Contributors: Tone Langengen, Mathew Sim and Danae Ellina
Chapter 1
This is the age of economic disruption. The technological revolution, the net-zero transition and escalating geopolitical fragmentation are all reshaping industries, societies and the relationships between nations. These forces converge in one critical policy area: industrial strategy.
The United Kingdom needs a hard-headed, not hard-hatted, industrial strategy that prioritises industries with genuine potential to create future prosperity. For decades, it has lacked one – swinging between laissez-faire inaction and politically motivated, poorly targeted interventions. The focus on short-term, photogenic projects over long-term economic merit has left the country ill-prepared to compete globally. Without a decisive break from the past, the government risks simply managing decline – using scarce resources to prop up fading industries while failing to cultivate strengths in the high-growth sectors of the future. Industrial policy is difficult. But in a world undergoing profound disruption, it has never been more necessary.
The case for focusing on green industrial strategy is particularly acute. Unlike other structural shifts, the net-zero transition is policy-driven, making government intervention not just necessary but pivotal to success. That raises the stakes for getting policy right. Green sectors have also been repeatedly identified by successive governments as offering some of the biggest growth opportunities. At the same time, green industrial strategy embodies some of the toughest trade-offs and strategic decisions in industrial policy, making it a microcosm of the broader challenges the UK must navigate. This report therefore uses the “green” economy as a case study to draw out lessons for industrial strategy more widely.
This is a fiercely competitive policy area, where the world’s largest economies are using their power to gain a strategic edge – creating disruption for others in the process. China has been the catalyst, having spent more than a decade tightening its grip on critical-mineral supply chains and using public funds to cement its dominance in green technologies. The United States and the European Union, unaccustomed to playing second fiddle, have scrambled to respond – sending shockwaves through global markets. The US Inflation Reduction Act was bold and expensive, triggering a global race to pull the green industries of the future onto US soil. Now, as President Donald Trump’s administration pivots back towards fossil fuels, the tide is shifting again. Meanwhile, the EU has taken a different tack, experimenting with tools such as its carbon border adjustment mechanism to shield its greening industries. But as Mario Draghi’s recent report makes clear, the EU will need to go much further to revive its sluggish competitiveness. The UK, like other open mid-sized economies, risks being buffeted by these shifting currents. But rather than mimicking the approach of any one great power, it must chart its own course – forging a competitive edge that plays to its unique strengths.
This will be a critical test for the new government. After months of declining business sentiment, its industrial strategy – due in the spring – will be a pivotal moment to reset the narrative. It will be a bellwether of the government’s competence, pro-business credentials and ability to deliver on its growth mission. But warm words about Britain’s future won’t be enough – the strategy must be hard-headed enough to convince the world that Britain is open for business. This report aims to support that effort with new economic analysis to inform prioritisation, a new strategic framework to guide decision-making and cross-cutting policy recommendations to lay the foundations for long-term success.
Insights From New Economic Analysis
A hard-headed industrial strategy must be grounded in robust evidence, applied consistently across sectors – something too often lacking in the past. New analysis by Oxford Economics and the Tony Blair Institute helps fill this gap, offering fresh insights into the opportunities and challenges of the UK’s green economy:
Fully capitalising on the net-zero transition could provide a major boost to UK growth. In a best-case scenario, the green economy could grow from 0.8 per cent of GDP today to nearly 6 per cent by 2050, employing 1.2 million people – up from 200,000. This could lift the UK’s annual growth rate by 0.1 to 0.2 percentage points over the next 25 years, a vital boost at a time of sluggish growth. This upside potential is why green growth must be part of the government’s economic strategy.
Achieving these gains will be challenging. Success depends on the UK capturing market share in a wide range of globally competitive sectors, including electric vehicles (EVs), where the UK lags behind global leaders. The UK does not fully control its destiny in this race, but without a change in approach, these gains will not materialise. On current trends, the green economy is more likely to reach just 1.6 per cent of GDP by 2050, employing only 350,000 people – barely enough to offset the decline in carbon-intensive “grey” industries. Betting everything on green growth would therefore be a mistake. It must be a pillar of the UK’s growth strategy, but it cannot be the whole strategy. To succeed, the UK must cultivate multiple engines of growth and not skew its strategy too heavily towards “green”.
The green transition is unlikely to drive a revival of UK manufacturing jobs, but green services offer significant employment potential. Even in a best-case scenario, green manufacturing is expected to employ around 425,000 people by 2050, fewer than the 700,000 people currently employed in grey industries. This partly reflects structural trends: even if the UK manufacturing sector successfully navigates the green transition, it will likely continue to become more efficient and employ fewer workers over time. This should not downplay the importance of green manufacturing. Many of the strongest rationales for government intervention are focused on the manufacturing sector. Green manufacturing and services are also complementary: the more domestic manufacturing activity and clean power generation, the greater the opportunities for tied services. But as a service-dominated economy, it should come as no surprise that the UK’s greatest green growth and employment opportunities lie in green services, which could account for up to 4 per cent of GDP by 2050 and employ as many as 800,000 people. The government must be careful not to over-state the job opportunities from green manufacturing.
A New Strategic Framework
To position the UK for success, the government must break the cycle of past industrial strategy failures – incoherent, siloed decision-making that leads to zigzag policymaking. Since 2010, the average industrial strategy has lasted barely more than a year. This instability cannot continue. Businesses need a clear, consistent approach to decision-making to provide the certainty required for long-term investment. That is what this report’s new strategic framework is designed to deliver.
To illustrate its utility, we apply the framework to two case studies: green steel and EVs. Both sectors share similarities – they are major regional employers and have strategic value in enhancing economic resilience. But their growth potential differs starkly: by 2050, the EV sector could generate an order of magnitude more economic activity than green steel. This contrast raises important questions for the government:
Funding priorities: In its manifesto, the government allocated £2.5 billion of additional funding to support green steel but only £1.5 billion to attract investments in new gigafactories. While both sectors arguably warrant support, this allocation is out of step with their long-term economic potential and should be rethought.
EV strategy: The UK auto industry faces a precarious future and remains heavily reliant on foreign investment. In the 1980s, the government successfully revitalised the sector by attracting Japanese automakers and leveraging access to the European market. Today, it must pull off the same feat – but in far tougher conditions. Brexit has diminished the UK’s appeal as a European production hub and global competition for EV investment is fierce. To stand out, the UK must pursue a deliberate, distinct strategy of strategic openness – continuing to reject import tariffs on Chinese EVs, in contrast to the EU, US and others. And despite the complex security relationship, the UK should actively court investment from China’s world-leading EV manufacturers, as part of a broader effort to rebuild the UK’s position as a major auto producer.
If the government applied this framework consistently and rigorously across all sectors under consideration for industrial-strategy support, it would mark a step-change from the past – bringing much-needed clarity on where to target government resources. It would curb pet projects and reduce the risk of costly policy reversals when decision-makers change. But the ambition should not stop there. A sector-by-sector approach leaves opportunity on the table. The framework should also be used to take a system-wide view to identify and prioritise support for clusters of complementary sectors that reinforce one another. This joined-up approach would sharpen the UK’s global competitive edge while maximising the impact of government support – delivering greater returns for every pound spent. In a fiscally constrained environment, smart strategy isn’t optional – it’s essential.
Recommendations: Key Areas for Action
The government must also act fast to remove the system-wide barriers holding back industrial success. The initiatives below should be implemented quickly to kickstart progress and put the UK on a path to a more dynamic, resilient and competitive economy.
Policy Priority 1: Innovation – Cultivating the High-Growth Firms of the Future
Innovation must be at the heart of the UK’s industrial strategy, as it is essential for driving future growth and meeting the UK’s net-zero ambitions. Removing barriers that prevent innovative firms from scaling is critical. The government should:
Develop a unified digital platform that serves as both a single shop window and customer-relations management system for Innovate UK, the British Business Bank (BBB), National Wealth Fund (NWF) and UK Export Finance (UKEF) to streamline access to government financial support.
Reform Innovate UK and UK Research and Innovation’s (UKRI) grant systems to encourage greater risk-taking and improve access. This includes streamlining application processes and shifting audit criteria from individual project outcomes to the overall value of a portfolio.
To address funding gaps for scale-ups, expand the BBB’s maximum deal threshold from £12 million to £25 million; inject an additional £375 million into the BBB’s Breakthrough Future Fund for clean tech firms; mandate the BBB to provide transition loans for small businesses to adapt to the green economy (for example, boiler engineers); revise UKEF’s rules to enable them to support pre-revenue companies with strong growth potential; and in the longer term consider empowering the BBB and NWF to raise capital directly on financial markets to increase their capacity to drive green growth without overburdening the public finances.
Establish a network of Disruptive Invention Laboratories to foster cross-disciplinary breakthroughs in areas like climate and artificial-intelligence technologies, attracting global talent and positioning the UK as a leader in climate-tech innovation.
Expand support for piloting and commercialisation of clean technologies, building on successful initiatives such as the Faraday Battery Challenge and the UK Battery Industrialisation Centre and applying them to other sectors, such as industrial heat pumps.
Policy Priority 2: Economic Openness – A Prerequisite for Industrial Growth
Without robust access to global markets, UK firms cannot achieve the scale needed to capitalise on the economic opportunities of the green transition, so the UK must reduce barriers that undermine the international competitiveness of UK firms. The government should:
Align its energy and climate policies more closely with the EU. On energy, it should recouple with the EU’s Internal Energy Market on a contractual basis to lower energy costs and support cross-border energy-infrastructure investment by pushing for full membership of the North Seas Energy Cooperation. On climate, the UK should align its carbon border adjustment mechanism (CBAM) with EU rules and link its Emissions Trading Scheme (ETS) to the EU ETS to reduce regulatory burdens and compliance costs for UK exporters.
To increase exports, develop an AI-enabled trade assistant to help firms – particularly small and medium-sized entities (SMEs) – navigate complex regulatory processes.
Help modernise the UK’s trade infrastructure, including by unblocking planning barriers to upgrade ports and by deploying digital technologies like blockchain to streamline trade compliance and reduce the administrative burden on firms.
Resist pressure to align its trade and investment policy too closely with the US, China or EU, to safeguard its ability to act in its national interest.
Policy Priority 3: Regions – Cultivating Clusters for Long-Term Growth
Regional policy must move beyond simply replacing declining fossil-fuel-intensive industries with their direct green equivalents. The government should:
Establish new Green Investment Zones, like the recently announced AI Growth Zones, with simplified planning processes and streamlined regulatory frameworks to accelerate investment in priority sectors such as offshore wind, nuclear energy and carbon capture, utilisation and storage (CCUS).
Adopt a broader, cross-sector approach to developing regional innovation clusters that links green manufacturing and clean-energy deployment plans with other high-tech sectors and services. For example, the government could streamline planning and regulatory approval for the use of small modular reactors (SMR) to power data centres, to position the UK as a leader in both AI and SMR technology. And it could place more emphasis on cultivating new services clusters, including a green-financial-services hub in Leeds anchored by the NWF.
Enhance coordination between the BBB and NWF for regional development by establishing a public-financial-institution task force to coordinate regional investment projects with Mayoral Combined Authorities to ensure major investments funded by NWF also stimulate smaller-business in local supply chains through BBB support.
Policy Priority 4: Resilience – Strengthening Supply-Chain Oversight
The UK must invest further in its world-leading Global Supply Chains Intelligence Programme (GSCIP) to help identify risks and manage their disruptive effects. The government should:
Designate GSCIP as critical national infrastructure to enhance oversight and risk management.
Invest to expand GSCIP’s predictive capabilities using AI and scenario modelling to anticipate and mitigate supply-chain shocks, and leverage GSCIP insights to identify growth opportunities and guide investment in sectors where the UK could build a competitive advantage.
Incorporate carbon-intensity tracking and estimation into its GSCIP systems to facilitate the implementation of the UK’s CBAM.
Policy Priority 5: Climate – Embedding Decarbonisation Into Broader Economic Strategy
Economic and climate policies in the UK are often designed in silos, with insufficient consideration of their interactions, leading to missed opportunities to align decarbonisation with long-term economic growth. The government should:
Oblige the Treasury to more deeply integrate climate change into economic policy decisions to ensure decarbonisation policies are rigorously assessed for their impact on the economy; and to ensure major economic policy changes are assessed for their impact on emissions and the UK’s ability to capitalise on the long-term opportunities from the green transition.
Embed climate risk analysis more fully into economic strategy, including by strengthening climate risk analysis of the UK’s critical supply chains and by ensuring regional growth strategies account for climate risk (specifically flood risk) when siting new industrial assets.
Design decarbonisation targets carefully with long-term economic strategy in mind and back them with robust delivery plans. These targets are valuable economic tools that provide investors with the certainty needed to make green projects bankable – they should be treated seriously, not as political virtue signalling. Reversing targets should also be approached cautiously, as it risks undermining investor confidence not just in the affected sector but across the green economy.
Establish a dedicated climate-economic analytical unit spanning the Treasury and the Department for Energy Security and Net Zero to develop advanced modelling tools that integrate both economic and climate outcomes to support evidence-based policymaking across government.
Governance Priority: Ensuring Delivery Through Effective Decision-Making
To overcome the failures of past industrial strategies, the government must introduce clear governance structures that ensure coherent policymaking, agile delivery and provide the private sector with confidence that plans will be followed through. The government should:
Establish an Industrial Strategy Board as a Cabinet-level sub-committee of its Growth Mission Board, chaired by the chancellor, to coordinate cross-departmental policies, resolve conflicts, and align economic and decarbonisation priorities.
Ensure the newly established statutory Industrial Strategy Advisory Council is supported by a well-equipped secretariat that utilises advanced analytics and expert resources to provide real-time monitoring, forward-looking analysis, and coordination across government to track industrial-strategy progress, provide real-time evidence and inform decision-making.
Appoint sector tsars for each priority industry to oversee implementation, ensure accountability and drive investment. These tsars should act as single points of leadership, streamlining delivery and turning strategic goals into measurable outcomes.
The stakes are high and so are the opportunities. As other countries advance their industrial strategies, the UK must decide whether to lead, follow or risk falling behind. Success will demand confronting difficult trade-offs, making bold strategic choices and acting with urgency. This is a pivotal moment and the UK must seize it.
