Delivering the new industrial strategy will be a huge test for government

Released on the morning of 23 June, the government’s Modern Industrial Strategy had by early evening attracted remarkably little attention. This was mostly bad luck brought by the distraction of a brewing geopolitical crisis in the Gulf. But another reason is the overwhelming volume of detailed policy unleashed upon the public. Stakeholders were probably still wading through it as the sun went down. 

This white paper, and the five detailed ‘sector plans’ that accompany it, responds to the comprehensive green paper published last autumn (titled Invest 2035).  It contains hundreds of individual interventions, across a swathe of economy-wide policies as well as specific ones aimed at eight growth sectors – the ‘IS-8’ – and some 37 ‘frontier industries’ within them, deemed to have special significance.  

Industry welcomed the biggest headline measure, a large cut in electricity costs for a wide range of manufacturing businesses. But otherwise, a quick verdict on the many measures in the white paper is quite impractical. A better question is whether it works as a strategy. This question can in turn be broken down into three angles. First, is there a clear diagnosis of the problems and a clear approach to solving them? Second, are there actions with the potential to address the problems? And third, is there the governance capability to deliver this multiplicity of policies?

Investment is the running theme and a sectoral lens the distinctive approach

Both before and after the 2024 election, Labour has been clear that raising investment is key to their vision for how to achieve stronger growth. This is apparent in its policy actions: one of the biggest choices the government has made was the decision in the budget to adjust fiscal rules to allow more borrowing and thereby fund increased public capital spending, by over £100bn over the spending review period. 

But most of the heavy lifting must come from business, which is the focus of the industrial strategy. In the white paper, the eight growth sectors are each given a target to greatly increase investment, with the combined aspirations amounting to a near-doubling over 10 years. If achieved, this would come to over £100bn more – a large enough figure to close significantly an amount of under-investment estimated by some economists to run to the trillions. 

In parts, the tool intended to encourage business to these efforts is the government’s own investment, using what they call ‘Catalytic Finance’ from entities like the National Wealth Fund and British Business Bank, which have both been allocated large increases in lending power. 

The other main approach is to improve stability and deliver reform – the other two thirds of the government’s growth mantra, Stability, Investment and Reform. More than just ‘fiscal control’, stability is taken to mean a broader commitment to reduce policy volatility. This includes 10-year plans in a range of areas, like R&D, infrastructure and local growth. The provision of stability is also a guiding principle behind the sector plans where the government sets out numerous, detailed commitments to steady policymaking and reform. 

Essentially, by choosing a sector-focused industrial strategy the government is declaring that it can address the more ‘micro’ causes of uncertainty that impede investment, which often come down to a failure to deliver in narrow areas of policy that are more sector-specific. This is the common approach behind such policies as pensions reform to boost investment in digital companies, or reforms to the Contracts for Difference scheme to increase clean electricity generation. 

It is through this constant reference to the IS-8 that this is properly an Industrial Strategy, rather than just a collection of growth interventions. Throughout the document is a repeated commitment to put the needs of the IS-8 first, be that in allocations of R&D spending, skills provision, finance, infrastructure and regulatory focus. It makes the selection of the IS-8 and the 37 frontier industries much more consequential and justifies the government’s repeated insistence that it has deliberate choices in this strategy.