A “once in a century” chance for the UK’s economy will be lost unless the soon-to-be-published Industrial Strategy is well-funded and deals with industrial energy costs that are among the highest in the world.
This is one of the conclusions from report released by the House of Commons Business and Trade Committee which warns of the damaging impact of the UK’s energy prices for competitiveness in manufacturing and on attracting inward investment.
The report also warns that growth is being held back by poor public procurement; a chronic skills gaps; blocks to commercialisation of innovation; trouble accessing scale-up finance and over-centralised decision-making.
“The government must set out how the industrial strategy will contribute to strategic objectives on net zero, regional growth and economic security and resilience and how it will balance these objectives with the need for growth,” the report said.
The committee said that the government must fund the Industrial Strategy through the forthcoming Spending Review and be clear about how much will be allocated to the strategy over the remainder of the Parliament.
Back in October 2024, the government published Invest 2035, the Green Paper setting out its proposals for a new industrial strategy to support long-term growth with a focus on net zero, regional growth and the UK’s economic security and resilience. The strategy will focus on eight sectors with high growth potential, these being advanced manufacturing, clean energy industries, creative industries, defence, digital and technologies, financial services, life sciences and professional and business services.
Experts told the committee that the need to address climate change, alongside the rise of new digital technologies such as artificial intelligence, is causing major structural shifts in the global economy and industrial disruption. This is both a threat and an opportunity for the UK and something an effective industrial strategy could help the country navigate.
Key sectors face ongoing challenges: the committee heard that UK pharmaceutical exports from 2013–2023 grew by only 16 per cent, falling well short of international rivals. Over the same period growth in foreign investments in the sector in Australia (400%), France (377%) and Germany (350%) far exceeded the growth in investment in the UK (37%), while the number of people employed in medicine manufacturing in the UK grew by 3% compared to 70% in Ireland, 33% in Spain and 14% in Germany.
Chair of the Business and Trade Committee Liam Byrne said: “In a splintering global order we are home to world-leading science and technology, a bastion of political stability, a creative leader that plays by the rules and one of the world’s greatest financial centres. In the new world that is taking shape, we hold a lot of aces.
“Yet the evidence we’ve heard from the nation’s leading industrialists, scientists, economists and trade unionists is that this moment of history will be lost if the Chancellor’s new investment is not matched by a re-making of the British state for a new economic era,” he said.
High electricity prices in the UK are deterring investment and hurting the ability of UK industries to compete internationally and decarbonise, the committee warned. It said the industrial strategy must include measures that level the playing field with our international competitors on industrial energy prices, with priority given to sectors in which high energy prices have the greatest impact to competitiveness and investment.
It also wants to see changes to public procurement to make it drive UK growth, and better access for firms to the funding they need to scale-up and commercialise their innovations in the UK noting: “Too many promising companies are leaving for the US and other countries.”
The report also calls for changes in which organisations are responsible for skills and technical education, and an expansion of the Regulatory Innovation Office to allow it to troubleshoot regulatory conflicts.
SCI has long been calling for a comprehensive industrial strategy that champions science-based businesses, and launched its own Manifesto for an Industrial Science and Innovation Strategy with recommendations that include establishing an Innovation & Science Growth Council with a direct reporting line to the Prime Minister, reforming pension funds to encourage investment in start-ups to commercialise their innovations in the UK and simplifying the overly complex R&D tax relief system.
With this sort of support, SCI has said the UK should aim to see 15 start-ups scaling to £500m, five unicorns listing in the domestic market, and ten investments of £500m+ being made in manufacturing - all by 2030.
More on Industrial Strategy and innovation
- A manifesto for an industrial science and innovation strategy
- New Industrial Strategy will boost investment say business leaders
- UK chemicals industry jobs at risk without fossil fuel transition plan
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