Editor’s note: We are grateful to the European Climate Foundation for their support towards the research presented in this report. The analysis and conclusions of this report are solely the responsibility of TBI, in line with its intellectual independence policy.
Read The UK’s Competitive Advantage in Green Innovations, research by Oxford Economics for the Tony Blair Institute released as a technical annex alongside this report.
Chapter 2
The world is changing fast. The twin forces of the net-zero transition and the technology revolution are driving the most profound structural economic transformation in history. Electric vehicles (EVs) have gone from a niche product to accounting for 18 per cent of global new car sales in 2023,[_] while solar power accounted for 55 per cent of all new electric capacity added to the global grid in 2023, up from just 0.1 per cent in 2010.[_] Global clean-energy investments reached $1.8 trillion in 2023,[_] with estimates suggesting clean energy accounted for a tenth of global GDP growth in 2023.[_]
At the same time, rising geopolitical tensions, the return of economic nationalism and erosion of the rules-based trading system are undermining global stability. Operating in a more volatile world demands a strategic response from the state – one that steers the economy towards opportunity while managing the disruptive effects of change.
The United Kingdom is already feeling the strain of navigating these more turbulent global conditions. Major shocks in recent years – the global financial crisis, the pandemic and the war in Ukraine – have required unprecedented government intervention to support citizens and stabilise the economy, leaving the public finances in a precarious state. Government debt has nearly tripled over the past two decades, and further challenges, such as climate change and escalating geopolitical tensions, threaten to bring further economic instability and place even greater pressure on public finances. Building economic resilience to these challenges and ensuring that economic strategy fully accounts for their impacts has become a central policy priority.
This sits against a backdrop of stagnant productivity growth, which has suppressed living standards, fuelled political discontent and worsened the fiscal outlook. Many advanced economies face similar challenges. The European Union, for instance, is grappling with its own competitiveness challenges, as highlighted in Mario Draghi’s recent report.[_] In contrast, the United States has outperformed, largely thanks to the dynamism of its technology sector. For the UK, fostering similar engines of growth will be vital to charting a course back to prosperity.
Governments around the world are already pivoting to a more active role in shaping their economies so they can best seize the opportunities the current technology revolution holds for green and other industries. This shift reflects a growing recognition that markets alone cannot tackle today’s challenges. However, an interventionist approach carries risks and demands careful management. The UK’s experience with industrial strategy illustrates this point. For decades, the UK has oscillated between intervention and laissez-faire policies with no consistent direction. This flip-flopping reflects two competing realities. On the one hand, past failures of industrial strategy – particularly attempts to “pick winners” in the 1960s and 1970s – left scars, as these efforts often resulted in costly missteps that backed losers instead. On the other hand, the successes of industrial policies abroad – particularly among the Asian tiger economies and, more recently, in China – demonstrate that well-executed government action can spur innovation, create jobs and build competitive advantage. Reconciling these lessons is key to charting a new path forward.
Focusing specifically on green industrial strategy reflects both the magnitude of the net-zero transition and its significance as a microcosm of the broader challenges the UK must navigate. Decarbonisation represents one of the most profound structural transformations in history, reshaping how energy is produced, goods are manufactured and economies compete globally. But unlike previous energy transitions, this one needs to happen faster, requires more upfront capital investment, and crucially is being driven by policy rather than by market forces or technological superiority.[_] So the emphasis on policy intervention is fundamental. Green sectors also embody some of the most complex trade-offs industrial strategy must address: balancing innovation and competitiveness with resilience and equity. Moreover, these sectors have been elevated in importance by the UK government, not only as an economic-growth priority but also as a critical pillar of its net-zero agenda. By examining green industrial strategy, this report tackles the most urgent and illustrative case for modern industrial policy, offering insights that extend beyond green sectors to the broader role of strategic state intervention in shaping the UK’s future.
Today, the need for a coherent industrial strategy for clean technologies is more urgent than ever. For more than a decade, China has strategically oriented its economy around clean tech, achieving dominance in sectors such as solar energy and EVs. In response, other major economies are ramping up their efforts. The US enacted the Inflation Reduction Act (IRA) in 2022, making substantial investments in clean energy and climate action. However, its long-term future is uncertain, as the new Trump administration has signalled plans to rescind unspent funds, reflecting how US industrial strategy oscillates with political cycles. Similarly, the EU has launched the European Green Deal, which aims to make Europe the first climate-neutral continent by 2050. However, internal political dynamics and external pressures have hampered the EU’s ability to respond decisively to China’s growing dominance in the clean-technologies sphere, and both the US and EU have yet to develop enduring strategies that can weather changing political priorities.
The UK, despite lacking the market size and financial resources of these superpowers, has an opportunity to chart a more consistent and effective path. As one of the world’s leading economies, it retains significant agency over its future. To succeed, however, the UK must avoid the pitfalls of past industrial strategies: lack of focus (frequent shifts in priorities), inconsistency (the absence of a strategic framework to guide thinking) and poor execution.
The Labour government’s renewed emphasis on industrial strategy – particularly in the context of net zero – is a welcome step. A coherent, long-term approach to industrial strategy is essential to help deliver its economic growth mission. This report offers fresh analysis, actionable frameworks and policy advice to help design and implement a strategy that is fit for purpose, durable and capable of navigating the challenges of the future.
What Is Industrial Strategy?
In this report, we define industrial strategy as sector-specific policies (or vertical interventions) aimed at driving structural change in the economy or safeguarding the UK’s existing sector strengths in response to global shifts. “Industry” is interpreted broadly to include all sectors – extractive industries, manufacturing sectors and services – a broad scope that is essential in a service-oriented economy like the UK.
Industrial strategy is not a substitute for cross-cutting policies (horizontal interventions) that enhance overall economic dynamism. Instead, the two should be complementary. A sectoral approach can help identify the most impactful mix of horizontal interventions at the system-wide level, as discussed in a later chapter on cross-cutting policy priorities for UK industrial strategy. Horizontal policies – such as improving skills, reforming the planning system or upgrading national infrastructure – are often more cost-effective for driving broad-based growth and rightly remain a priority in the government’s growth agenda.
The role of industrial strategy has evolved over time. Historically, its purpose was to address market failures – such as externalities, coordination failures or information gaps that prevent efficient resource allocation. Today, its scope is often much broader. Governments are now using industrial strategy to accelerate innovation, foster the accumulation of ideas and strengthen the foundations of future growth. Recent shocks – like the pandemic and supply-chain disruptions – have also made resilience a central goal. At the same time, the rise of aggressive industrial policies abroad demands a strong and strategic state-level response.
In this report, we adopt this expansive view of industrial strategy: a tool not just to fix market failures but to shape the economy’s structure, build resilience and ensure the UK is prepared to compete in a rapidly changing world.
What Should Industrial Strategy Aim to Achieve?
The number one priority of the Labour Government – and by extension, the goal of industrial strategy – is to boost economic growth. But the type of growth also matters. The government’s Invest 2035 paper makes clear its ambition to make the economy not only grow faster, but also make it more resilient, regionally balanced and green.[_] Each of these four objectives shapes the approach to industrial strategy in distinct ways.
Objective 1: Strong Growth
Achieving strong economic growth requires a focus on dynamic, high-potential sectors that will become future engines of growth. If an economy rests on its laurels, it risks being outcompeted by more innovative companies overseas, or left behind as global demand shifts to focus on other sectors. This means innovation and technology must be at the heart of the industrial strategy agenda, as sectors with rapid productivity growth and rising global demand are typically those driven by research, development and cutting-edge technologies. Strong growth also depends on economic openness. Openness is vital to ensure UK firms and households can access foreign inputs as cheaply and efficiently as possible, to expose domestic producers to overseas competition in order to spur economic dynamism and to expand the size of markets available to UK firms so that they can achieve economies of scale.
Objective 2: Resilient Growth
Growth must not only be strong but also stable. Stability leads to confidence among businesses, which encourages investment and makes it easier to manage the public finances. To achieve stable growth, the economy must be resilient enough to rebound from domestic and international shocks; otherwise, taxpayers ultimately bear the cost. Resilient growth requires a distinct focus on industrial strategy; policymakers must cultivate a diverse economy that avoids overreliance on a few key sectors and adopt measures that prioritise stability. This may mean trading some efficiency or economic openness for measures that provide buffers against shocks or safeguard critical UK capabilities from malign foreign influence.
Objective 3: Regionally Balanced Growth
The geographic distribution of growth is a persistent challenge for the UK. A total of 37 per cent of economic activity is concentrated in London and the South East, despite these regions accounting for just 27 per cent of the population.[_] This imbalance reflects strong agglomeration effects in the capital, incentivising industrial clustering and driving economic efficiency. While this geographic concentration of activity can benefit the wider economy, it also creates structural challenges, placing unsustainable pressure on housing, infrastructure and public services in London while deepening regional inequality, undermining social cohesion and necessitating costly government redistribution. A place-based industrial policy can help address these imbalances by focusing on sectors with geographically concentrated footprints. By cultivating such sectors, the government could mitigate the effects of industrial decline in some regions or foster new industrial clusters elsewhere in the country.
Objective 4: Green Growth
Industrial strategy can also help drive economic activity that accelerates the net-zero transition both domestically and globally. For example, cultivating domestic productive capacity in critical green supply chains could reduce reliance on overseas imports, mitigate the risks of supply disruptions and lower the costs of domestic deployment of green technology needed to reduce emissions. Similarly, industrial policy can be used to help develop and scale new green innovations that address critical gaps in the net-zero transition or provide more cost-effective solutions that can be adopted at home and abroad.
Synergies and Trade-Offs
These four objectives are all important and can work together to create a virtuous cycle. Imagine an economy in 2050 that has successfully positioned itself as a world leader in the fast-growing green sectors of the future by cultivating economic activity across the country, weaned itself off fossil fuels, and become more diversified and resilient as a result. It’s an attractive vision, although arguably one that better resembles China’s prospects than the UK’s.
The reality is that, while the objectives of industrial strategy can reinforce each other, they can also create trade-offs that require careful management. Key tensions include:
Growth versus decarbonisation: Given that the UK is lagging behind in many green technologies, the fastest and cheapest way to cut emissions may be to rely on imported technology. For instance, China’s photovoltaic solar panels are the most cost-competitive in the world, but staying open to imports undermines any chance the UK has of cultivating its own solar industry. Policymakers need to choose between least-cost decarbonisation through imports or nurturing domestic green industries to drive long-term growth.
Growth versus stability: Economic openness drives growth by ensuring UK firms have access to cheap inputs and by exposing firms to global competition. However, a relentless focus on efficiency and cost saving can leave the economy vulnerable to shocks. For example, reliance on just-in-time supply chains may maximise short-term growth but reduce resilience, as seen during the Covid-19 pandemic. Disruptions to global supply chains could also delay the rollout of green technologies, slowing progress towards net zero.
National versus local growth: High-growth sectors often cluster in London and the South East, which already benefit from strong infrastructure and talent pools. Prioritising these sectors could maximise national growth but risks widening regional inequalities. Conversely, targeting sectors in underserved areas may spread economic opportunities but could result in slower growth at the national level.
The government needs a nuanced approach to green industrial strategy, guided by a consistent decision-making framework that balances these trade-offs. This report sets out such a framework in the chapter titled “Designing a Strategic Framework for Green Industrial Policy”.
Chapter 3
One of the major strategic choices facing the government is where to focus its industrial-strategy efforts. Striking the right balance is critical: cultivating a broad range of sectors and innovations can enhance economic diversity and manage the risk that some emerging sectors will fail to scale, but limited financial resource and capacity mean the government must prioritise some sectors over others. A recurring weakness of past industrial strategies has been the frequent shifting of sectoral priorities, reflecting a lack of consistency in how one sector’s merits are judged against another’s.
A hard-headed industrial strategy must be grounded in robust, evidence-based analysis that identifies which sectors offer the greatest growth potential. This requires as assessment of both the potential size of the global market for each sector and the UK’s chances of capturing a share of that market. This is the focus of new economic research, developed by the Tony Blair Institute for Global Change and Oxford Economics, that is released as a technical annex alongside this report.
The Global Opportunity
Our starting point is to assess the size of the global market for 22 green industries.[_] Given green industrial strategy works with considerable lags, this market-size assessment needs to be forward looking. The projections in Figure 1 are drawn from the best available sources including from the Principles for Responsible Investment (a United Nations Partnership), International Energy Agency and industry bodies. Nonetheless, these estimates are subject to considerable uncertainty due to the unpredictable nature of technological progress, markets, trade and policy – as reflected in the uncertainty ranges shown in Figure 1.
Global market-value projections for a range of green industrial sectors
Source: TBI and Oxford Economics
Three key insights emerge from the global market analysis:
Green sectors can be a major driver of economic growth: As the global economy transitions towards net zero, the value of the green economy (covered by the 22 sectors in Figure 1) is expected to grow by more than 400 per cent in real terms by 2050, reaching nearly £7 trillion by 2050 (in today’s price) – equivalent to annual growth of more than 6 per cent per year. This demonstrates the critical role green industries will play in global economic growth.
Established sectors dominate: The largest markets of the future – EVs and green finance – are already sizeable.
Some emerging innovations will scale rapidly: For example, the markets for carbon capture, utilisation and storage (CCUS), long-duration storage and low-carbon hydrogen production are all nascent now but could see their annual global market value rise by more than £250 billion between 2022 and 2050.
A large and expanding global market offers notable opportunities for the UK. The question, however, is what share of these markets UK businesses can realistically capture.
Gauging the UK’s Opportunity
To assess the UK’s potential, Oxford Economics reviewed the supply-chain components of each green sector and mapped the UK’s likely areas of strength. For example, the UK has limited natural deposits of many of the critical minerals for the batteries used in EV production, which constrains its ability to compete in that segment of the supply chain.
Given the uncertainty around future market share, we then developed two scenarios to bookend the analysis and give a sense of the plausible range of outcomes.
Business as usual: Assumes the UK’s market share evolves in line with current trends, with some sectors losing ground to international competitors as their industrial capacity grows. This scenario assumes that current stated government policies continue.
