The scribbly bit in the UK government’s shiny new Industrial Strategy is perhaps the most important part of the document. Signatures from Keir Starmer, Rachel Reeves and Jonathan Reynolds signing off a ten-year strategy demonstrating both a greater degree of unity between No.10, the Treasury and the business department around economic policy, and a greater degree of long-termism, than those we have become accustomed to over the last decade.
This matters not just because it was a lack of Treasury buy in – and No 10 follow through – that killed off the Johnson government’s Levelling Up agenda, but also because it should mean (in theory) that the Starmer government will stick to difficult trade-offs and see through opportunities as the strategy is put into practice. In the months and years to come, such unambiguous signals from the top showing clarity and consistency of purpose will be crucial as events, vested interests and examples of projects that don’t go wholly to plan prompt agitation for a return to short term fixes.
The scale and urgency of the change required by the new political, security and economic context should bolster this discipline. The energy, defence and tech sectors, in particular, will transform the way we live and work in a more profound way over the life of this strategy, bringing rewards as well as difficult compromises. The benefit of those rewards, and the pain of those compromises, will be felt most acutely at a local level. Maintaining the Industrial Strategy’s focus on place will therefore be essential.
No more stumbling on
We start from a low base. At the macro level, the British economy has not been renewing and modernising at the scale needed to support decent incomes and realise the opportunities of the major transitions it is undergoing. Low business investment, higher taxes and increasingly stretched public services are all symptoms of successive British governments not taking decisions about how we will earn our way in the world. The author, Duncan Weldon has previously argued that Britain’s core economic model – based around financial services – was badly damaged by the Global Financial Crisis of 2008 and, rather than acknowledging that fact and adapting its model, the UK has since merely ‘stumbled on’. In subsequent years we have been buffeted by shocks from the Covid-19 pandemic to inflation caused by Russia’s war on Ukraine, while new frictions with our largest trading partner have also eaten away at our ability to generate and sustain economic growth.
This situation has made increasingly expensive regional divides worse and harder to justify. In times like these the UK cannot afford for large areas of the country to be lagging behind others, neither for the people who live in those places nor for the economy as a whole. So it is encouraging that the case for change set out in the new Industrial Strategy reveals that the Labour government shares this analysis and is willing to act on it over the long term, with its commitment to identify and strengthen existing regional success stories with more active intervention to help them flourish and to rebalance the economy as a whole.
This is consistent with some of the smarter analysis and more sage advice on UK economic policy in recent years, including the Resolution Foundation’s landmark Stagnation Nation report, which argued that ‘while our current economic specialisation is consistent with future prosperity, our regional divides are not.’
Marble Cake Challenge
Exacerbating these economic challenges is the fact that in the UK we have an overloaded central state with a poor record of attempting to micromanage regional economic development by itself. That is the governance context in which the new Industrial Strategy’s mix of new funds, groups, zones and accelerators lands – and they will not have the desired impact unless that barrier, too, is lifted.
Sam Freedman’s book Failed State rightly argues that the centre of the UK government is too fixated on the operational, that it cannot cope and that the subsequent struggle for oxygen in Whitehall leads to action that is often ‘quick, shallow and tactical’. Cultures and systems too often wish away the complexities of a modern economy and the shared nature of governance in the UK of 2025.
Again, there are encouraging signs that the government gets this. In the Prime Minister’s article for the Financial Times to accompany the Industrial Strategy he argued that in recent decades we have ended up with ‘a state that is both overbearing and feeble, poorly serving an economy that has become too reliant on a small number of places, too exposed to global volatility and too sluggish to take advantage of opportunities.’
We can look back in time and across the pond for ideas on how to address this. In 1959, US President Eisenhower’s Commission on National Goals gave rise to the notion of governance as a ‘Marble Cake’ (something cited again recently by Bruce Katz, the US academic and founder of New Localism). Government is often described as being made up of layers when in practice, Katz argues, the functions of each level are constantly overlapping (so more marble cake than Victoria sponge…).
Rather than expecting the neat layers of government to create the change places need, Katz argues that ‘network connectors’ should be regarded as essential to connecting the national to the regional with vision and leadership. His advice is to be clear about who does what and for the centre to focus on being a reliable investor. At the regional and devolved levels, leaders need a platform to ‘read, understand and activate’ for impact.
The test of whether this sort of complex, multilayered thinking can be applied to the UK’s Industrial Strategy will be seen in the rollout of the newly proposed, place-based innovation funds as well as giving a greater emphasis on place to an enlarged British Business Bank. Similarly, the forthcoming ‘Defence Deals’ for the devolved nations will also be a major test of how national security imperatives can form part of a wider story of economic renewal in communities across the UK.
In its clarity of purpose, its commitment to long-termism, its focus on place and its willingness to engage with complexity, today’s strategy represents a welcome departure from a UK state that has for too long refused to choose a model for its future. It rightly acknowledges that we will only achieve a more balanced and resilient economy if we engage the entire country. There are going to be lots of headwinds that now risk blowing the government off course, but as of today it has a map and is setting off in the right direction.
