Britain's industrial strategy in an age of energy crises

New Statesman​

10 hours ago

Illustration by Otto Dettmer / Ikon Images
Last night, Iran launched a military attack on an American base in Qatar, the largest U.S. military installation in the Middle East. Meanwhile, the UK's Industrial Strategy White Paper was published. With tensions over Iran's nuclear programme, and threats to close the Straits of Hormuz – through which a fifth of global oil flows – it has never been more apparent that energy independence is not just an environmental imperative, but an economic and security one. Volatile fossil fuel prices have been a major contributing factor to UK recessions, from the oil shocks of the 1970s that helped trigger the early 1980s recession to the energy crisis following Russia's invasion of Ukraine. Climate change will only exacerbate this geopolitical instability in coming years.
This is why Ed Miliband's approach of connecting clean energy to economic resilience is sound. As he notes in the strategy's foreword, 'the current geopolitical tensions underscore why energy independence through clean energy is not just environmental policy – it's economic security policy.' The white paper signals a turn towards investment-led growth, and follows Chancellor Reeves commitment of £113 billion of new capital investment in last week's Spending Review.
After a decade of stop-start approaches to industrial strategy, this could mark a key turning point. Britain's challenges extend beyond recent geopolitical turmoil to decades of systematic underinvestment. The UK has had the lowest level of investment in the G7 for 24 of the past 30 years (public and private), and business investment is lower in the UK than any other country in the G7 (and 26th in the OECD). By contrast, a well-designed industrial strategy can crowd in public and private investment and drive inclusive and sustainable growth.
There are promising elements to the strategy, such as the introduction of targets that require cross-sector transformation (as the white paper positions net zero, for example). The clean energy sectoral plan also connects green energy to national security and economic resilience, challenging the false choice between green growth and economic prosperity. The industrial strategy is also realistic about Britain's place in the global economy – focusing on strategic transformation of key sectors crucial to global supply chains, rather than jingoistic rhetoric about Britain's place in the global economy.
Crucially, the strategy recognises that government itself must change. As I argued in our report on lessons from around the world, missions require state transformation. Institutions like public banks and tools like procurement can be used to create inertia, or deliver economic transformation. The changes to procurement reform in the strategy now account for long term investment in communities, moving beyond narrow cost-benefit analysis.
But there is still room to improve. While the strategy mentions the need for an economy-wide approach, the strategy remains too narrowly organised. A net zero goal is not just about renewable energy: it must include transforming how we move through sustainable mobility, how we build homes and offices with green materials, and how we eat through sustainable food.
And what's more, it remains unclear how different sectoral plans that are yet to be announced – from defence to health – will align with net zero. For instance, government investment in AI and data centres leads to higher energy demand, potentially undermining the very targets the strategy seeks to achieve. The same is true for the way the UK will approach critical minerals in other countries: the lithium we need for electrification is currently too intensely extractive of water.
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The UK now has 3 investment vehicles engaged in industrial strategy – Great British Energy, British Business Bank, and the National Wealth Fund. There is an opportunity to tie their mandates more strongly to the net zero mission through target dates. Loans can be used to help sectors like steel become greener, as the KFW public ban did in Germany. Similarly, the CHIPS and Science Act in the USA- tied clear conditions to government financing for community benefits as well as climate targets. This means actually working well with business, rather than the 'business friendly' rhetoric of the past.
While the government is using the net zero mission to signal greater certainty to the private sector (hoping to bring in further investment), the UK requires a greater whole-of-government approach that can shape the direction of the economy towards a desired goal, rather than simply trying to fix market failures.
The strategy's stated aim is long-term growth over 10 years, but we know that government policy needs to have more immediate and positive effects on people's lives to maintain political consensus for transformative action. Visible benefits – like good jobs in economically deprived areas and improvements in the core infrastructure of daily life like transportation and housing – provide the concreate foundations for the UK government to build a compelling narrative around how the green industrial strategy is building a new social contract.
Looking beyond the UK, no country can achieve a green transition alone. The global green transition requires increased multilateral action, especially from the global north (the world's highest historic emitters of CO2) to the global south (where major investment opportunities in green transition have yet to be unlocked).
With defence spending rising, we must learn the best lessons from mission-oriented approaches, not the worst from traditional military-industrial complexes. Security should encompass not just defence, but climate and economic resilience achieved through coordinated transformation of the economy. The UK has the foundations for an effective industrial strategy. Current geopolitical tensions highlight the urgent need to break free from fossil fuel dependency that has made Britain vulnerable to external shocks for decades. Now it must have the courage to implement it fully – with genuine cross-sector coordination, strong conditionalities, and immediate benefits for communities that demonstrate a credible path to energy independence and net zero.
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