Peak potential: A best-case scenario based on the UK’s historic peak market share in comparable industries, and optimal conditions for production and export capacity. For example, under this scenario, the UK is expected to maintain its current high share of the green-finance market (19 per cent) despite growing competition from overseas.[_]
The UK’s potential share of the global market for green sectors in 2050
Source: TBI and Oxford Economics
The Capturable Market
By combining global market size with the UK’s potential market share, we can estimate the value of the UK’s peak-potential capturable market (Figure 3).
Potential market value to the UK, under the peak-potential scenario
Source: TBI and Oxford Economics
Several insights emerge:
The green economy offers significant growth potential if UK firms can capture global market share: Green sectors contributed around 0.8 per cent of UK GDP in 2022 (just over £20 billion).[_] By 2050, this figure could rise to 1.6 per cent of GDP (or around £65 billion in today’s prices) under the business-as-usual scenario, or to 5.8 per cent of 2050 GDP (£235 billion) under the peak-potential scenario. The difference between these figures gives a sense of the potential impact that green industrial policy could have on the economy: UK GDP could be over 4 per cent higher by 2050 if the government gets green industrial strategy right. This effect – which is equivalent to raising the UK’s annual growth rate by up to 0.1–0.2 percentage points for the next 25 years – relies heavily on UK firms being able to capture a significant share of global markets. This maximum-growth effect is a gross figure in that it does not account for the potential drag on economic activity from the decline of carbon-intensive “grey” industries.
Service sectors hold the greatest potential to drive green growth in the UK: In 2022, three-quarters of the economic value of the UK’s green economy came from services – equivalent to 0.6 per cent of GDP. Green services could be worth up to 4 per cent of UK GDP by 2050 under the peak-potential scenario. Green services could thus account for 70 per cent of the growth of the green economy over the next quarter century if the UK is able to maintain its competitive advantage in key areas, particularly green finance and insurance.
Green manufacturing also offers growth potential, but most of the gains are concentrated in a small number of highly competitive sectors: Green manufacturing could rise from just 0.2 per cent of UK GDP in 2022 to up to 1.8 per cent of UK GDP in 2050 in the peak-potential scenario. These gains are significant but are heavily concentrated among a few sectors. EVs are the jewel in the green-manufacturing crown and account for half of green manufacturing’s maximum potential value by 2050. CCUS and offshore wind are also major growth sectors and together account for a further third of green manufacturing’s maximum potential value, with 15 other smaller manufacturing sectors accounting for the remainder.
Prioritising the UK’s Strengths
To help guide the UK’s strategic choices, Oxford Economics and TBI have developed a competitiveness framework to systematically assess the drivers of industrial success, covering:
Enabling conditions: Technical base, supply of raw materials and geography.
Comparative assessment: Strengths in research and innovation, financial incentives to invest in the sector, energy and labour costs, and domestic market maturity compared with peers.
Technological maturity: Whether sectors are early stage (higher risk but with first-mover potential) or mature (less risky, but harder to disrupt).
Barriers: Infrastructure, access to capital, regulatory barriers and labour shortages.
We then converted a qualitative assessment of these drivers into a quantitative competitiveness index for each sector, to produce the sector competitiveness index shown in Figure 4.
UK competitiveness index by sector
Source: TBI and Oxford Economics
By combining the competitiveness index with the peak-potential market value from each sector we can get a clearer sense of the UK’s sector priorities – as shown in Figure 5.
Market assessment for UK green sectors
Source: TBI and Oxford Economics
Key Takeaways for Government
The analysis presented in this chapter provides some clear insights to help guide the government’s industrial strategy and help minimise changes in strategic direction in the future. The government should:
Leverage core strengths in services: Green financial services (both finance and insurance) are high-growth areas where the UK is already competitive. Maintaining this edge should be a top priority.
Cultivate high-potential sectors: CCUS, fixed offshore wind and green infrastructure services (civil engineering, operations and maintenance) stand out due to the UK’s geological advantages (the North Sea’s high winds, shallow waters and large carbon-storage potential) and technical expertise (the UK has the second largest engineering-consulting workforce in Europe). These sectors should be central to the UK’s green industrial strategy.
Address weak spots: EVs offer high growth potential but will require substantial government support to overcome the UK’s weak starting position.
Harness synergies between smaller industrial sectors: While there are a range of other green industrial sectors with growth potential, their impact is likely to be more modest than the larger sectors highlighted above, placing them in a different tier. Given resource constraints, the UK will need to prioritise carefully. One approach – explored in our accompanying technical report with Oxford Economics – is to focus on complementary sectors within green industrial clusters. For instance, the UK could cultivate a nuclear cluster, leveraging its expertise in small modular reactors (SMRs, a type of nuclear fission reactor) and nuclear fusion, or a coastal cluster, building on its strengths in fixed offshore wind to develop capabilities in floating offshore wind and tidal power. Any cluster-based strategy, however, should ideally extend beyond green industry to include synergies with other national industrial priorities. For example, the interplay between green energy and energy-intensive sectors, such as data centres or advanced manufacturing, could amplify the economic and industrial benefits of these clusters.
The UK is faced with some exciting opportunities in green sectors, but these are coupled with tough choices. A consistent and durable strategic framework is needed to capitalise on these opportunities and secure the UK’s position in the green economy of the future. The next chapter explores how such a framework could be developed.
Chapter 4
Identifying high-growth sectors is only part of the challenge for green industrial policy. Determining whether government intervention is necessary requires a robust and consistent framework. Such a framework should focus on both fixing market failures and strengthening the foundations of economic growth. By applying clear principles, policymakers can assess both the reasons for and against using critical government resources to support specific economic activities.
Historically, industrial strategies have faced criticism for “picking winners”, whereby government interventions have propped up uncompetitive firms or led to inefficient allocation of resources. This has, at times, resulted in the government propping up losers – businesses dependent on state support that contribute little to economic growth or innovation. Another key risk is deadweight loss: providing support to firms or sectors that would have succeeded without government intervention.
Not every intervention will succeed, and this is an inevitable feature of industrial policy. Some firms and sectors will struggle to prosper despite targeted government support. However, failure is not necessarily a sign of flawed strategy. The real challenge lies in ensuring that the overall success-to-failure ratio justifies the investment. A successful industrial strategy incorporates failure as part of the learning process, using it as a basis for dynamic adjustment – scaling up what works and phasing out what does not. This approach ensures that resources are reallocated to maximise long-term impact and that the strategy evolves with changing circumstances.
This chapter sets out a strategic framework to guide green industrial policy, identifying ten rationales for intervention that fit beneath the four objectives of industrial strategy (strong growth, resilient growth, regionally balanced growth and green growth) outlined earlier in this report. This framework is not intended as a one-time tool but as a structured guide to systematically monitor and reassess interventions. By using it to inform continuous evaluation and adjustment, policymakers can ensure that green industrial strategy remains relevant, effective and aligned with the evolving economic landscape.
Four overarching objectives and ten rationales for green industrial-policy intervention
Source: TBI
Objective 1: Strong Growth
In our framework, four of the rationales for green industrial-policy intervention help lay the foundations for strong economic growth.
1. Create positive externalities: Some private investments generate economic benefits that spill over beyond the investing firm, such as by stimulating supply-chain activity or through increased consumer spending. Since these externalities do not directly enhance a business’s profitability, private companies tend to underinvest in them. This creates a strong rationale for government support – through grants, tax credits, subsidies or subsidised finance – to incentivise investments with high economic multipliers. The clearest cases for intervention arise in sectors with significant spillovers that generate substantial activity and jobs for a given level of public investment.
2. Catalyse long-term investment: High uncertainty, high risk and high upfront capital requirements can deter private investment during the early stages of the net-zero transition despite the potential for meaningful long-term returns. This “tragedy of the horizon” prevents foundational research and development (R&D) and large-scale deployment of green technologies. Governments can bridge this gap by reducing risks and uncertainties for the benefit of the private sector or by making investments directly. Available tools include demand guarantees (for example, procurement contracts), price guarantees (contracts for difference) and joint financing (investment or export credit guarantees). Additional measures include tax incentives (such as R&D credits), regulatory sandboxes and innovation grants to catalyse private investment. Governments can also directly fund innovation through state-backed R&D partnerships or even create state-owned enterprises where private capital is unavailable. The choice of tool should depend on the underlying barriers to investment, the cost-effectiveness of intervention and the scale of the sector’s growth opportunity.
3. Address coordination failures: The scale of system change required for the net-zero transition – such as rewiring the economy for clean energy – often involves complex interdependencies that the private sector alone cannot address. For instance, EVs need a robust charging infrastructure and gigafactories require grid connections. These coordination challenges extend beyond any single firm and justify government intervention to align investments, reduce uncertainty and unblock bottlenecks. Tools include long-term delivery plans to provide clarity, setting industry standards (such as uniform EV-plug designs) and using government convening power to address shared challenges such as planning constraints. Without such interventions, private investments may stall, delaying critical system-level transitions.
4. Counter market distortions: The weakening of the global consensus around free trade and the rise of protectionist strategies mean the UK must be increasingly vigilant about distortive trade practices. Traditional mechanisms for resolving disputes via the World Trade Organisation (WTO) are less effective than in the past, making unilateral measures much more common.
Distortive foreign subsidies can harm UK industry by flooding the market with artificially cheap imports and creating monopoly power. Governments can address these issues through trade-defence measures that restrict the flow or raise the price of imports (for example, through anti-dumping measures or countervailing duties). Counter-subsidies can also help level the playing field, particularly in export markets, but these should be used sparingly due to their high costs and the risk of triggering retaliatory action and a damaging ratchet effect, whereby escalating protectionism produces poorer outcomes for all parties.
Where monopolies dominate key global industries, the government could try to create its own global champion through a mix of tariffs, R&D funding and direct investment, or use international alliances to create monopsony buying power to provide a counterweight. However, decisions to intervene should weigh the potential harm to UK industry against the feasibility and costs of developing competitive domestic suppliers. In some cases, where UK firms do not compete directly with subsidised imports, the wisest course of action may be to simply allow UK households and firms to benefit from cheap imports.
Objective 2: Resilient Growth
The next three rationales help to improve the economy’s resilience to future shocks.
5. Strengthen supply-chain resilience: Transitioning from fossil fuels to green energy will improve the UK’s energy security and reduce its exposure to some geopolitical shocks. However, this is principally an argument for accelerating the domestic green transition, not for trying to cultivate domestic green production capacity through industrial policy. The more relevant question for industrial strategy is how to mitigate supply-chain shocks that ripple across the economy beyond the affected firm. Firms may underestimate and underinsure for these broader risks, creating a clear role for government intervention. Governments have several tools to mitigate these risks:
Information sharing: Monitor, track and predict supply-chain vulnerabilities at the national level, sharing insights with businesses to address information asymmetries and incentivise pre-emptive action.
Strategic infrastructure investment: Invest directly in critical supply-chain infrastructure, such as ports and transport networks, to reduce their susceptibility to shocks.
Private-sector incentives: Encourage businesses to diversify supply chains through subsidised finance (for example, import guarantees), support outward foreign direct investment (FDI) to develop alternative sources of supply, or by mandating firms to hold strategic stockpiles (as is the case with emergency oil reserves).
International agreements: Negotiate trade agreements that include resilience provisions, such as commitments to coordinate strategic stockpiles or to refrain from export bans during shortages.
When determining whether to intervene, the government should consider the potential scale of disruption and the cost-effectiveness of bridging supply gaps directly (through domestic or international production) compared with other methods of mitigating risks (for example, through building stock buffers).
6. Maintain strategic industries for future resilience: The UK may seek to preserve certain strategic industries, even if they are uneconomic in the short term. This “sleeper-asset” rationale rests on two key arguments:
Insurance against tail risks: Domestic capacity can provide a safeguard against critical supply disruptions, such as during military conflicts.
Foundation for future strength: Retaining skills and expertise in an uneconomic sector could form the foundation for future sectors of strength. Likewise, certain sectors may not currently be competitive but could reap benefits later as the global transition to net zero continues to accelerate and global policy shifts. Allowing these industries to fail could lead to the atrophy of such skills, making it more costly to restart the sector later if needed.
To maintain uneconomic industries, the government can offer direct subsidies, secure long-term procurement contracts, take public ownership (as with Forgemaster Steel[_]) or implement trade restrictions to enable the industry to compete with more efficient foreign rivals.
Alternatively, the UK could mitigate risks through international cooperation, pooling resources with allies to create shared strategic supplies. However, such interventions must clear a high bar. Policymakers should weigh the costs of sustaining an uneconomic asset against its strategic value and the likelihood of the asset paying off in the future, compared with the cost of letting an industry fail and then trying to revive it in the future.
7. Preserve national security and strategic advantage: The government may wish to restrict exports, investments or foreign access to critical technologies and infrastructure to safeguard national security or maintain a strategic edge in industries where the UK holds a technological lead or critical supply-chain role. This rationale mirrors measures like the US CHIPS Act and the UK’s ban on Huawei in its 5G network. Key policy tools include:
Investment screening: Restrictions on foreign investments under the National Security and Investment Act.
Export and import controls: Licensing requirements to manage sensitive trade.
Outward-investment restrictions: Sanctions or controls to prevent UK technology from strengthening adversarial capabilities.
International rules: Efforts to counter intellectual-property theft and unfair practices.
Intervention decisions should hinge on whether the UK holds a strategic advantage in a particular technology and whether trade or investment access could undermine the nation’s economic or security interests.
Objective 3: Regionally Balanced Growth
Industrial policy can also complement regional development policy, which is covered by the next rationale in our framework.
8. Support regions through transition and clustering: Regional imbalances pose significant challenges for the UK economy, particularly in areas heavily reliant on carbon-intensive industries or lacking diverse economic opportunities. Green industrial policy can address these issues in two ways: mitigating the risks of economic decline from transitioning industries and engendering regional growth through industrial clustering. Each approach has a distinct rationale for government intervention.
Mitigating transition risks: As the UK gradually transitions to net zero, existing carbon-intensive industries will decline. While this structural transition is desirable in the long-term it can be very difficult to manage in the short term, particularly if it results in major industrial plants shuttering. When large carbon-intensive firms fail (such as steelworks or coal mines), their failure can cause significant negative externalities that extend beyond the firm itself –such as rising unemployment, reduced regional investment and long-term economic stagnation. These ripple effects, often concentrated in specific regions, impose costs that the private sector does not internalise, creating a rationale for government intervention. Targeted support for these industries to buy time and help them smoothly transition towards greener alternatives can help minimise these externalities. Tools include direct financial incentives for green transitions, retraining and reskilling programmes for affected workers and broader regional investments to attract new businesses.
