The UK Industrial Policy must be a ‘system’ not a project
They say insanity is doing the same thing over and over again and expecting different results. If that’s true, UK industrial policy might just be a textbook case.
In the last 50 years, I’ve watched the UK launch industrial strategy after industrial strategy – each with big promises, glossy brochures, and rousing ministerial speeches. And yet, here we are. Still debating whether Britain can, or even should, have a coherent industrial policy.
By my count, we’ve had at least ten significant attempts to craft a national industrial policy since the 1970s. They’ve ranged from the Wilson government’s National Plan to Thatcher’s hands-off free-market orthodoxy, to Heseltine’s interventionism, to New Labour’s cautious science-based support, and more recent green growth promises. Each one has promised a breakthrough. None have delivered on their full potential.
So why is this so hard for Britain? And, as Vince Cable recently asked in his presentation, is UK industrial policy the definition of insanity?
The UK Industrial Policy – why it’s all wrong
First, some honesty. Industrial policy is messy, political, and fraught with risk. But Britain has made it harder than it needs to be. Here’s why:
1. Stop-Start Thinking
British governments have a terrible habit of flipping from interventionist to laissez-faire with every change of Prime Minister. Cable’s timeline makes it painfully clear: every few years, we either get evangelical about “picking winners” or retreat into free-market fatalism. It’s exhausting for businesses, which need consistency, not political mood swings.
2. Ideology Over Pragmatism
Too often, ideology trumps pragmatism. Where countries like Germany or South Korea see industrial policy as a practical tool, the UK gets hung up on whether intervention is morally acceptable. Cable is right—the tribalism of UK politics is a killer. Businesses don’t know whether to trust that today’s strategy will survive the next election cycle.
3. Lack of a Systems Approach
Most UK industrial strategies have been treated as one-off initiatives, not systems. As Cable pointed out, it’s not just about picking sectors or setting up new funds. Success needs a whole system: research, skills, finance, procurement, infrastructure, and local leadership—all pulling together over the long haul.
4. Neglect of Place
For decades, London has hoovered up attention and investment. Regional disparities haven’t been an afterthought—they’ve been baked into industrial policy failures. Cable admitted late in his tenure that his strategy missed the “place” dimension until northern leaders made a fuss. Without serious regional rebalancing, we’re leaving huge potential untapped.
Pros and Cons of Industrial Policy (and why it still matters)
Despite the UK’s chequered history, there’s a growing sense—across both sides of politics—that we need a robust industrial policy. Here’s why it’s worth the effort, even if the risks are real.
The Pros
- Long-Term Investment in the Right Areas: Some sectors like nuclear, aerospace, and green energy, require patient capital and state backing. Markets alone won’t take these risks at scale.
- R&D and Knowledge Spillovers: Public support for research pays off. Innovation isn’t confined to the labs of one company, it spills over into whole industries and regions.
- Strategic Sovereignty: From semiconductors to AI, nations are waking up to the fact that control over key technologies is a national security issue.
- Supply Chain Resilience and Clusters: Good industrial policy helps build clusters and supply chains that make entire industries more competitive, not just individual firms.
- Public Procurement as a Catalyst: Governments can use procurement to create demand for innovation – look at how the US defence sector helped birth Silicon Valley.
The Cons
- Opportunity Costs and Distortion: Every pound spent supporting one sector is a pound not spent elsewhere. Get it wrong, and you stifle potential winners to prop up losers.
- Political Meddling and Short-Termism: Industrial policy is irresistible to politicians who want ribbon-cutting opportunities. Too often, that leads to cronyism or short-term fixes.
- Retaliation and Protectionism: Tariffs and subsidies can trigger trade wars. The global economy is already fragmenting—industrial policy can accelerate that.
- Poor Execution and Waste: Industrial policy is only as good as the execution. Britain’s record here is patchy, to be polite. Look no further than Concorde or British Leyland.
What happens when we get UK Industrial Policy right?
Here’s the thing. When industrial policy works, it changes the game. Cable cited examples from his time in office:
- The Catapult Centres bridged the gap between lab research and commercial products.
- The Aerospace Growth Partnership, which secured R&D and supply chain investment in one of our strongest industries.
- The Automotive Propulsion Centre, which helped steer the UK into the EV race.
