The industrial strategy – and what Andy Burnham should do about it

The new prime minister Andy Burnham has restored Jonathan Reynolds to the business department he left less than a year ago. Despite this apparent continuity, he needs to take a fresh look at the industrial strategy he left behind.

Burnham inherits a strategy covering dozens of industries

Thanks in large part to the original work of his reappointed business Secretary, Burnham inherits a vast array of policy under the Modern Industrial Strategy (MIS2025) umbrella: eight Growth Sectors (the IS-8) broken into 37 Frontier Industries, as well as a handful of Foundational Industries essential to the IS-8.  

It was designed to be business-friendly and free-market in approach. "Modern" industrial strategies work by helping the private sector, rather than substituting the government’s balance sheet and judgement for that of business. They are a subset of growth strategy, aiming at the interests of specific sectors deemed of particular importance.  Unlike the crude subsidy-doling process imagined by their critics, modern industrial strategies are mostly a collection of "horizontal levers" aligned with the interest of selected sectors. These levers might number a dozen or more, including skills, technology adoption, regulation, planning, data, and R&D; for example, specific UKRI support for Creative Industries R&D and a push for more Creative Higher Technical Qualifications. 

This leads to hundreds of policy measures 

Such a collection, multiplied by over 40 target industries, is mathematically fated to generate hundreds of separate measures. Our AI-assisted work, scouring thousands of pages released by the government, found over 350 separate interventions: R&D grants, regulatory reform processes, skills programmes, procurement promises, and more.

Yet it is a light-touch industrial strategy 

Not all industrial strategies are equally interventionist in their method. It is possible to arrange tools into “tiers” according to how specific and directive their effect is. In the lower tiers are the high-level, market-failure fixing policies seen as uncontroversial even by the most laissez faire: the provision of public goods like skills and infrastructure, competition policy, state actions like regulatory reform and so forth.

The highest tiers of intervention – full dirigisme – involve the state owning or directly influencing economic activity. This might include anointing national champions or diverting valuable resources specifically to selected industries or regions. In the middle are what might be called ‘soft vertical’ policies, where support is directed towards chosen sectors or technologies but in a way intended not to interfere directly with commercial decisions. Funding a Catapult or research programme for a particular technology is a good example of this.  

The higher the tier, the more the government is directly trying to reshape the economy – rather than just discovering its current structure and designing policy to reflect it.  The UK has not engaged in much higher-tier industrial strategy for decades. MIS2025 sits respectably among lower tiers of intervention, reflecting sectoral insights but not trying powerfully to change the status quo.  

MIS2025 is less expensive than it looks 

The sheer abundance of policy in MIS2025 might trick the uninitiated into thinking it is hugely expensive. Plenty of items come with what sound like hefty price-tags attached, like “£4bn for Industrial Strategy Growth Capital”, “£500m for the Oxford-Cambridge Growth Corridor”, or “£960m Green Industries Growth Accelerator”.  

However, this is mostly misleading. Many of the interventions are not about spending:  programmes of regulatory reform, access to data, or attempts to create convening institutions. The biggest numbers, like the boost to the National Wealth Fund, concern financial transactions (loans and equity stakes) rather than outright grants, and so will be largely ‘off balance sheet’ spending that does not affect the fiscal rules. When actual cash is involved, the technique is usually to nudge pre-existing funds towards the objectives of the IS-8, rather than creating brand-new ‘pots’. ²² This may surprise fans of the OECD QuIS project (Quantifying Industrial Strategies), which has found the UK to devote a surprisingly large (1.7% of GDP) resource to industrial policy (over £50bn). However, this is only because the OECD include a great many cross-sectoral tax-allowances – such as broad employment subsidies and capital allowances -  that have none of the sectoral targeting that characterises MIS2025 .Without them, the amounts devoted to specifical sectoral support is remarkably small

Much of the industrial strategy would be happening without MIS2025 

Plenty that is namechecked in MIS2025 – such as the construction of a new nuclear power station, or a programme of semiconductor procurement – was happening anyway. Most of its significant policy measures fit into that category. The publication of the Green and White Papers was not the first moment that the UK government has pursued objectives like clean growth, improved financial regulation or digital adoption.  

This is not to accuse MIS2025 of false reporting. Its purpose is to arrange policies within a thought-through framework, not to invent from scratch a host of new ideas. However, it does mean that answering the question of what has been the added value of MIS2025 is much harder. 

MIS2025’s delivery falls to many different departments and bodies 

One of the strengths of MIS2025, in comparison to earlier attempts, is that it looks like a genuine whole of government strategy,  enlisting other departments in handling particular sectors. DBT, DESNZ, DSIT (as it was), the Treasury, DCMS and DHSC each have key sectors to sponsor, and multiple policy commitments to drive through. There are also important policy actions for key arm's length bodies like UK Research and Innovation, the British Business Bank and National Wealth Fund.  

Reports on sectoral progress are more valuable than tracking macro variables 

Growth policy suffers from the problem of multiple causes, delayed effects, unknowable counterfactuals, and diffuse results – despite sometimes concentrated costs. ²³ Complained about at length in https://www.instituteforgovernment.org.uk/publication/centre-government-design-better-growth-policy  Industrial strategy aimed at specific sectors is just as susceptible. One year is too soon to tell what the real-economy effect of this slew of policy might be. In fact, insofar as MIS2025 includes promises to improve national-level variables (like total business investment, GVA growth or productivity), it may never be possible to demonstrate an unambiguous effect.  