Fostering industrial clusters: Some green industries have concentrated geographic footprints, presenting opportunities to generate positive economic spillovers through agglomeration effects. When similar economic activities collocate, they can benefit from shared infrastructure, knowledge transfer and local supply chains, creating enhanced productivity and growth for the region. This provides a clear rationale for government intervention to incentivise and coordinate the development of industrial clusters. For example, the government’s support for CCUS projects in the Tees Valley Industrial Cluster aims to stimulate local economic activity while advancing decarbonisation. The feasibility of such interventions depends on factors such as the availability of infrastructure, geographic suitability and skilled labour in the target region.
While green industrial policy can play a critical role in regional development, it is by no means the only tool available. Broader sector-agnostic policies, such as creating regulatory or tax incentives for businesses to locate in a region, or increased infrastructure investment, can also stimulate economic activity in underserved areas. Policymakers must carefully assess whether green industrial policy or alternative regional approaches provide the most efficient and effective response.
Objective 4: Green Growth
As the final two rationales in our framework speak to, industrial policy can play a dual role in supporting the net-zero transition: accelerating the domestic adoption of green technologies and fostering innovations that contribute to global decarbonisation efforts. These are distinct but complementary rationales, each requiring a tailored policy approach:
9. Accelerate the domestic net-zero transition: Industrial policy can help the UK meet its net-zero targets faster by focusing on reducing costs, accelerating deployment and developing novel solutions to overcome decarbonisation bottlenecks. In many cases, imported technologies may suffice, but there are scenarios where domestic investment is critical, such as:
Addressing global supply shortages: When shortages or disruptions in key supply chains risk delaying progress, domestic production can provide security and ensure continuity.
Reducing costs through local production: Transport and logistical expenses can make local assembly or production more cost-effective, lowering the overall cost of deployment.
Developing technological alternatives: The UK can also reduce its exposure to supply shortages by developing alternative production techniques that reduce reliance on scarce inputs (for example, if the UK developed cobalt-free EV batteries, it would reduce its reliance on cobalt imports).
The government has several tools at its disposal to address these challenges. Funding mechanisms, including grants, tax credits and subsidised finance, can stimulate investment in key supply-chain subsectors. Infrastructure investments in transport networks, energy grids and smart meters can facilitate the deployment of green technologies and lower barriers to adoption. Additionally, workforce development through training programmes can ensure a pipeline of qualified labour to support emerging industries.
However, effective intervention must be underpinned by robust data and analysis. The government must thoroughly understand global supply chains for key clean-energy technologies, including their vulnerabilities, and assess the UK’s capacity to develop viable solutions. Without this foundational knowledge, interventions risk being poorly targeted and wasting critical resources.
10. Develop new clean technologies to drive substantial falls in emissions overseas: Beyond its domestic agenda, the UK could have an outsized impact in helping other countries decarbonise by developing breakthrough technologies that set global standards and dominate international markets. Unlike the domestic objective, this global role is about creating innovations that can deliver emission reductions across a range of countries while capturing the associated economic opportunities. Given the UK accounts for less than 1 per cent of the world’s carbon emissions, novel green tech developed in the UK and exported to the world has the potential to have a far bigger impact on global carbon emissions than efforts within the UK’s borders. Success depends on two factors:
Exporting innovations: The UK must prioritise exporting its green technologies to maximise its impact on global emissions and should not undermine their adoption through export restrictions to retain strategic advantage.
Strategic focus: Interventions should be targeted at areas where the UK has a distinct technological advantage or can cost-effectively lead innovation (for instance, fusion power).
The government can deploy a range of policy levers to achieve this. Funding for private ventures, including grants, startup financing and innovation challenges, can incentivise development. Direct public investment in Disruptive Invention Labs or triple-helix partnerships between universities, government and industry, can fill gaps where private capital is insufficient. Regulatory sandbox trials can create an environment for experimentation, while market-creation mechanisms like contracts for difference can ensure demand and incentivise scaling. Efforts to build a highly skilled workforce – through domestic training programmes and high-skill migration policies – can further enhance the UK’s capacity to lead.
Ultimately, the decision to intervene should rest on whether the UK is uniquely positioned to lead the development of a technology or whether collaboration with global partners offers a more efficient and cost-effective route. In both cases, targeted industrial policy has the potential to deliver innovations that significantly advance the global net-zero transition.
Moving From Theory to Practice
A consistent framework is essential for effective industrial policy. The purpose of the framework outlined above is twofold. First, it provides a structured approach for assessing the rationale for intervention at the sector level. By applying the framework consistently, policymakers can evaluate where government support is justified, identify the most effective tools, and ensure decisions are rooted in evidence. This sector-by-sector analysis is crucial for targeting interventions effectively.
Second, the framework enables insights to be reviewed across the system as a whole. By comparing conclusions across sectors, it helps policymakers prioritise resources and ensure that individual interventions complement one another and align with broader objectives. This system-wide perspective is vital for avoiding inefficiencies or unintended conflicts between policy choices while ensuring that resources are allocated where they can deliver the greatest overall impact.
For the framework to work effectively, it must be underpinned by robust evidence. Detailed data on supply-chain risks, economic spillovers and strategic vulnerabilities are essential to assess each rationale for intervention. Without this foundation, interventions risk being poorly targeted and are likely to fail to achieve their intended goals.
The next two chapters, where we discuss the strategic framework at work, demonstrate how the framework can be applied through case studies on green steel and EVs, illustrating how it can guide strategic choices and manage trade-offs at the sector level. Later, our chapter “Cross-Cutting Policy Priorities for UK Industrial Strategy” broadens the analysis, synthesising insights from a light review of additional sectors to offer system-wide policy recommendations.
Ultimately, the government’s decisions will reflect its priorities and the relative weight it places on different objectives. However, by applying its judgements consistently through this framework, the government can make evidence-based decisions that are transparent, strategically aligned and more likely to endure.
Chapter 5
In 2023, the UK steel industry contributed £2.3 billion in gross value added (0.1 per cent of total economic output) and directly employed 40,000 workers (0.1 per cent of the workforce).[_] The sector has been in long-term decline due to intense competition from overseas, particularly from subsidised Chinese producers, whose actions have created a global steel glut, driving down prices. UK steel firms also face higher overheads, notably from high energy costs, further eroding their competitiveness.
Despite generous government support, the UK’s two major remaining blast-furnace sites – in Port Talbot (Tata) and Scunthorpe (British Steel) – are uneconomic, with Tata’s site reportedly losing £1 million a day.[_] Both companies plan to replace their ageing blast furnaces with low-emission electric arc furnaces, which would substantially cut the UK’s carbon footprint: steelmaking currently accounts for 2.4 per cent of emissions.[_] However, these new plants are less labour intensive, meaning that more than half of the 6,500 jobs at the sites could be lost, even if the switch to new furnaces is successful.[_]
The Labour Party manifesto committed £3 billion to a green-steel fund, including £0.5 billion already pledged by the previous government for Tata’s Port Talbot transition. This raises the question: is such a substantial intervention for an uneconomic sector justified? Applying the strategic framework outlined earlier helps evaluate the case for support.
1. Do positive externalities justify intervention?
Novel experimental analysis[_] from our accompanying technical report suggests this rationale is relatively weak for green steel compared with other green sectors. While investment in low-carbon steel has a positive multiplier effect – £1 billion of government investment would generate an additional £0.6 billion in gross value added (GVA) from the sector and £1.3 billion across the broader economy – this 1:2 multiplier is lower than in other green sectors, which typically yield returns of between two-and-a-half and four times (Figure 7). Similarly, employment gains from steel investment are modest, with £1 billion supporting 16,500 jobs, compared with 25,000 to 55,000 jobs in other sectors (Figure 8).
Indicative impact of £1 billion of government investment on GVA for select green industries based on experimental analysis
Source: TBI and Oxford Economics
Indicative impact of £1 billion of government investment on employment for select green industries based on experimental analysis
Source: TBI and Oxford Economics
2. Does it catalyse long-term investment?
The catalytic impact of government funding appears relatively limited. For instance, the £0.5 billion grant to Tata covers part of a £1.25 billion conversion programme, equating to a mobilisation ratio of 1:2.5, which is below the National Wealth Fund’s (NWF) target of 1:3.[_] Additionally, green steel’s potential contribution to GDP is modest. Even under an optimistic peak-potential scenario, the sector could generate up to £3 billion in GVA by 2050, compared with just £0.5 billion under the business-as-usual scenario (Figure 9).[_] These figures suggest limited potential for green steel to become a major driver of UK economic growth.
Total gross value added supported by select green sectors in 2050
Source: TBI and Oxford Economics
3. Do coordination failures justify intervention?
There is a stronger case for government intervention to address coordination failures in the steel sector, particularly to support the system-wide changes needed for the net-zero transition. For example, high electricity prices in the UK – which were 70 per cent above the median EU price at the end of 2023 – are a key barrier to the viability of the UK steel sector, driven in part by network charges associated with integrating renewable energy.[_] These higher costs undermine the competitiveness of steelmakers transitioning to electric arc furnaces, which are more reliant on electricity. The government can play a role in managing this transition by providing short-term financial relief to offset some of the additional network costs – as has happened through the British Industry Supercharger.[_]
There is also a potential role for the government to coordinate investments in hydrogen production, renewable energy and steelmaking to develop a zero-carbon steel sector. Hydrogen-based steelmaking, which replaces fossil fuels with green hydrogen, is a promising but less mature technology that would require alignment across multiple industries. However, given the UK’s relatively small steel sector, there is a question whether the country has sufficient scale and comparative advantage to cultivate such a sector.
Where the evidence of coordination failure is less strong is in justifying the specific financial support to Tata and British Steel to transition their blast-furnace sites to electric arc furnaces. Unlike the other examples above, which involve coordination across multiple firms and industries, the investment in Tata and British Steel is principally about safeguarding manufacturing in individual firms, rather than unlocking barriers to investment across the system.
4. Are market distortions undermining competition?
The steel sector faces significant market distortions, primarily driven by global overcapacity and uneven regulations. Since 2006, the Chinese government has heavily subsidised its steel industry through financial incentives, including tax benefits, grants and research funding. As a result, China’s steel production has grown rapidly, accounting for more than half of global steel production and a third of global steel exports in 2023.[_] This has created a persistent global glut, with excess Chinese steel undercutting production costs elsewhere and driving down prices in international markets.
Other countries have responded to these distortions with trade-defence measures. For example, in 2018, the US imposed 25 per cent tariffs on steel imports under Section 232 of the Trade Expansion Act, citing national-security concerns. This action prompted the UK and EU to impose safeguards to prevent the diversion of cheap steel exports into their markets. These safeguards, which remain in place until mid-2026, aim to protect domestic producers from unfair competition. [_]
Another major source of trade distortion is the carbon-emission content of steel. This varies considerably across countries depending on the production method (blast furnace versus electric arc furnace) and the fossil-fuel content of the power grid. One risk for the UK and other countries that are attempting to transition their high-emission brown steel to producing low-emission green steel is that they will be uncompetitive compared with cheaper imports that face less stringent environmental regulations. This risk of carbon leakage is one of the primary motivations behind the EU’s plan to introduce a carbon border adjustment mechanism (or CBAM) in 2026 – to impose a carbon price on steel imports consistent with that which applies within the EU. The UK plans to introduce its own CBAM in 2027. These interventions reflect legitimate concerns and are being designed explicitly to be compliant with WTO rules. But because they are novel measures, they still risk countries – particularly those most damaged from losing access to the EU and UK markets – taking retaliatory action when they are imposed.
While these measures aim to level the playing field and align with WTO rules, they highlight both the complexities of managing trade policy in a highly distorted global market and how deeply intertwined trade and industrial policy can become.
5. Is the UK at risk of a major supply-chain disruption that could ripple across the economy?
There is a strong rationale for government intervention to track and manage supply-chain risks in the steel sector, given its critical upstream role in manufacturing and infrastructure. Steel disruptions can cascade through the economy, making visibility into potential vulnerabilities essential.
The UK is already heavily reliant on imports to meet its steel demand. In 2023, the UK produced 5.6 million tonnes of steel, of which 3 million tonnes were consumed domestically and 2.6 million tonnes exported. Total demand stood at 7.6 million tonnes, with imports supplying 60 per cent of domestic consumption.[_] Import reliance is expected to grow in the short term as domestic production temporarily declines while blast furnaces at Port Talbot and Scunthorpe are decommissioned and replaced with electric arc furnaces.
At an aggregate level, the risk of a major steel shortage seems low, given the global overcapacity largely driven by Chinese production. However, declining domestic production could result in short-term disruptions for certain specialist grades of steel, such as those used in railway lines, which are currently supplied domestically. If production capacity falls during the transition, some infrastructure projects could face delays. These risks are unlikely to endure but will require careful management to avoid disruption in the interim.
Geopolitical risks could also create potential supply challenges. While the current global surplus of steel ensures availability, if the steel market were to fragment, for example due to the exclusion of Chinese steel from Western markets, it could shift the UK’s available import market from glut to shortage. This is not just a hypothetical risk: sanctions on Russian steel following the Ukraine conflict showed how geopolitical events can restrict supply, though the effects on UK markets have so far been limited. Similar disruptions could expose UK manufacturers reliant on specific imports or single suppliers.
Government initiatives like the Global Supply Chains Intelligence Programme,[_] which maps risks using advanced data analysis, are vital for identifying potential bottlenecks and ensuring resilience in critical sectors like steel. Strengthening this visibility and using it to mitigate risks will help safeguard the UK economy against both predictable and unforeseen disruptions.
