UK Industrial Strategy 2025

Intent

The overall strategy is clearly intended to 'roll the pitch' to deliver the wicket for the IS-8 to deliver a match winning innings.

Its aim is to be co-ordinated and 'joined up', which is welcomed. It states that the IS is the objective of all in government as a priority. Therefore, the delivery of it is intended to take precedence over other priorities.

Since its publication, the political environment has become somewhat turbulent, with the government revising plans for welfare spending cuts, bowing to political pressure. Only time will tell whether these developments impact the intent behind the IS.

Place Based

The strategy is 'unashamedly place based' suggesting that approaches may vary according to geography.

Metro Mayors, First Ministers and other Regional Authority leaders may seek to align their plans with the IS to make sure that their regions are included in support and investment.

Industrial Strategy Advisory Council (ISAC)

A key protection against political compromise/dilution and longevity is the independent, and soon to be statutorily appointed ISAC.

More clarity and appropriate terms of reference and powers need to be made clear to ensure that this protection continues to have relevance and strength appropriate to delivering an IS that isn’t a hostage to political fortune.

Moreover, business leaders will need to engage with the members of the ISAC to ensure that they continue to be appraised of genuine progress.

Foundation Industries

A big weakness of the green paper was a total failure to recognise the importance of foundation industries such as steel, aluminium, strategic minerals to the IS-8 success and the IS recognises and seeks to rectify that.

There is a statement of intent that they will take steps to protect key supply chains that support the IS-8 and critically those that threaten our national security by maintaining a domestic supply.

National Security

Security and Defence weaves through the whole document.

The geopolitical events of the last few months have spurred the government to enhance the UK’s supply chains to support secure military, cyber, tech and strategic power sources in an echo of the repurposing of infrastructure spearheaded by Lord Beaverbrook back in the late 1930's.

In a global environment that changes, almost by the week, a 10-year strategy has to address the key risks to the nation.

Funding

Many commentators have questions how the strategy will be funded. There is a clue buried in the tax section on p86.

“We will look across all available levers to deliver change at the budget in Autumn 2025 and across the parliament….”

Could this signal further tax rises in the near future? This is a clear statement of intent that the government sees the delivery of the IS as fiscally paramount; presumably as the treasury forecasts are predicated on the growth that it will deliver.

Ease, speed and long- term stability

Energy

The IS document addresses grid issues, waiting times and the effect on pricing. There is no reference to gas prices, however and our foundation industries still need hydrocarbons and their products at least during a transitionary period.

Oil and gas in the North Sea must surely come back into consideration for exploitation as at present, the UK buy oil and gas; and this could well be from ‘hostile states’.

The pricing assistance that is announced in the IS document is for most businesses, deferred until 2027 and even then, not at a level that achieves parity with EU or US prices as they currently stand. This is one key area of the IS where more will need to be done to deliver success.

Carbon Border Adjustment Mechanism (CBAM)

The IS doubles down on UK CBAM, looking to align more with the EU.

While many UK businesses have opposed its introduction, it’s essential to have a programme to prevent the UK becoming a ‘dumping ground’ for high carbon content imports. However, recent increases to de minimis levels brings into question whether businesses will look to exploit the thresholds by staying 'beneath the radar'. It is to be hoped that this is monitored and acted upon if abused in practice.

There is no doubt that alignment with the EU system will be very welcome; the EU continues to be a very big trading partner for the country and to have a consistent set of regulations and measurements will undoubtedly assist businesses.

Accelerating net zero

The IS makes appropriate reference to both the need for and the opportunity for the UK to play a part in this.

However, there is little reference to the fact that we have generally imported most of the technology and infrastructure to do this, from solar cells to turbines. There is a loose reference elsewhere, to supporting technologies in developing composite turbine blades; but otherwise, little to inspire a UK based renewables manufacturing sector and component supply chain.

Global trade

Much focus is made in the document on the recent trade deals secured across the world; and rightly so. Trade is a key factor in reducing geopolitical risk, as well as being essential to the economic success of what is an island nation with limited natural resources.

There are some eye-catching interventions to promote exports in this section (p36). Improvements to UKEF, better digital export support using gov.uk piloting electronic trade documents and enabling and deregulation to open growth markets also feature.

