Invest 2035: Top priorities for the UK’s new Industrial Strategy Green Paper
The UK Government’s new Industrial Strategy Green Paper ‘Invest 2035’ marks an important chapter in kickstarting and modernising the UK economy. Drawing on a decade of working with clients and collaborators on Industrial Strategies, Head of UK Economic & Social Policy Adam Brown shares his top priorities to take forward into the consultation period of Invest 2035.
Long term strategic planning needs to be coupled with near term action
The title of the Industrial Strategy ‘Invest 2035’ signals a long-term focus, extending beyond political cycles and should give more certainty to industry and investors. Alongside this, the newly formed Industrial Strategy Council will also play an important role in holding the government to account to deliver its ambitions.
We’ve seen a lot of strategies come and go without a lot to show for them, and so even with a 10-year timeline laid out by Invest 2035, speed is still of the essence. Policy areas including sectors, places, infrastructure and skills will take time to collate and examine in the round.
However, government needs to balance understanding all options available with taking early decisions on essential policy areas where there is already a strong evidence base.
For instance, genuine and tangible progress could be made on industrial clusters or addressing structural skills gaps within this parliament. Our recent work on innovation clusters for the UK Government’s Department for Science, Innovation and Technology shows that growth and productivity improvements don’t happen through isolated sectors; it also happens through agglomeration and clustering effects that are place-based, built on existing capabilities in that region.
Government and stakeholders need to think carefully about how Invest 2035 fits with its adjacent strategies
One of the main roles of an industrial strategy like Invest 2035 is as a coordinating mechanism between various other strategies and policy agendas, each likely led by a different government department, ensuring that each strategy pulls together effectively in the service of a small number of national priority missions.
It is no easy task to link together an innovation strategy, infrastructure strategy, trade strategy, skills strategy, spatial strategy, etc, but it’s hard to see how an industrial strategy could be successful without all those other strategies being fully aligned.
Over the next few months, government and stakeholders need to think carefully about how the industrial strategy fits with its adjacent strategies.
Invest 2035 outlines four national mission priorities which we think fall into two categories:
1. Coordinating and combining the weight of the public and private sectors to pursue critical and high level non-economic goals.
The strategy identifies two of these: ensuring national security and accelerating progress towards zero.
These priority missions directly explain the inclusion of clean tech and defence as priority sectors – because they would be, even if they served no broader economic purpose. In this sense, the job and export opportunities investing in these sectors would bring should be understood as a welcome side-effect, rather than the fundamental purpose, of targeting these sectors.
2. Identifying and ultimately fixing two of the causes affecting the UK’s ongoing productivity and wage stagnation.
The green paper doesn’t get into the details of its diagnosis, but ultimately ends in the right place: our sliding global comparative advantage, and the ongoing issue of the UK’s severe regional economic disparities.
So, where does the boundary lie between the Industrial Strategy and the Science, Research and Innovation Strategy, or the Infrastructure Strategy for example? Which bits need to be completely aligned, and which bits can be decided independently?
It’s crucial we get this right. For example, it’s probably not necessary for the Industrial Strategy to dictate how UKRI or IUK prioritises its spending between different academic fields, or for which UK city is the first to receive a new tram network. However, further downstream in the technology commercialisation journey, or for more sector-focused infrastructure investments, strategic alignment will become more necessary.
5 key principles for identifying the sub-sectors
The way the government have chosen to progress their strategy is by focusing on supporting the growth of a set of (as-yet-undecided) “sub-sectors”. This is a perfectly wise strategy, however having a first go at identifying these is an urgent task, as this will underpin pretty much every other decision that follows: identifying “obvious yesses” and getting things moving is more important than prevaricating about edge cases. There is no reason why additional sub-sectors can’t be added later.
The first question of the consultation asks how these sub-sectors should be identified. we’ve identified the five key principles that should be used to select these sub-sectors:
- Sub-sectors that produce internationally-traded goods and services that have a growing and established global demand now, and will still have one in 2035.
- Sub-sectors that have high productivity growth now and that can be reasonably be expected to continue to grow over the course of the strategy and beyond.
- Sub-sectors that offer the potential for a sustained and competitive advantage over a number of years – often referred to as a ‘moat’.
- Sub-sectors that have complementarities with our national priority missions – for example, that help deliver our Net Zero, National Security or Regional Rebalancing objectives as well as providing a potential source of comparative advantage.
- Finally, sub-sectors that can be realistically reached through identifiable evolutionary pathways from current UK specialisations.
It’s this last point that requires the most unpacking, and hopefully government will be already starting to give it some thought. Understanding where we are and how we have got here is one thing; the real challenge is understanding where we are going and the policy response required to shape that.