves as a prime example). Because of this, there's been a resurgence of interest in industrial strategies.
Industrial strategies: From May to Hunt
The last official industrial strategy from the government was published by Theresa May's government in 2017. Then, the government's industrial strategy aimed to grow the UK economy by focusing on five foundations of productivity. Boris Johnson's government unveiled a new 'Plan for growth' in 2021, replacing Theresa May's strategy. The plan outlined the government's post-pandemic strategy for boosting the economy and 'build back better'. In January 2023, Jeremy Hunt outlined the government's new economic growth plan, emphasizing five key sectors: digital technology, green industries, life sciences, advanced manufacturing, and creative industries.
A 10-year industrial blueprint
The current UK Government's new industrial strategy details a 10-year plan to revitalise the British economy and boost industrial heartlands and regions suffering from economic stagnation. Eight sectors with the highest economic growth potential (judged by the Government) have been identified: advanced manufacturing, the creative industries, life sciences, clean energy, defence, digital and technology businesses (including artificial intelligence and quantum computing), financial services such as banking and insurance, and professional services such as accounting and the legal profession. The majority of the support – cheaper energy, trade support, and skills training – will go to those sectors.
The UK Government also announced that freeports, investment zones, and enterprise zones will be grouped under the 'Industrial Strategy Zones' initiative. This restructuring aims to resolve the overlap between the three nearly identical special economic zones, a problem acknowledged even by those involved with them. There is still more detail to come on various important sectors: life sciences and financial services sector plans, along with the separate defence industrial strategy, remain unpublished.
A Strategic Fit for Wales?
This industrial strategy will help many parts of the Welsh economy. The UK Government's emphasis on key sectors and its long-term economic vision aligns with Wales's strengths in clean energy, defence, and advanced manufacturing.
The initial response from Welsh industry leaders shows mostly optimism and positivity. Welsh stakeholders across sectors strongly support the UK Government's industrial strategy, citing its alignment with their goals. There is a shared desire for swift implementation but effective implementation and impact hinges on collaboration with the Welsh Government, local authorities, and regional bodies. Although early responses are positive, more information is needed to understand how Welsh businesses will be supported in their growth plans and how the strategy will contribute to the growth of the economy.
Some have argued that the government should have concentrated on the larger economy, taking into account the retail and hospitality businesses that have been harmed by recent policies. The strategy offers no support for energy costs or business rates reform for them. Such inclusion would have had a positive impact on several areas in Wales where such industries dominate the economy. The tourism and hospitality industries in Wales employed nearly 160,000 people in 2024, representing 11.8% of the nation's workforce. The food industry and other important sectors in Wales are unsure if they qualify for the new funding and support programs.
Bold vision, hard choices
The UK (and Wales) needs more 'creative destruction,' a term coined by the Austrian economist Joseph Schumpeter to describe the replacement of underperforming businesses with more productive, high-growth ones. It therefore makes sense for the UK government to favour high productivity sectors that could grow further and have potential to form economic clusters.
The UK Government has deemed its industrial strategy vital to its overall growth objectives. However, its success hinges on the government's courage. Governments tend to support thriving businesses but hesitate to let failing ones go, especially in politically sensitive areas. While aiming to stimulate investment by easing regulations and planning, the government must overcome local opposition to various development proposals.
The strategy is bold and ambitious and looks to target long-term flaws in the UK economy. Providing the Government is serious about what it says, we should all give this strategy a chance to succeed.
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