However, this does not undermine the case for rigorous monitoring and progress reports. The One Year On documents produced this summer for the Digital, Financial Services and Life Sciences sectors are genuinely useful products, linking what the government promised to what it delivers, providing an insight into progress within Whitehall that is usually hard to detect. 

What should Burnham do with the government’s industrial strategy? 

By reappointing Reynolds, Andy Burnham has signaled a commitment to the existing industrial strategy – which most previous incoming prime ministers failed to show. This is a relief: business would be justifiably irritated were yet another strategy to be binned, particularly if any vandalism appeared to stem from “not invented here” syndrome. ²⁴ On past form, leading inevitably to another renaissance in a few years’ time

Hold off from a dramatic audit, for now 

A natural reaction to the slew of policy included in MIS2025 would be to thin it down dramatically. Much of what is in there is included for completeness' sake and is not meaningfully "driven" by the team in the new Department for Business, Innovation, Science and Trade (DBIST). A slimmer policy set would be easier for the leadership of the government to monitor and prioritise correctly.  

There may be a case for this, but no need to rush. A year is a short time in industrial strategy, and too soon to assess policy success. An audit too soon might clumsily disrupt programmes before they have reached their full potential and harnessed the business support crucial to their success. The cost of waiting is not great: what MIS2025 contains is neither expensive nor particularly distracting in terms of administrative effort. Better for the government to let the dust settle on its first few weeks and conduct a careful process, than rush and regret its actions later.

Don't try to become industrial strategy central 

Committed or not, most prime ministers are content to leave industrial strategy well alone. In operational terms this is sensible: it is not practical to set the centre of government as a sort of control room for micro-economic decision-making. ²⁵ https://www.instituteforgovernment.org.uk/publication/centre-government-design-better-growth-policy  Full appreciation of the sheer extent of MIS2025 should reinforce this point. If that is the planned purpose for the new Number 10 North, the government might regret the decision. The task of monitoring the hundreds of policy actions should sit with department and the DBIST industrial strategy team. Number 10 should be involved only when it comes to settling interdepartmental squabbles, unblocking stalled progress, arguments about resources and other significant political calls – not day-to-day management.  

Set strategic direction 

The other important role for the PM is setting strategic direction. Industrial strategy is traditionally associated with government intervention, and this fits naturally with Burnham’s rhetoric, which as PM and before is strongly interventionist. He speaks of a “new economic model”, of changing course a 40-year wrong turn, and vows to reindustrialize swathes of the UK.  Above all, he intends to devolve economic decision-making from London.

Tell us what he means by “reindustrialisation” 

The PM has not yet been clear about what he really means by "reindustrialisation". MIS2025 contains a great many industries, but most do not fit the typical mental image of the sort of activity whose disappearance troubles the PM. This should be taken as a positive. Most UK workers are employed in the service sector, and the IS-8 contains many service industries where the country is highly competitive. Burnham’s reindustrialisation agenda should accept as expansive a definition of industry as possible, just as MIS2025 has.

MIS2025 includes place as a lens rather than a starting point

In its objectives and methods, MIS2025 is not sufficiently interventionist to deliver meaningful devolved decision making. It may contain language about “considering the role of place”: but what Burnham wants is more than just consideration, but the wrestling of agency towards lower levels of government. Its choice of sectors and industries was determined by analysis conducted in central government. ²⁶ See Industrial Strategy Technical Annex https://assets.publishing.service.gov.uk/media/68585f10c9b3bb1663ab9072/industrial_strategy_technical_annex.pdf  Devolved governments might reasonably ask if any nationally-driven analysis can properly consider their varied needs. The IS-8 might be where the UK as a whole should prioritise its support, but other regions might want to help their tourism or retail sectors. If devolution is to mean anything, they must be allowed to.

MIS2025 should be supplemented, not replaced, with local tools  

Most of the policies within MIS2025 are national in character: changes to defence procurement, regulatory reforms, new trading arrangements are not meaningfully transferrable to lower tier of government, and nor should they be. ²⁷ https://www.instituteforgovernment.org.uk/publication/devolution-deliver-regional-growth   

Therefore, these need to be supplemented, not replaced, with local measures – the tools that No10 North in its role as “engine room of devolution” must be in charge of designing and distributing. ²⁸ https://www.gov.uk/government/news/machinery-of-government-changes-fact-sheet  In the language of this article, there needs to be more high-tier tools put in the hands of local strategic authorities. These might include:

• The use of public procurement, including local content requirements
• Mechanisms to allow more influence over skills policy (through vehicles like Local Skills Improvement Plans)  
• Involvement in land-assembly for new developments, or conditions attached to planning permissions
• Devolution of control over innovation spending (as in the Local Innovation Partnerships Fund) or through collaborations with universities
• An ability to plan infrastructure according to chosen economic priorities  

Some countries go further, allowing locally targeted tax incentives and investment funds. Officials should not flinch from warning of the risks here – the tools mentioned above can all lead to waste and damaging competition, such as when multiple areas try to be nation-leading in a particular technology. But they are what devolved industrial strategy means.  

Conclusion 

The return of Jonathan Reynolds into the department that launched the government’s industrial strategy signals welcome continuity. It should not be taken as an invitation simply to pursue business as usual. A new prime minister should demand a focused think about what the industrial strategy is for and in particular the dividing line between national priorities and his ambitious devolution agenda, to deliver on his promises.