6. Should the government support the steel sector to provide strategic resilience?
Steel plays a key role in strategic industries, including military technology and critical national infrastructure, making it an important consideration for the UK’s resilience planning. Ensuring some level of domestic production could act as an insurance policy against major disruptions, such as those caused by geopolitical conflicts or supply-chain fragmentation. For example, in 2021, the government brought Sheffield Forgemasters into public ownership to safeguard its production of speciality steels used in nuclear submarines and power plants.[_]
However, most of the steel produced by the UK’s blast furnaces at Port Talbot and Scunthorpe is for standardised products with less direct strategic value. Transitioning these sites to electric arc furnaces may enhance the UK’s ability to produce high-grade steels for strategic use. Currently, most high-grade steels used in defence and aerospace are already manufactured in electric arc furnaces, such as those operated by Sheffield Forgemasters or Liberty Speciality Steel in Rotherham.
One argument against moving entirely to electric arc furnaces is that the UK would lose the ability to produce “virgin steel” from coke and iron ore, making it the only G20 country unable to do so and leaving it reliant on scrap metal. But this argument is less compelling. To produce virgin steel, the UK is already heavily reliant on imports (of iron) and historically depended on such imports, even during periods of conflict, most notably the second world war. Moreover, the UK has a surplus of scrap metal, meaning the shift to electric arc furnaces could enhance economic resilience by reducing dependence on raw-material imports.
Of course, maintaining domestic production is not the only way to ensure strategic resilience. The government could also pursue agreements with allies to secure access to steel in the event of disruptions. Policymakers must weigh the likelihood of scenarios where steel imports are unavailable against the costs of sustaining domestic capacity. In cases where domestic production is deemed critical, the focus should be on supporting facilities that contribute most directly to strategic needs.
7. Should the government restrict access to the UK’s steelmaking capabilities to retain strategic advantage?
Restricting access to UK steelmaking capabilities to retain a strategic advantage appears to be a weak rationale for intervention. Most of the UK’s major steelworks, including Tata Steel at Port Talbot (Indian ownership) and British Steel at Scunthorpe (Chinese ownership) are already in the hands of foreign entities. Furthermore, the technologies in use at these sites are widely available internationally and offer little in the way of unique strategic value. The UK’s previously strong innovation record on steel, including in defence-relevant materials such as ballistics-proof steels, has also waned. All of Corus’s innovation labs have shut or relocated abroad, other than the Teesside Materials Processing Institute.
There are exceptions, however, where steel-production capabilities warrant closer scrutiny, with speciality steelmakers like Sheffield Forgemasters producing high-grade steel for critical applications including military technologies. Indeed, the strategic importance of Sheffield Forgemasters was one of the key rationales why it was taken into public ownership in 2021 rather than allowing its acquisition by foreign buyers. While such cases are rare, they illustrate the importance of assessing the specific strategic value of individual facilities on a case-by-case basis.
8. Should the government support the steel industry as a tool of regional policy?
Employment in the UK steel sector is highly concentrated, with 60 per cent of jobs located in just 5 per cent of parliamentary constituencies. Port Talbot and Scunthorpe alone account for around a fifth of all steelworkers. As an anchor industry, steel provides relatively high wages and supports demand in local economies, as well as activity in the wider supply chain. These characteristics provide a strong rationale for considering support for the steel industry on regional grounds. Socially, steelworks also occupy a symbolic role in their local areas, with their fortunes shaping the morale and identity of the local population. A heavily concentrated workforce also creates a strong constituency to exert political pressure for support, making intervention a political as well as an economic consideration.
Steel-sector employment in 2023 by parliamentary constituency
Source: Open Innovations, ONS Business Register and Employment Survey (via NOMIS) and TBI
However, the number of jobs safeguarded by government intervention is relatively small and, as previously noted, the transition to electric arc furnaces is less labour intensive than traditional blast furnaces. Even with government support, hefty job losses are likely. This raises the question of whether supporting the industry is the most cost-effective use of regional-policy resources, or whether comparable funding for other sectors or regional-policy initiatives could deliver greater benefits.
Another factor for policymakers to consider is the cost of decommissioning heavily contaminated blast-furnace sites, which would fall to taxpayers if private industry withdrew. These costs can be substantial: following the closure of the Redcar steelworks in 2015, the government allocated approximately £429 million for demolition and decontamination. Given their scale, similar costs could arise if Port Talbot or Scunthorpe were to shut down. While these expenses would be borne centrally by the Exchequer, the economic impact of the spending would be felt locally. Decommissioning projects can therefore generate some short-term employment and investment in the affected region, though not enough to substitute for the high-quality industrial jobs lost when plants close.
9. Should the government support the steel sector to accelerate the domestic net-zero transition?
The case for supporting the steel sector to accelerate the domestic green transition is nuanced. While it could help secure a stable supply of low-carbon steel and support the rollout of key green technologies, it comes with a high opportunity cost. The £3 billion allocated to steel could instead be invested in cultivating other green industries with potentially greater economic or environmental returns.
Traditional steelmaking is highly carbon intensive, emitting approximately 2.2 metric tonnes of CO₂ per tonne of steel produced.[_] The sector accounts for 2.4 per cent[_] of UK greenhouse-gas emissions, and without decarbonising it, the UK cannot meet its net-zero commitments. Two broad scenarios define the government’s options:
Support the transition to domestic green steel: This approach requires considerable government funding to transition to low-carbon technologies like electric arc furnaces. It would substantially reduce emissions from domestic steelmaking, aligning the sector with net-zero targets and ensuring a stable domestic supply of steel for critical green industries like offshore wind and EVs. However, for the domestic industry to remain viable, the UK would need to introduce a CBAM to level the playing field with cheaper imports. While a CBAM could help ensure fair competition, it would also raise the cost of imported steel, increasing input costs for downstream industries – including other green sectors – and potentially driving up the overall cost of the net-zero transition.
Allow the industry to decline: Alternatively, the government could let the domestic steel industry shutter, effectively offshoring emissions. This would allow the UK to meet the letter, if not the spirit, of its Paris Agreement commitments. Relying on cheaper imported steel could lower input costs for industries like offshore wind and EVs, reducing the cost of the green transition at the margin. However, this approach also carries risks. Steel is a critical input for green technologies, and relying entirely on imports could expose the UK to supply-chain vulnerabilities, potentially delaying the rollout of key infrastructure. As noted in question 5, the likelihood and impact of such disruptions depend on global market conditions.
Both scenarios carry significant trade-offs for the pace and resilience of the UK’s net-zero transition. Policymakers must carefully weigh these options, balancing cost, supply-chain risks and the broader implications for achieving climate goals.
10. Should the government support the steel sector to accelerate the global net-zero transition?
The case for supporting the UK steel sector to accelerate the global net-zero transition is limited. While there is some potential for the UK to use its market power to create demand for green steel through policy measures like a CBAM, the UK is unlikely to lead global innovation in green steel due to its small scale and declining steel-research capacity.
Market creation: The UK has some limited buying power to influence the global steel industry. By aligning with the EU and introducing a CBAM, the UK can incentivise steel producers in third countries to decarbonise their operations to maintain tariff-free access to the UK market. While this would encourage the global transition to green steel, it is the CBAM itself – not direct support for UK production – that plays the critical role in driving change.
Supply of new technologies: The UK appears poorly positioned to lead innovation in green-steel technology. The industry’s shrinking size – in 2023, it accounted for just 0.3 per cent of global steel production versus 54 per cent for China – has compounded the loss of the UK’s steel-innovation labs. The UK’s high electricity costs do provide one competitive spur to improve the energy efficiency of steel production, but without scale and resource it seems unlikely that the UK will develop genuine breakthrough technologies that will appreciably lower the carbon intensity of global steel production.
Overall, the UK’s ability to accelerate the global transition to net zero, particularly through technological advancement, would likely be more effective in other green sectors where the UK has a more natural comparative advantage.
Strategic Choices for the Steel Sector
Assessing the case for government support of the steel industry requires careful consideration of the evidence, weighing competing rationales and placing them in the context of the broader green economy. Some rationales are supported by clear quantitative metrics, while others rely on more qualitative judgements. We have provided an indicative assessment based on our judgements of the evidence presented throughout this chapter – as summarised in Figure 11 below.
Indicative assessment of the rationales to support the steel sector
Source: TBI
Political Choices on Steel: A Case of Déjà Vu
Successive UK governments have repeatedly faced the question of whether to support the steel sector or allow it to decline. Since the UK’s existing blast-furnace sites have not been commercially viable for some time, the industry frequently seeks government assistance to avoid closure. While the sector has shrunk considerably, no government has yet chosen to cut ties entirely and let virgin steelmaking in the UK die.
Short-term political motives have undoubtedly influenced these decisions. However, our framework provides a more objective rationale for this sustained support. The strongest arguments for maintaining the steel sector are safeguarding measures: avoiding economic decline in regions that host the industry, responding to unfair trade distortions, insuring against supply-chain risks and addressing coordination failures, such as the impact of the UK’s net-zero policies on energy costs for energy-intensive sectors. By contrast, the case for steel as a driver of economic growth or the net-zero transition is weaker, given the sector’s small size and the UK’s limited comparative advantage in developing innovative green-steel solutions.
The current government has doubled down on the cross-party consensus to maintain support for the steel sector and has pledged £2.5 billion of additional funding to aid its transition to greener technologies in addition to the £0.5 billion already pledged to Port Talbot by the previous government. However, a key question remains: at what point does this support become too costly, and have policymakers fully internalised the trade-offs involved? Two bookend scenarios illustrate the spectrum of choices available and the trade-offs associated with each, reflecting the historic tension between a laissez-faire approach and interventionism:
Option 1: Sunset – Let the Industry Decline
In this scenario, the government decides that the steel industry is uneconomic and too expensive to sustain. Financial support for Port Talbot and Scunthorpe would be withdrawn, leading to their closure, as happened with Redcar steelworks in 2015. This approach would save the government up to £3 billion earmarked for green-steel support, though it would incur decommissioning costs of up to £1 billion. The net savings of £2 billion could be redirected to higher-growth green sectors, such as SMRs, which could generate an additional £2 billion in GVA and 15,000 more jobs compared with continued investment in green steel (see Figures 7 and 8).
On the trade front, the UK could forgo introducing a CBAM and instead benefit from cheaper imported steel, which in some cases may have a lower carbon footprint than the UK’s blast-furnace steel. However, this strategy has significant drawbacks. The UK would become the only G20 country without domestic steelmaking capability, leaving it reliant on imports and vulnerable to supply-chain disruptions. Steel-producing communities in Port Talbot, Scunthorpe and elsewhere would face severe economic hardship, necessitating costly regional-support measures.
Option 2: Safeguard – Maximalist Intervention to Ensure the Long-Term Viability of the Sector
This scenario reflects the implicit choice successive governments have made: treating the steel sector as a vital strategic asset. The government would commit up to £3 billion to enable the transition to electric arc furnaces and support the wider sector. While employment in steel would likely continue to decline due to the lower labour intensity of electric arc furnaces, the impact on steel communities would be less severe than in Option 1, reducing the need for regional support.
Ensuring the sector’s viability in the long term would require an active trade policy, including trade-defence measures and a CBAM, to level the playing field with cheaper, more carbon-intensive imports. This strategy would improve the UK’s economic resilience and align with its net-zero goals, but the opportunity cost in terms of economic growth – of using vital funds for the steel sector rather than other sectors with better growth prospects – would be high.
System-Wide Implications
These scenarios highlight the ripple effects of sector-specific decisions on the wider system. Supporting the steel industry, for example, would necessitate introducing a CBAM, which could raise input costs for other UK manufacturing sectors and incentivise further alignment with EU trade and regulatory frameworks. Conversely, allowing the industry to decline would come with a political cost and while it could reduce territorial emissions it could increase supply-chain risks, particularly during periods of geopolitical instability.
The broader lesson for policymakers is the importance of considering system-wide effects when making sectoral interventions. Policymakers must ensure there are clear rationales for support and an understanding of when those arguments no longer justify the costs. Sectoral decisions often create trade-offs that extend well beyond the immediate sector, underlining the need for careful, evidence-based policy choices. We explore these cross-cutting dynamics in greater detail in a later chapter.
Chapter 6
The automotive industry is a cornerstone of UK manufacturing, contributing £19 billion[_] in GVA in 2023 (0.8 per cent of economic output and 8.7 per cent of manufacturing output) and directly employing around 140,000 workers[_] (0.4 per cent of the British workforce). More than 85 per cent of these jobs are outside London and the South East, with a further 270,000 supported in the supply chain.[_] In 2023, the sector produced 900,000 cars, 120,000 commercial vehicles and 1.6 million internal combustion engines (ICEs).[_]
However, the industry has faced some huge challenges, including the fallout from Brexit, pandemic-related supply-chain disruptions and a slow transition to EVs. Car production has almost halved since 2016 due to major closures, including Ford’s Bridgend plant in 2020 and Honda’s Swindon plant in 2021. Stellantis’s November 2024 announcement of its Vauxhall van-plant closure in Luton is emblematic of the sector’s ongoing difficulties.
UK car production is now concentrated in four key hubs: Nissan’s Sunderland plant (36 per cent of 2023 output), Jaguar Land Rover’s (JLR) Midlands plants (26 per cent), Mini’s Oxford plant (20 per cent) and Toyota’s Derby plant (13 per cent).[_] The remaining 4 per cent is accounted for by premium marques such as Bentley, Aston Martin and Rolls-Royce. The sector relies heavily on trade, with 80 per cent of UK-manufactured cars exported, primarily to the EU (60 per cent), the US (10 per cent) and China (7 per cent). Simultaneously, 90 per cent of new cars sold in the UK are imported.[_]
The UK’s transition to EVs has been slow. In 2023, just 75,000 battery EVs were produced domestically – 7 per cent of total production – largely due to a lack of domestic battery-manufacturing capacity.[_] Aside from AESC’s small 1.8 gigawatt-hour (GWh) factory in Sunderland, there are no large gigafactories currently operational in the UK. Efforts to cultivate a domestic champion faltered with British Volt’s collapse in early 2023.
Nonetheless, foreign investment in UK battery and EV production is starting to turn the tide. AESC, in partnership with Nissan, is building a £1 billion EV hub in Sunderland with a 15.8 GWh facility,[_] and Tata Group’s Agratas is investing £4 billion in a 40 GWh gigafactory in Somerset to supply JLR.[_] Additionally, overseas auto manufacturers like BMW, Stellantis and Nissan have announced more than £1.8 billion in investments to produce EV models in the UK.[_]
The previous government sought to accelerate the transition in a number of ways:[_]
Catalytic grants to anchor investment: Tata’s £4 billion gigafactory deal was reportedly enabled by £500 million in subsidies from the government.[_]
R&D and supply-chain support: Including £610 million under the Faraday Battery Challenge and £850 million from the Automotive Transformation Fund.