It’s key that the perceived (and real) barriers to international trade are removed. So few UK businesses currently trade internationally and the IS notes the need to create an environment that changes this.

Strengthening our economic and national security

Assuming that this is not just political expediency, there is a need for more mapping of key players in strategic industries and for regions and their leaders to influence this. The security clearances of a workforce has to be determined for at least some production processes, which takes time and money.

Reference here is also made also to the government providing a ‘strategic steer’ to the National Wealth Fund which might increase the investment in the sector. It also refers to the British Business Bank's (BBB) industrial strategy capital to invest in high growth scale up businesses.

Reference is also made here to UK Export Finance (UKEF) launching a loan guarantee scheme for domestic suppliers of critical minerals.

What is essential is that there is sufficient government backed funding to enable UK businesses to invest and operate businesses, particularly in sectors like defence, where many conventional funders are often reluctant to support them or precluded by their internal investment policies.

‘Immediate action to support foundation industries’ (p44) is a package of measures looking to address what was missing from the green paper. It addresses the need to support our electricity network – essential for transition to net zero, UK ports, driving international trade, scaling up R&D into composites and construction methods and skills, also Steel, Critical minerals, and others; to drive various IS-8 sector objectives and to transition to net zero and protect themselves in the digital age.

One area which will interest corporate advisors is the announcement of consultation on National Security and Investment Act (NSIA) on p45. This is an act that makes M&A activity, at best slow and at worst difficult, or even impossible in some cases. Transactions that change control of such businesses are subject to prior approval from a department of government that can cause significant delay in a process which can jeopardise it. A review of the legislation and its effect is therefore very welcome.

This section also refers to the commitment to 'the nuclear nation', which presents real opportunities to supply chains across the UK as well as securing long term renewable energy source.

Expanding access to finance

The strategy identifies an objective for the BBB to make direct equity investments of up to £60m in future ‘superstar’ companies. This is a first for BBB whose previous model has been to use ‘partners’ to deliver its initiatives and is indicative of the drive to make government investment ‘crowd in’ private investment to drive funding for IS-8 critical businesses and investments.

What is missing, is the need to provide access to finance support in terms of ‘investment readiness package preparation’; essential for the SME supply chain to raise finance to support the supply chain transitions needed to deliver the IS.

One interesting development is the Intellectual Property (IP) Office, exploring how to fund using IP as security. Existing products to support this already exist in the banking sector but they are based on a 'sale and lease back' model, which puts many businesses off.

There is a graphic on p52 that maps the impact of the three UK public financial institutions and where they sit with the lifecycle and sizes of businesses that they seek to support and the finance gaps that they seek to bridge, respectively.

Driving and supporting innovation

Sadly, there is nothing in here to indicate a changed approach to SME R&D tax relief that our recent manufacturing survey indicated that a fifth of respondents have been 'put off' innovating.

However, there are a series of investment support measures that are intended to drive the UK as an innovative force, at least and a leader, at best. A new ‘Sovereign AI Unit’ with £500 million of funding is announced, articulation of which has already been manifested by the new supercomputer in Bristol; along with reference to ‘Made Smarter’, the ‘new technology adoption’ consultancy programme, backed by investment grant funding for businesses in certain locations.

The programme is being expanded upon in terms of geographical reach and brief, addressing some of the previous limitations of the programme, as well as noting its expanded funding.

The successes of ‘Made Smarter’ have not been widely publicised and businesses in areas that they cover, should establish whether engaging with them could support their innovation programmes.

There is a compelling argument for the government to nurture and support UK chip design and manufacture to reduce reliance on potentially hostile nations or nations that could be annexed by geopolitical activity.

There is also reference to increasing battery production. Existing support for investment in Gigafactories by the likes of TATA are already in place but it remains to be seen whether more support will be forthcoming for batteries or indeed chip production, in the future.

Enhance skills and access to talent

This is the longest section in this part of the strategy and the most detailed. It absolutely recognises that the skills shortage, (previously highlighted in Crowe’s Manifesto for Manufacturing in 2024; our response to the green paper and successive Manufacturing Outlook Reports over seven years) is a threat to the success of the IS.

It seeks to address the real need to upskill our nation to deliver the strategy and tackles the politically sensitive areas of the need to provide visas for and to encourage experts to relocate to the UK to deliver key skills requirements and address shortages.

