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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 soaring 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 that a long-term industrial strategy would lead to increased investment, despite almost universal concern about higher wage and energy costs.
“The pressure on the incoming industrial strategy will now be even greater to set investor confidence on a path to growth,” warned Make UK, the manufacturers lobby.
High expectations for the industrial strategy come as Whitehall braces for what government officials have warned will be a brutal spending review, as UK public finances came under growing pressure from the bond markets last week.
One senior Whitehall official said there was now a growing risk of a mismatch between industry expectations of the industrial strategy and what was deliverable, given the lack of government money available for seed-funding outside core missions, such as reaching net zero or boosting defence.
“Unless it’s for tanks or windmills, there’s basically no money,” said the Whitehall official.
The survey of 161 manufacturing executives echoed those of other leading business groups, including the CBI and British Chambers of Commerce, by highlighting the impact of Rachel Reeves’ decision to raise employers’ national insurance contributions.
More than 90 per cent of respondents said employment costs were going to be their highest expense for the year ahead, as result of the NIC increase, expanded employment rights and the rise in the national living wage.
As a result, the survey found businesses would be looking to both cut costs and raise prices, adding inflationary pressures to the economy. “This will be painful for both their customers and for their staff,” Make UK added.
However, despite the gloomy outlook, the survey identified “heightened optimism” that the planned publication of an industrial strategy in the spring could prove “a game-changer for investment”.
The Labour 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 drive economic growth.
A senior executive from carmaker Nissan said that the publication of the industrial strategy was “crucial for the future” of UK automotive design and manufacturing.
“Global competition for investment is at an all-time high and it is clear that UK manufacturing is at a turning point. Countries which can demonstrate a clear long-term strategy, supported by policies which 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 Council chaired by Clare Barclay, chief executive of Microsoft UK. Other members include Rolls-Royce chair Dame Anita Frew and Greg Clark, the former Conservative business secretary.
Whitehall insiders said the consultation over 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 major, positive first step but must now back this by setting out the immediate and significant 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’ll continue to do everything we can to promote the UK’s cutting-edge industries to global investors,” she added.
Data visualisation by Amy Borrett