Regional investment zones: Announced in 2023 for the West Midlands and North East to attract battery-cell production through tax incentives and direct funding.
Skills development: Programmes like the Faraday Institution’s PhD training and Electrification Skills Network.
Zero Emissions Vehicle (ZEV) Mandate: Requiring all UK car sales to be zero emissions by 2035.
Energy-cost reductions: The British Industry Supercharger scheme for heavy industrial users.
Labour’s 2024 manifesto commits to strengthening these measures, including advancing the phase-out date of ICE cars to 2030 and providing £1.5 billion in catalytic funding to attract further gigafactory investments.[_] But are these substantial interventions justified and will they be enough to anchor the automotive sector in the UK in the long term? Applying the strategic framework outlined earlier offers a lens to assess their efficacy.
1. Do positive externalities justify intervention?
Investments in the EV industry generate notable positive spillovers for the wider economy. Oxford Economics estimates that £1 billion of government investment could produce an additional £1.8 to £3.1 billion in GVA, with roughly one-third of this value stemming directly from the auto sector and the remainder from the broader supply chain.[_] This multiplier effect is significant and surpasses that of many industries, including green steel. However, compared with some other green sectors (see Figure 7), the multiplier is relatively modest. This is partly due to the trade-intensive nature of the automotive industry, where a substantial share of value flows overseas via higher import demand.
The employment effects of EV investment are also limited by the industry’s capital intensity. A £1 billion investment is estimated to support approximately 16,500 jobs across the economy, on a par with green steel but lower than other green industries that create 25,000 to 55,000 jobs from similar-sized investments (see Figure 8). While the absolute number of jobs created is relatively low, each EV job has an outsized impact, catalysing around 3.5 additional jobs in the wider economy through supply-chain linkages. Of the 16,500 jobs supported, around 3,500 are directly within automotive manufacturing, with nearly 13,000 generated across the broader economy.
2. Does it catalyse long-term investment?
Government funding is likely to have a high catalytic impact on the EV sector. For instance, the reported £0.5 billion subsidy to Tata for its £4 billion gigafactory equates to a mobilisation ratio of 1:7, which is well above the NWF’s target of 1:3.
The sector’s potential contribution to UK GDP is also substantial, reflecting the large size of the global EV market. In an optimistic scenario where the UK were able to recapture its historical automotive-market share, the sector could generate nearly £40 billion in GVA by 2050 (2023 prices) – twice its current output. Even under a business-as-usual scenario, an EV-dominated auto sector would produce £20 billion in GVA, sufficient to replace the economic contribution of the sector’s ICE-dominated output today.
The EV sector offers the second-largest green growth opportunity after green finance, with its potential economic size far exceeding that of other green manufacturing sectors. Compared with green steel, the EV sector could be ten to 30 times larger in 2050 (see Figure 9).
As The Faraday Institution has noted, in order to achieve this scale, the UK’s automotive sector will need to attract a large amount of overseas investment to fund additional gigafactories, which act as anchor investments for the wider sector, and to secure a strong supply chain and ecosystem to support these gigafactories. Without such investments there is a growing risk that auto manufacturers will choose to locate their assembly plants overseas.
3. Do coordination failures justify intervention?
The transition from ICE vehicles to EVs presents complex coordination challenges that demand government intervention. Successfully managing this shift requires a carefully balanced mix of regulatory reforms, planning measures and fiscal policies to align the efforts of automakers, infrastructure providers and consumers.
Unlocking supply-side barriers to investment: Addressing supply-side challenges is critical to making the UK a globally competitive destination for gigafactory investments. Planning reform, a top priority of the current government, is essential to ensure that new gigafactories can be built quickly and secure rapid grid connections. High UK electricity costs also deter investors, which is why the previous government introduced the British Industry Supercharger to reduce network charges for heavy-industrial power users.[_]
Creating supply-side incentives to invest: The UK is also using regulation to drive the shift towards EV production. The ZEV mandate requires automakers to sell a rising share of ZEVs, with a full phase-out of new ICE cars currently set for 2035.[_] These targets provide clear investment signals to industry and consumers but need to be backed up by robust delivery plans to ensure they are met. For example, if consumer demand fails to rise in line with the requirements of the ZEV mandate, automakers may be hit with fines that undermine their competitiveness.
Reducing barriers to consumer adoption of EVs: Range anxiety remains a major deterrent to consumer adoption of EVs. Expanding the public charging network is therefore a foundational building block of wider uptake. This includes increasing the number of chargers available, correcting perceptions about their availability, and setting standards for charging points to ensure compatibility and ease of access across the network.
Incentivising EV uptake through price incentives: The other critical determinant of whether consumers will switch from ICE vehicles to EVs is price. Cost competitiveness will depend largely on external factors, including the pace of technological breakthroughs and global competition. However, the government can directly influence price dynamics through targeted fiscal incentives. EV subsidies have been used extensively overseas. Countries such as Norway and China are the world leaders on EV adoption partly because they offered very generous subsidies for years (exceeding $10,000 per vehicle).[_] EV subsidies and tax incentives were also once part of the UK strategy, though at much less generous levels, and are now being phased out due to fiscal constraints, raising concerns about whether demand can continue to grow without them. Conversely, governments could adopt a “stick” approach, whereby ICE-vehicle purchases incur higher rates of taxation (for example, by increasing the rate of fuel duty). While economically efficient, carbon-pricing measures can be politically challenging to implement. EVs are often perceived as luxury goods accessible mainly to wealthier households, making punitive taxes on ICE vehicles appear unfair. Striking the right balance between these different approaches is essential to encourage adoption without alienating lower-income consumers or stalling market momentum.
4. Are market distortions undermining competition?
The global EV market is increasingly shaped by trade distortions, driven by government interventions such as subsidies, tariffs and local-content requirements. These distortions, initially led by China, have prompted strong responses from the US and the EU, creating a complex global trade landscape for the government to navigate.
China’s industrial policy: Over the past 15 years, China’s industrial strategy has transformed its EV sector into the most competitive in the world. Supported by more than $230 billion in subsidies between 2009 and 2023, China’s approach has included direct consumer incentives, infrastructure investments and financial support for automakers.[_] This strategy has spurred innovation and enabled Chinese firms to dominate the global EV supply chain, particularly in critical minerals and battery production. While much of China’s dominance has been earned through innovation and scale, the continued use of subsidies and significant overcapacity – operating at less than 40 per cent of battery-production capacity in 2023 – raises concerns about potential trade-dumping practices.[_] Such practices risk distorting global markets and further escalating tensions with major trading partners.
The US response: In 2022, President Joe Biden’s administration enacted the IRA, which introduced up to $390 billion of clean-vehicle credits through to 2031.[_] A key feature of the IRA is its local-content requirements, which mandate that certain proportions of batteries and critical minerals must be sourced in North America to qualify for subsidies, incentivising production within the US. In 2024, the Biden administration also imposed a 100 per cent tariff on Chinese EVs and a 25 per cent tariff on lithium-ion batteries.[_] Although some of the IRA measures may be revisited under the Trump administration, others – such as import tariffs – may be ramped up. In response, China filed a WTO complaint in 2024 alleging that the US measures distort competition and violate international trade norms, illustrating how trade distortions can escalate into broader trade wars.
The EU’s response: The EU has responded to China’s dominance with its own trade-defence measures. In 2024, it imposed anti-subsidy tariffs on Chinese EVs, ranging from 17.4 per cent to 38.1 per cent, framing them as justified under WTO rules.[_] Other EU trade measures also affect the market for EVs, particularly for UK producers. For example, rules-of-origin requirements agreed under the EU-UK Trade and Cooperation Agreement are set to tighten in 2027, requiring both EU and UK automakers to use a higher share of locally produced components to qualify for tariff-free trade. Both regions will face challenges meeting these requirements, given China’s dominance in the supply chain for critical minerals and batteries, which will likely increase costs for manufacturers.
The UK faces a delicate challenge in navigating these trade distortions. On the one hand, maintaining access to affordable and innovative EV imports is essential to incentivise domestic adoption. On the other, the UK may need to take action to safeguard its own auto industry from unfair competition, particularly in markets where adherence to WTO rules is wavering.
5. Is the UK at risk of a major supply-chain disruption that could ripple across the economy?
The UK’s EV industry is highly reliant on global supply chains for batteries and their critical-mineral components, creating vulnerabilities in the event of supply-chain disruptions. This dependence is particularly acute given the dominance of Chinese production in the sector and the trade-intensive nature of the automotive industry.
Batteries account for 30 to 40 per cent of the value of an EV, making security of supply for batteries and their components essential for the stability of the automotive sector.[_] China dominates the global battery supply chain, producing three-quarters of all lithium-ion batteries and holding 70 per cent of global cathode-production capacity and 85 per cent of anode-production capacity – both key components of EV batteries. Despite diversification efforts by Western governments, China is expected to maintain its dominance, with 70 per cent of global battery-production capacity projected to remain in the country until 2030.[_]
The UK’s automotive sector is also highly vulnerable to supply-chain disruption given its reliance on imports and just-in-time supply chains. Supply-chain shocks during the Covid-19 pandemic caused severe production delays, with UK car production falling 30 per cent in 2020 and reaching a 65-year low in July 2021.[_] Given the automotive sector’s extensive linkages to upstream suppliers and downstream industries, such disruptions could have critical ripple effects across the economy, affecting employment, investment and industrial activity. Every £1 billion of lost economic activity in the auto-manufacturing sector can reduce economic activity elsewhere in the economy by between £2 billion and £3 billion.[_]
Given these wider economic spillovers, there is a strong rationale for government action to help mitigate supply-chain risks. Indeed, the UK is already pursuing several mitigation strategies via its Critical Minerals Strategy and other means such as an attempt by The Faraday Institution to develop alternative battery chemistries that could lessen dependence on critical-mineral imports.[_] ,[_]
6. Should the government support the EV sector to provide strategic resilience?
Although the consumer-focused EV sector may have limited direct links to military or other strategic applications, it could represent a long-term source of economic resilience for the UK. Supporting the EV industry is arguably a necessary step for the UK to position itself as a leader in future vehicle technologies, particularly autonomous and connected vehicles (AVs). Even if the UK struggles to compete globally in EV production today, sustaining a domestic automotive base may be critical for preserving the innovation ecosystem needed to drive future competitiveness.
The automotive industry benefits from strong agglomeration effects, where manufacturing hubs attract and sustain related R&D activities. Analysis from the Society of Motor Manufacturers and Traders (SMMT) and techUK suggest that the UK’s ability to lead in the AV market could hinge on its capacity to develop native EV platforms, such as “drive-by-wire” systems, which are essential for integrating AV technologies.[_]
If the UK’s car-manufacturing base were to erode, associated R&D and innovation activities risk migrating overseas to countries with stronger industrial ecosystems. Maintaining domestic EV production could therefore provide the infrastructure and expertise necessary to sustain technological advances and support the UK’s efforts to remain a contender in the global race for autonomous vehicles.
In this context, investments in the EV sector could be seen as investments in a long-term strategic asset, enabling the UK to access broader growth opportunities from the digital mobility revolution.
7. Should the government restrict access to the UK’s EV-making capabilities to retain strategic advantage?
There is little strategic rationale for restricting foreign access to the UK’s EV-making capabilities. The UK is not a global leader in most forms of EV technology but rather a laggard, heavily reliant on foreign investment to drive innovation and scale manufacturing. Imposing restrictions could hinder the UK’s ability to attract the overseas investment it needs to remain competitive.
The reliance on international funding is particularly evident in the UK’s EV-battery-innovation ecosystem. Since 2018, UK-based EV-battery startups have raised $2.7 billion in venture capital, making the UK the fourth-largest global recipient of such investment, after the US, China and Sweden. This growth has been fuelled by foreign investors, who play a critical role in sustaining the sector’s innovation and production capabilities.
Restricting foreign access to the UK’s EV sector risks jeopardising these vital investments. A more effective strategy would be to encourage greater foreign investment, including greenfield FDI, which is known to generate significant knowledge spillovers. In the early 1980s, the UK successfully landed major investments from Japan to revitalise its automotive industry. Today, a similar approach could arguably be pursued with China, the world leader in EV technology.
Exceptions to this open approach should be limited to narrowly defined areas of national security, where restrictions may be justified for defence-related technologies.
8. Should the government support the EV industry as a tool of regional policy?
Employment in the automotive sector is highly regionally concentrated, with 57 per cent of jobs located in just 5 per cent of parliamentary constituencies – a pattern similar to that in the steel sector. However, the auto industry has a much broader geographic and economic footprint, with 140,000[_] workers directly employed in the industry and a further 270,000[_] jobs supported through the wider supply chain (Figure 12). Auto plants act as anchor employers, particularly in the Midlands, North East and North West, where closures can have considerable local economic impacts.
Employment in the UK automotive and steel-manufacturing sectors, 2023
Source: Open Innovations, ONS Business Register and Employment Survey and TBI
Evidence suggests that transitioning to EV production could help safeguard many of these jobs.[_] EV assembly plants require a similar number of workers as those producing traditionally fuelled vehicles – unlike the steel sector, where fewer green jobs are typically created per site. Each EV manufacturing job is also projected to support four or five additional jobs across the supply chain – on a par with traditional automotive manufacturing.[_]
That said, the transition will alter the nature of employment across the wider supply chain. Jobs associated with ICE production – such as engine design, manufacturing and assembly – are expected to decline, while new opportunities will emerge in EV-infrastructure development, including the manufacturing, installation and maintenance of EV-charging networks. Managing these shifts will require a joined-up auto-sector strategy to reskill workers and ensure a smooth transition.
