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Manufacturers have warned that the UK government must deliver on its promise of an effective industrial strategy in order to offset the high employment costs imposed by chancellor Rachel Reeves in last October’s budget.
A post-Budget survey of senior manufacturing executives found that 57 per cent believed a long-term industrial strategy would lead to increased investment, despite almost universal concern about higher wages and energy costs.
“The pressure on the future industrial strategy will now be even greater to put investor confidence on a growth path,” warned Make UK, the manufacturers’ lobby.
The high expectations for the industrial strategy come as Whitehall prepares for what government officials have warned will be a brutal spending review, after the UK’s public finances came under increasing pressure from bond markets last week.
A senior Whitehall official said there was now a growing risk of a mismatch between industry expectations of the industrial strategy and what was achievable, given the lack of government money available for seed funding outside core missions such as such as reaching net zero or increasing protection.
“Unless it’s for tanks or windmills, there’s basically no money,” the Whitehall official said.
The survey of 161 manufacturing leaders echoed those of other major business groups, including the CBI and British Chambers of Commerce, highlighting the impact of Rachel Reeves’ decision to increase employers’ national insurance contributions.
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More than 90 per cent of respondents said that employment costs would be their highest expense for the coming year, as a result of the NIC rise, the extension of employment rights and the increase in the National Living Wage.
As a result, the survey found that businesses would seek to both cut costs and raise prices, adding inflationary pressures to the economy. “This will be painful for both customers and their staff,” added Make UK.
However, despite the bleak outlook, the survey identified “increased optimism” that the planned release of an industrial strategy in the spring could prove “a game-changer for investment”.
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The Labor government announced its industrial strategy last October, publishing a plan to target eight sectors, including advanced manufacturing, clean energy and life sciences, in a bid to boost investment and boost economic growth.
A senior executive from carmaker Nissan said the publication of the industrial strategy was “crucial for the future” of UK car design and manufacturing.
“Global competition for investment is at an all-time high and it is clear that UK manufacturing is at an inflection point. Countries that can demonstrate a clear long-term strategy, supported by policies that foster an attractive investment environment, will be first in line,” the Nissan executive added.
The strategy will be overseen by a 16-member Industrial Strategy Advisory Board, chaired by Clare Barclay, chief executive of Microsoft UK. Other members include Rolls-Royce chairman Dame Anita Frew and Greg Clark, former Tory business secretary.
Whitehall insiders said the consultation on the shape of the industrial strategy, which closed in November, had attracted a huge response from business, with more than 3,000 responses submitted to the Department for Business and Trade.
Make UK chief executive Stephen Phipson said more detail was needed in areas such as skills and regional devolution policy.
“The government has taken a big and positive first step, but it must now back this up by setting out the immediate and meaningful priorities it will contain given the very clear benefits manufacturers believe it will bring,” he added.
Industry Minister Sarah Jones said she welcomed the confidence shown in the potential of the industrial strategy. “We will continue to do everything we can to promote the UK’s cutting-edge industries to global investors,” she added.
Data visualization by Amy Borrett