There are several sectoral packages covered on p68-69 but one eye catching area is a drive to encourage and train people in the defence sector and the construction industry supporting key aspects of the IS-8.

Reducing Regulatory Burdens

One of key themes in the IS, is the merging of regulatory agencies to reduce duplication and achieve consistency and reduce costs.

It will be interesting to know what this means in practice and how it will manifest itself; a push back, once more of the 2030 ICE deadline maybe or further carve outs for smaller producers.

Clarifying AML and KYC requirements are mentioned but in an increasingly important environment where the need to avoid supporting money laundering and maintaining the UK’s status as a safe place to do business, one wonders what this means. In reality, this could be an increase in regulation in practice.

There are several specialist areas picked out for reform including the already announced assistance for those wanting to install heat pumps, and deregulation to encourage development self-driving vehicles; clearly sectors and industries where the UK is at the forefront of development and also where it supports decarbonisation.

At the foot of p77 it refers to ‘simplifying corporate reporting’ which will include 'modernising company law'. There have been very recent government comments that seek to reverse the burden on small and micro businesses in terms of reporting and filing. However, these in some respects contradict the direction of travel of accounting standards, which is beyond government control. It will be important to monitor planned changes as they emerge.

Removing planning barriers

This section addresses the issue that most businesses and developers have been highlighting as barriers to growth for some time.

A particular area of interest, however, is the establishment of 'AI growth zones'. There is no indication of where these will be although there are some obvious candidates such as the Oxford-Cambridge Corridor and Bristol. AI commands a great deal of power to drive it and therefore proximity to key power sources may well dictate their location in future.

Connectivity is the subject of a lot of investment already and linking ‘place based’ strategy makes this all the more important. Therefore, a pledge of £41 million to provide better Wi-Fi on trains and deregulation of planning for digital infrastructure (p83) will support this and the connected mobility of what might be a necessarily increasingly transient future workforce.

Delivering a tax system that supports growth

The government’s pre-election pledges have dictated the first year of their fiscal planning.

In the IS the government underpin their commitment to cap Corporation Tax headline limits at 25% and maintain full expensing. However, it doesn’t make any commitments about the small company rate – could this be a future target?

The confirmation of the ‘generous’ R&D reliefs’, will not resonate well with SME’s who have recently seen the administrative burden of R&D claims mushroom and the reduction of the value of claims.

Other than modest fund raises by removing the small company rate, this could be seen as a justification to raise Income Tax ‘for the greater good’ of the Industrial Strategy – delivering jobs and security and driving growth.

Supporting city regions and clusters

These will be charged with articulating their own detailed plans to support the IS in their specific areas or specialisms.

To support this the IS announces:

• a new strategic sites accelerator with a £600 million budget
• an enhanced offer for Industrial Strategy Zones to have streamlined planning, targeted investment promotion and enhanced support for finance and skills.
• new AI growth Zones at locations to be announced at strategic locations across the UK.

Another point of interest in this section is the planned reform of local government pension schemes to support local and regional growth investment. (p99). This again supports the overall intent of government to use pension fund assets to drive UK investment.

Page 110 refers to new Professional and Business Services (PBS) hubs in Manchester, Liverpool and West Yorkshire with a pilot of ‘Made Smarter’ for the sector, across the north and is aimed at supporting SME firms to use AI and to digitise. This could prove to be a viable alternative to professional firms selling out to consolidators or taking equity to meet the digital needs of the future.

Page 111 references investment along the remaining HS2 sites, of course chiefly in London and the West Midlands now. However, there will be real opportunity in the ‘nodules’ created in the areas around Curzon St, Birmingham, around the interchange by the NEC and Birmingham Airport, Old Oak Common in West London and ultimately Euston.

Conclusion

The Industrial Strategy will only succeed if there is proper engagement with real businesses across the UK and if it is dynamically re-focussed based on the events as they unfold over the next 10 years.

The strategy’s importance is greater than an individual fiscal event. Businesses need to gain an understanding of it and adapt and direct their businesses to capitalise on the opportunities that it will present and address the threats that may emerge along the way.

If you have any questions or would like more information on the issues outlined in this article, get in touch with Johnathan Dudley or your usual Crowe contact.