If the industry were to succeed in eventually producing 1 million battery electric vehicles (BEVs) annually – roughly the same volume of ICE vehicles it produced in 2023 – it would, in theory, safeguard employment levels. Further growth in production could even position the sector as a net job creator, restoring previous peaks. However, there are two important caveats. First, like most manufacturing sectors, the entire auto industry is expected to become more productive, requiring fewer workers to produce the same output. Over time, this trend is likely to lead to a decline in employment levels, even if vehicle production remains stable. Second, the UK’s slow start in the EV transition is a significant risk. In 2023, only 7 per cent of vehicles produced in the UK were battery electric, far behind those countries leading the sector. To protect jobs, the UK will need to ensure that foreign manufacturers continue to invest in assembling vehicles in the UK.
The EV sector clearly has the potential to be a powerful tool of regional policy, given the scale of employment and the fact that the vast majority of jobs are located outside London and the South East (Figure 13). The challenge lies in realising this potential, particularly given the UK’s comparatively weak starting position in the global EV transition.
Regional employment impacts across green sectors
Source: TBI and Oxford Economics
9. Should the government support the EV sector to accelerate the domestic net-zero transition?
To meet its net-zero targets, the UK will need to shift to an EV fleet. The question, from an industrial strategy perspective, is how to do that as quickly as possible, at lowest cost and with maximum economic benefit.
The UK does not need a domestic EV-manufacturing sector to meet its net-zero targets, but retaining one could marginally speed up the transition by reducing delivery costs for locally produced models. However, if having a domestic industry prompted the UK to introduce trade-defence measures, such as import tariffs on Chinese EVs (as seen in the US, Canada and the EU) or imposed domestic-content requirements to anchor EV production in the UK (as with the US IRA), there is a risk of driving up costs, limiting consumer choice and delaying adoption.
International experience shows that prioritising affordability and availability of charging infrastructure, rather than domestic production, is the most effective way to increase EV uptake. Norway offers the clearest example: despite relying entirely on imports, it has become a global leader in EV adoption, with more than 90 per cent of car sales now battery electric. This success has been driven by aggressive purchase incentives, including tax exemptions and subsidies, alongside widespread deployment of charging infrastructure.
For the UK, the fastest route to accelerating the net-zero transition would also lie in strengthening demand-side measures. Expanding EV purchase incentives and scaling up the charging network would make EVs more affordable, address barriers like range anxiety and result in a larger second-hand EV market, which would accelerate the domestic switchover. However, demand-side measures come with considerable trade-offs. Norway’s approach has been made possible by the vast fiscal resources of its sovereign wealth fund, funded by North Sea oil revenues – an option unavailable to the UK, where public finances are constrained. Subsidising EV purchases at scale would place additional pressure on already-stretched budgets, and much of the value would flow to overseas automakers rather than boosting domestic economic growth. There is also a risk that an overreliance on subsidies could create artificial demand, with uptake stalling – or reversing – if support were withdrawn, as consumers switch back to cheaper traditionally fuelled models. This is a material risk. EV sales in Germany fell by 28 per cent in 2024 after the government ended subsidies,[_] while in New Zealand registrations of new EVs fell by 55 per cent from January to November 2024, compared to the year before, after the government ended its Clean Car Discount in late 2023.[_]
Ultimately, while demand-side measures are the quickest way to accelerate EV adoption, their fiscal costs and limited domestic economic returns must be carefully weighed against other policy priorities.
10. Should the government support the EV sector to accelerate the global net-zero transition?
The UK can influence the speed of the global EV transition in two key ways: first, by driving breakthrough innovations that incentivise faster EV adoption – such as lower-cost battery technologies, alternative chemistries that reduce reliance on constrained critical minerals, or complementary digital technologies that extend battery life and range; and second, by helping to plug supply-chain bottlenecks that could disrupt EV deployment, such as refining and processing critical materials essential for EV production.
The UK has strong foundations to make contributions in these areas. Its innovation capabilities are world class, supported by robust institutional arrangements like the Faraday Battery Challenge and the UK Battery Industrialisation Centre, which aim to accelerate the development and commercialisation of new battery technologies. UK firms such as Faradion are already at the forefront of the development of sodium-ion batteries, an emerging alternative that could cost up to 20 per cent less than lithium-ion batteries and reduce dependence on critical minerals like lithium. Complementary digital technologies are another area of potential strength: advances in battery management systems and software for autonomous driving could optimise battery performance, extend vehicle ranges and lower costs, making EVs more attractive to consumers globally.
On the supply-chain side, the UK has taken steps to strengthen its position in critical EV inputs. Through its Critical Minerals Strategy, the government is investing in domestic capabilities to improve supply-chain resilience. A prime example is Pensana’s Saltend facility, supported by the Automotive Transformation Fund, which will make the UK one of the only European countries capable of refining rare-earth oxides for EV motor magnets. Facilities like Saltend can play a role in diversifying global supply chains and reducing reliance on dominant producers, such as China.
However, the UK’s ability to influence the global transition and accelerate EV adoption will depend on maintaining a significant domestic auto industry. A strong domestic manufacturing base creates the conditions for agglomeration of knowledge and skills, which are critical for driving innovation in both battery technologies and complementary digital solutions. Without a thriving auto sector, the UK risks losing the R&D ecosystem that underpins its potential contributions to the global EV transition – mirroring the decline seen in the steel industry, where the erosion of manufacturing led to the loss of associated innovation capabilities. So, while the UK can help speed the global EV transition, its ability to do so in the long term will depend on sustaining a competitive domestic auto industry to ensure the UK remains a hub for knowledge, skills and technological breakthroughs.
Strategic Choices for the EV Sector
As we did in our chapter on the steel sector, we have used the metrics and analysis presented in this chapter to produce an assessment of the rationales for government support for the EV sector. Figure 14 shows our assessment for the EV sector on its own and Figure 15 compares its results with those from the green steel sector.
Indicative assessment of the rationales to support the electric-vehicle sector
Source: TBI
Comparison of strategic framework – green steel versus electric vehicles
Source: TBI
Both sectors share some similarities – with relatively strong arguments for support on regional policy and resilience grounds but with weaker rationales as a route to rapid decarbonisation. Yet the EV sector is much larger and offers far greater economic returns. This raises important questions about whether the scale of planned investment in green steel is proportionate to its economic contribution compared with EVs; the Labour Party manifesto commits £2.5 billion of extra funding to the steel sector, against only £1.5 billion of extra funding for new gigafactories to support the automotive sector. While both sectors arguably warrant support, this allocation is misaligned with their long-term economic potential and should be rethought.
Political Choices for the UK’s EV Sector
The UK auto industry is at a critical crossroads. While the government has helped revitalise the sector before – most notably in the 1980s, when it successfully attracted Japanese automakers – the challenges today are far more complex. Brexit has reduced the UK’s appeal as a European production hub, and the EV transition has triggered a fierce global race for investment, with nations aggressively competing to secure the future of their automotive industries. As the box on EV-sector strategies illustrates, different countries have adopted strikingly different approaches to navigate the EV transition.
EV-Sector Strategies: Lessons From Overseas
Countries around the world have adopted different strategies to navigate the EV transition, shaped by their industrial priorities, fiscal constraints and trade relationships. Each approach offers lessons for the UK.
China’s strategy: China has combined heavy subsidisation of production and consumption with its strategic advantage in critical minerals to become the global market leader in EVs. With essentially no legacy auto industry to manage, its disruptive approach resembles that of a startup, prioritising innovation and rapid scaling. China’s model has delivered success across all four objectives of green industrial strategy: growth, resilience, regional balance and the net-zero transition. This strategic option is largely unavailable to the UK, given its tighter fiscal constraints and starting position. That said, China’s model offers valuable insights for how the UK can use long-term planning and targeted investment to develop future strengths, including those in innovations in the auto sector (for example, on AVs).
Norway’s strategy: Norway has prioritised EV uptake above all else, using generous consumer subsidies to achieve world-leading adoption rates, with more than 90 per cent of car sales now battery electric. However, this strategy has relied on the country’s vast fiscal resources from its sovereign wealth fund and has had little impact in terms of anchoring green industry or supply chains locally. Given the UK’s limited fiscal space, Norway’s approach is not replicable at scale.
The US’s strategy: The US has adopted a more protectionist model to anchor EV production domestically, characterised by its combination of generous subsidies and tax incentives tied to local-content requirements and import tariffs on Chinese EVs and battery technologies. The US is also aggressively leveraging trade agreements to secure critical minerals from key allies. While this strategy has achieved some notable success in anchoring auto investment in the US and improving supply-chain resilience, it has come at a cost: higher EV prices due to restricted foreign competition and significant fiscal expenditures. This approach is arguably viable only in a market on the scale of the US, where a large consumer base allows it to dictate terms to global automakers. Additionally, the US has the market power and willingness to ignore WTO rules in its pursuit of these goals – a strategy that would be far more costly for an open economy like the UK, which relies heavily on the rules-based global trading system to protect its economic interests.
The EU’s strategy: The EU’s strategy reflects the importance of its legacy auto sector as a pillar of its manufacturing base. EU countries have used a combination of targeted grants for automakers, regulations mandating the rapid scaling of EV production for firms selling into the EU market and WTO-compliant trade-defence tariffs on Chinese EVs. The latter has drawn concern from some EU automakers given their reliance on China for supply-chain inputs, but is arguably part of a wider strategy to use trade barriers as leverage to encourage Chinese firms to invest and produce within EU borders. The EU’s large consumer market and domestic manufacturing base provides it with the leverage to incentivise global auto manufacturers to ramp up production of EVs to meet its 2035 phase-out of conventional vehicles. Many of these policy options are also available to the UK, though the UK’s market size and the scale and foreign ownership of its auto base arguably gives it fewer levers of influence.
The UK must chart its own distinct path. Efforts to replicate China’s success in creating a domestic battery manufacturing industry from scratch have largely failed in the UK, as evidenced by the collapse of Britishvolt in 2023. Without the fiscal firepower or market size of the US and China, the UK cannot afford to pursue similar strategies. Equally, relying solely on the UK’s existing auto manufacturers – most of which are legacy ICE producers – carries significant risks. These manufacturers face immense pressures to transition to EVs, with some already consolidating operations in response to rising competition from new EV leaders like Tesla and Chinese automakers. Given the ICE-heavy composition of the UK’s auto sector, the risks of decline are significant, even with active government support. The UK therefore needs a distinct targeted offer that attracts foreign investment and safeguards the industry’s future.
Markets: Which Investors Should the UK Target?
The UK’s auto industry is already heavily reliant on foreign-owned automakers, particularly from Asia, which account for 75 per cent of domestic production. Deciding where to focus scarce industrial-strategy resources is critical to ensure the industry’s long-term viability. The UK must weigh whether to double down on supporting existing UK-based manufactures, focus on attracting EV investment from Europe or the US, or cultivate a new relationship with China.
Maintain existing investors: Retaining investment from current producers – namely Nissan, Toyota, JLR and BMW Mini – remains a priority. These automakers underpin the UK’s current automotive base and account for the bulk of domestic production. However, these companies lag behind global EV leaders and some face growing competitive pressures to consolidate their operations. Financial incentives to support the conversion of ICE production sites to EV models could help sustain their presence in the UK, but relying solely on these legacy producers risks leaving the UK vulnerable in a rapidly changing market.
Attract European investors: Given the additional barriers from Brexit and the challenges facing much of the European auto industry – as illustrated by Volkswagen’s planned layoffs and Stellantis’s plant closure – the UK’s prospects of attracting new investment from Europe’s major car producers seem low. Maintaining BMW Mini’s production plant seems the most realistic objective.
Attract US investors: Legacy US automakers, such as Ford and General Motors, are further behind in the EV transition than their European counterparts and have strong incentives to locate their overseas production centres closest to the largest sources of demand – namely within the EU and China. Attracting US legacy producers back to the UK will be a hard sell. Newer EV-only US producers, such as Tesla, also seem unlikely prospects. The UK lost out to Germany for a Tesla gigafactory in 2019, and tensions between Tesla owner Elon Musk and the current UK government make new investment improbable during this parliament.
Court Chinese EV leaders: China, the global leader in EV production, presents a new opportunity for attracting large-scale investment. Companies like SAIC Motor, which owns the MG brand, already have a foothold in the UK market, demonstrating potential for deeper collaboration. The UK could position itself as a production hub for Chinese automakers seeking to expand globally. Courting Chinese investment carries some security risks, given the UK’s complex relationship with China, but these are arguably easier to manage if Chinese EVs are manufactured within the UK than merely imported, as it allows greater oversight of production. Attracting Chinese investment therefore seems the most viable option to secure new investment and the long-term future of auto production in the UK.
Policy Levers: Building a Distinctive Offer
To attract investment and differentiate itself from competitors, the UK must craft a clear and compelling offer to automakers. The government will need to address obvious barriers to new investment, including the planning system, as well as refine its approach across key policy tools.
Bolster the ZEV mandate with demand-side measures: The UK’s ZEV mandate sends a strong signal to automakers that the UK is committed to the EV transition and thus helps incentivise investment. So far, the mandate is largely working as intended, with automakers adapting their strategies to align with the targets. However, there is a risk that later in the decade, consumer demand for EVs may not grow fast enough to meet the mandate’s ambitious sales requirements. Rather than roll back the ZEV mandate and risk deterring investment, the government should develop complementary demand-support measures to give it the best chance of success. Low-cost interventions, such as promotional campaigns to address misperceptions about the availability of charging infrastructure, offer a route to boost consumer confidence and accelerate adoption without straining the public finances.
Adopting an open trade policy: The UK’s openness to trade offers a key opportunity to differentiate itself from the US and EU, which have imposed tariffs on Chinese EVs. Following their approach would increase costs for UK consumers, slow the EV transition and risk retaliatory measures from China – a crucial export market for UK automakers, particularly luxury brands. Instead, the UK should leverage its openness as a competitive advantage to attract investment. To address security concerns, the government could pre-screen Chinese automakers under the National Security and Investment Act before courting them for investment.
At the same time, the UK must navigate upcoming trade barriers under the EU-UK Trade and Cooperation Agreement. From 2027, stricter rules-of-origin requirements will make it harder for UK-assembled vehicles to qualify for tariff-free trade in the EU. Securing agreements to delay or revise these requirements will be vital to maintaining access to the UK’s largest export market. Additionally, the UK should continue strengthening partnerships with critical-mineral-producing nations to secure long-term supply agreements, adopting a scaled-back version of the US’s strategy to ensure access to critical inputs through trade alliances.Cultivating strengths in innovation and battery supply chains: The UK should leverage its strengths in innovation to attract foreign investment and bolster its position as a production hub. Initiatives like the Faraday Battery Challenge have established the UK as a leader in battery research, and these efforts should be expanded to support complementary auto technologies such as connected and autonomous vehicles, and battery-recycling operations. Additionally, the UK should build on its existing advantages in EV-battery supply chains, including Europe’s largest nickel refinery and the new Pensana Saltend facility for refining rare-earth oxides. These facilities will help automakers meet EU rules-of-origin requirements and reinforce the UK’s role as a European production hub.