These initiatives prove that when we think about systems and stick with them, we can make real progress. Globally, the stakes are even higher. The US is pouring billions into industrial policy through the Inflation Reduction Act and CHIPS Act. China has mastered the art of state-led industrial dominance, particularly in green energy and digital infrastructure. Europe is scrambling to keep up. If the UK doesn’t have a seat at this table, we’ll be out of the game entirely.
What needs to change: A Blueprint for Roadmapping Industrial Policy as a System
If there’s one lesson from both Cable’s presentation and decades of false starts, it’s this: industrial policy must be a system, not a project. Here’s what that system looks like:
- Cross-Party Consensus: Industrial policy can’t be ripped up with every election. We need bipartisan backing, with strategies enshrined in legislation—like the Climate Change Act.
- Business at the Centre: The government sets the rules of the game, but businesses play it. Policy needs industry input and ownership, not just Whitehall wonks.
- Long-Term Finance: From proof-of-concept to scale-up, British firms still face a funding gap. We need to fix the finance pipeline or risk losing another generation of innovators:
- Innovation and Skills Hubs: Catapults were a great start, but we need more. And we must link them to skills development. Without the right people, ideas die on the vine.
- Regional Leadership: Metro mayors and devolved regions should have a seat at the table, and real budgets. Industrial policy must be place-sensitive, or we repeat old mistakes.
- Strategic Procurement and Investment: The government can’t sit on its hands. It needs to be an intelligent buyer of innovation, driving demand for green energy, advanced manufacturing, and digital tech.
- Global Partnerships: We may be out of the EU, but we’re not out of Europe. Collaborating on R&D, standards, and defence is vital if we want to punch above our weight.
Economic Benefits of Industrial Policy: A focus on Advanced Manufacturing
Industrial policy (IP) can catalyse economic growth, particularly in sectors like advanced manufacturing. By strategically directing public resources and creating supportive frameworks, governments can stimulate innovation, enhance productivity, and secure a competitive edge in the global market.
Quantifying the Economic Upsides
Several nations have implemented industrial policies yielding measurable economic benefits:
United States: The CHIPS and Science Act, enacted to bolster domestic semiconductor production, has led to significant private investments. As of late 2024, the Act catalyzed 37 projects worth approximately $272 billion, creating an estimated 36,300 jobs. When combined with the Inflation Reduction Act, these initiatives have spurred 218 projects totalling $388 billion and generating 135,800 jobs.
China: The “Made in China 2025” initiative aimed to transform China into a leader in high-tech manufacturing. By 2024, over 86% of the plan’s targets had been achieved, with notable advancements in sectors like electric vehicles and renewable energy. This strategic focus has propelled China to the forefront of several advanced manufacturing industries.
Germany: Post-World War II, Germany’s deliberate investments in infrastructure and industrial capabilities facilitated rapid economic growth. The government’s support for sectors such as the automotive industry not only revitalized the economy but also established Germany as a global leader in manufacturing.
Implications for Advanced Manufacturing
Effective industrial policies can significantly impact advanced manufacturing through:
- Innovation and Competitiveness: Targeted investments in research and development can lead to technological breakthroughs, enhancing a nation’s competitive position in high-tech industries.
- Job Creation: By fostering new industries and revitalizing existing ones, industrial policies can generate employment opportunities, particularly in specialized manufacturing sectors.
- Economic Resilience: Developing domestic manufacturing capabilities reduces reliance on foreign suppliers, enhancing national security and economic stability.
The Potential Prize
If the UK gets this right, industrial policy becomes a national growth engine. We rewire the UK economy for high-value manufacturing, green energy, and digital innovation. We rebuild our export strength, narrow the regional divide, and restore a sense of purpose to British industry.
But if we get it wrong…again? The UK risks a permanent decline in a world where the big players are doubling down on industrial strategy.
As Vince Cable said, we’re at a crossroads. This time, let’s choose the path that leads to a system, not another slogan.
Absolutely. Let’s fold in the role of innovation as the engine that makes Industrial Policy (IP) a reality, especially in advanced manufacturing.
If you want to discover the benefits of having an Innovation System, start by downloading the Innovation Blueprint.
Photo by Ümit Yıldırım on Unsplash.