Strategic Openness
The UK’s auto industry faces significant challenges, but its future is far from sealed. Success hinges on both safeguarding its existing manufacturing base and adopting strategic openness to attract global EV leaders, particularly from China. Reallocating funding from other industrial priorities, such as the steel sector, could ease this transition by incentivising new investments in gigafactories, supply-chain infrastructure, workforce reskilling and innovation – all critical to improving the UK’s competitive position.
For policymakers, the question is clear: can the UK create an investment environment compelling enough to attract the world’s leading automakers, despite fierce global competition and limited fiscal resources? The answer will determine whether the UK secures a prominent role in the future of the global auto industry or gets left behind.
Chapter 7
As the UK seeks to navigate an increasingly complex economic landscape, certain foundational actions are essential to underpin a successful industrial strategy. These actions transcend individual sectors and aim to address systemic challenges to unlock progress across the economy. This chapter identifies five key priorities that form the backbone of a resilient and future-ready industrial strategy; taken together, they would foster the success of innovative firms of the future, leverage economic openness and align economic strategy with efforts to boost regional growth, improve supply-chain resilience and deliver net zero.
Each section delves into a priority area, exploring the barriers to implementation and presenting actionable recommendations. While these priorities are interconnected, the focus of this chapter is on outlining practical steps for addressing them rather than providing a detailed analysis of their interactions. Tackling these foundational actions would support policymakers in developing a cohesive and effective industrial strategy for the UK.
Priority 1: Innovation – Cultivating the High-Growth Firms of the Future
The Issue
The scale of structural transformation required to achieve net zero globally presents the UK with exciting opportunities to cultivate new areas of comparative advantage and technological leadership. But these opportunities – and the economic gains they represent – will be realised only through a relentless focus on innovation to ensure UK firms can compete globally.
The UK has strong early-stage innovation assets, including world-class universities and expertise. Yet it lags global leaders like the US and China in converting its strengths into commercial success. For example, the UK was once a pioneer in nuclear technology, but it now lacks a commercial prime supplier. Similarly, while the UK is a world leader in offshore-wind deployment, it has largely achieved that feat by relying on foreign manufacturing rather than building its own domestic supply chains, allowing others to capture many of the economic gains of this innovation. The relatively slow transition of UK-based automotive firms into EV production has also left the sector struggling to compete with global leaders like China.
To succeed, the UK must place innovation at the heart of its industrial strategy and address the systemic barriers that prevent firms from reaching scale. These challenges are particularly acute for capital-intensive green manufacturing sectors where economies of scale dominate and access to finance, innovation infrastructure and commercial testing facilities is critical.
On funding specifically, the UK cannot match the sheer financial power of China or the US, so scarce public funds need to be distributed as efficiently as possible to fill gaps in private financing and catalyse private investment. Increasingly, this task is being performed by the UK’s public financial institutions, such as Innovate UK, the British Business Bank (BBB), UK Export Finance (UKEF) and the new NWF. These institutions provide a mix of grants, loans and guarantees to help firms start up, scale up and expand into international markets. However, as these institutions continue to grow in importance, they must operate as a more cohesive financial-support ecosystem to maximise their impact.
We recommend a series of targeted interventions to strengthen the innovation ecosystem and ensure the UK’s financial infrastructure and technical facilities support the next generation of world-leading firms.
Policy Recommendations
1. Streamline Access to Financial Support Through a Unified Platform
Businesses often struggle to navigate the UK’s fragmented public financial ecosystem, leading to missed opportunities for support. The BBB has already introduced helpful tools, such as its “one-stop finance model” and “finance-finder tool” to improve access. Building on this, the government should create an integrated digital platform that consolidates offerings from Innovate UK, BBB, NWF and UKEF. This “digital shop window” would provide businesses with a single-entry point for support, guiding them through funding stages from R&D grants to export finance. The platform should include a customer relationship management (CRM) system to reduce administrative complexity, match businesses with the right funding opportunities and improve coordination across institutions.
2. Reform Innovation Funding to Encourage Risk Taking and Improve Access
Bold and risk-tolerant innovation funding is essential for unlocking groundbreaking advancements, but the UK’s systems are often too risk averse. For example, while Innovate UK already employs a more risk-tolerant portfolio approach in some areas, further reforms are needed to embed this consistently.
Sir Paul Nurse’s review of the UK’s R&D and innovation landscape, published in March 2023,[_] highlights how bureaucratic funding processes and an excessive focus on value-for-money assessments can stifle innovation. Startups and SMEs, which often drive high-risk, high-reward innovations, are deterred by these systems. For example, in 2021, only 22 per cent of Innovate UK’s grant applicants were small businesses, despite their importance to innovation.
Innovate UK and UKRI should streamline their application processes, including by leveraging technologies like AI to help firms access multiple grant opportunities simultaneously and direct them to appropriate funding pots. Innovate UK and UKRI should also work with the National Audit Office to refocus audit criteria to take more account of the quality of research and innovation processes rather than narrowly focusing on individual project outcomes. By shifting the emphasis from success or failure of individual grants to the overall expected value across a portfolio of projects, the government can better support transformative ideas while maintaining fiscal accountability.
3. Plug Finance Gaps to Support Scaling Up
The government must address critical funding gaps that prevent UK firms from scaling up and competing globally. Key priorities include:
Filling the scale-up finance gap: The UK lacks public financial support for deals worth between £40 million and £100 million, as BBB loans are capped at £10 million to £12 million, while the NWF has a minimum threshold of £25 million (based on a public-to-private capital-mobilisation ratio of 1:3). The BBB’s maximum deal threshold should therefore be expanded to £25 million. In addition, a recent report from Barclays estimated there was a £1.5 billion gap in Series B+ funding for clean-tech firms. The government should plug this gap by injecting at least £375 million into the BBB’s Breakthrough Future Fund to support clean-tech companies, and more for other industrial-strategy sectors.[_]
Improving market intelligence: A lack of high-quality market intelligence on the size of funding gaps at different scale-up stages across sectors hampers resource allocation. The BBB and NWF should establish a more structured market-intelligence function that regularly engages with private banks and other market participants to identify funding gaps as they emerge.
Expanding export-finance support for pre-revenue firms: UKEF’s “undertaking-in-financial-difficulty” test prevents pre-revenue companies from being able to access export support. The test should be revised to enable high-growth, pre-revenue firms to access support earlier and seize international opportunities.
Introducing green workforce-transition support loans: The BBB should provide loans to help individuals and sole traders retrain in emerging green sectors, for example by enabling boiler engineers to become heat-pump installers.
Enabling long-term capital raising: Over the longer term, the government should consider reforming the operational frameworks of the BBB and NWF to allow them to raise capital through financial markets, similar to European policy banks (as argued by Andy King and Daisy Jameson).[_] This would reduce dependence on direct government funding and enable them to expand their investment activities based on market needs and strategic objectives.
4. Establish a Network of Disruptive Invention Labs
Ambitious, interdisciplinary research is a critical driver of transformative breakthroughs, yet the UK’s R&D landscape remains dominated by the grant-funded university-department model. In line with the recommendations of previous papers in TBI’s New National Purpose series, the government should establish a network of Disruptive Invention Labs focused on creating the industries of the future. A cluster of Disruptive Invention Labs focused on a broad topic within the clean-technology space would bring together expertise across disciplines, combining discovery and invention under one roof to drive rapid progress.
The UK is well positioned to lead in areas like AI-enabled energy solutions, which could yield transformative benefits for the green economy. Adoption of AI in energy systems could reduce costs, optimise renewable-energy integration and unlock innovative approaches to decarbonisation. A flagship disruptive-invention research institute or campus would not only accelerate such progress but also attract global talent, ensuring the UK remains a hub for climate-tech innovation.
5. Expand Support for Piloting and Commercialising Clean Technologies
The UK excels in early-stage research but struggles to translate innovation into commercial success. Between 2008 and 2018, only 4 per cent of UK R&D projects resulted in a commercial product, compared with 9 per cent in Germany and 12 per cent in the US. Addressing this gap requires greater support for piloting new technologies.
The government should expand initiatives like the UK Battery Industrialisation Centre and the Faraday Battery Challenge, which bridge the gap between R&D and production. These programmes integrate university-led research, demonstration facilities and near-commercial testing to help companies scale their technologies. Additional challenge funds could focus on scaling up novel heat-pump technologies by, for example, developing efficient, high-temperature domestic heat pumps (which could make retrofitting some homes much more affordable and less disruptive) or improving the performance of large, industrial heat pumps that could help with industrial decarbonisation and lower energy costs for industry.
Similarly, providing affordable laboratory and demonstration space for startups, as seen in the US with government-supported prototypes for SMRs, would enable more clean technologies to reach market readiness. Targeted support should prioritise areas where the UK has a comparative advantage, including SMRs.
Priority 2: Economic Openness – A Prerequisite for Industrial Growth
The Issue
Openness to trade and investment is fundamental to the success of the UK’s green industrial strategy. Without robust access to global markets, the UK cannot achieve the scale needed to fully capitalise on the economic opportunities of green industries. The technical report that accompanies this paper highlights the stark contrast between two scenarios. Under a business-as-usual approach, where UK production remains in line with current trends, allowing it to meet most domestic demand but with limited export potential (Figure 16), this would generate £65 billion in GVA by 2050 – equivalent to 1.6 per cent of UK GDP in 2050. By contrast, the peak-potential scenario, where the UK captures a larger share of global markets, could generate £235 billion in GVA, or 5.8 per cent of UK GDP by 2050. This additional value hinges on the UK’s ability to export successfully, underscoring that trade must be central to any industrial strategy.
UK market share of major green sectors in 2050, business-as-usual versus peak-potential scenario
Source: TBI and Oxford Economics
Trade openness is also vital for imports. UK industries depend on global supply chains for critical components, especially in mature green sectors like offshore wind and EVs. Key inputs, such as raw materials and battery components, are often sourced internationally. FDI is equally critical, anchoring production in the UK, driving knowledge spillovers and embedding UK firms in cutting-edge global value chains. For sectors like EVs, securing anchor investments in gigafactories and assembly plants will be essential for the industry’s survival.
At the same time, the global trading environment is becoming increasingly complex. The uneven pace of decarbonisation between countries has driven the emergence of new trade barriers, such as CBAMs, while international rules against state subsidies complicate public investment in green industries. Meanwhile, geopolitical pressures – such as US-led efforts to restrict Chinese imports of green tech – risk undermining the openness that is essential for accelerating the global green transition.
The UK must navigate these tensions carefully. Given that some green supply chains are becoming increasingly regional, closer collaboration with the EU in some areas would bring mutual benefits. Indeed, rejoining the EU Single Market would be one of the most effective ways to unlock extra growth and improve the UK’s integration into global green supply chains. However, as long as that option remains politically implausible, there are other steps the UK can take, as outlined below.
Policy Recommendations
1. Align UK-EU Climate and Energy Policies
Closer alignment with the EU would improve competitiveness and reduce costs for UK industries, particularly in green sectors with regionally concentrated supply chains and transmission networks. Key actions include:
Streamlining electricity trade: The UK should recouple with the EU’s Internal Energy Market on a contractual basis to replace inefficient post-Brexit trading arrangements. Leaving the Internal Energy Market cost UK consumers between £130 million and £370 million in 2022 and that figure is set to rise as electricity trade increases.[_] Reintegration would also support cross-border infrastructure investment. For example, rapid deployment of hybrid interconnectors could cut the cost of meeting 2050 offshore-wind targets by €13 billion for countries on the North Sea coast.[_]
Building stronger partnerships: The UK should push for full membership of the North Seas Energy Cooperation (NSEC) when its current memorandum of understanding expires in 2026, to enhance coordination of offshore wind and carbon-storage development with other North Sea countries.
Linking emissions-trading schemes (ETSs): Linking the UK and EU ETSs would harmonise carbon prices,[_] remove the risk of emissions-related tariffs, create a deeper, less volatile market for emissions trading and unlock collaboration on CCUS, where the UK is projected to account for nearly 40 per cent of Europe’s storage capacity by 2032.[_]
Harmonising CBAMs: Harmonising the design of the UK CBAM to match the EU’s would streamline verification processes, reduce duplication and minimise administrative burdens on exporters.
2. Facilitate More UK Firms to Export
Currently, only ten to 25 per cent of UK firms export, despite government estimates suggesting half have export potential. Exporting businesses are more productive, grow faster and create more jobs, yet many smaller firms struggle with the complexity of trade processes. To address this, the government should develop an AI-enabled virtual trade assistant to guide businesses through export paperwork and regulatory requirements. This tool would provide tailored advice at scale and help triage requests, enabling the government’s existing human trade advisors to focus on more complex cases, providing higher-quality support to a wider range of firms and helping to unlock significant growth potential.
3. Upgrade Digital and Physical Trade Infrastructure
Modernising the UK’s trade infrastructure would reduce costs, increase efficiency and support the green transition. Distributed-ledger technologies like blockchain could reduce the time, cost and complexity of trade compliance, making UK businesses more competitive globally. Investment in physical infrastructure, particularly ports, is equally essential. Ports currently contribute £1.2 billion annually to the Exchequer, but their full potential remains untapped due to inefficiencies such as planning delays. For example, resolving the two-year approval delay for floating offshore-wind projects in Falmouth Harbour would unlock significant growth opportunities and better integrate ports into the green economy.
4. Maintain Flexibility in Trade and Investment Policy
The UK should resist pressure to align its trade defence measures and investment screening regime too closely with the US, China or EU, maintaining the flexibility to pursue its own interests. For example, while collaboration with the US is vital on security-sensitive issues, adopting US-style restrictions on Chinese imports, such as EVs, would be counterproductive. Instead, the UK should actively look to attract investments from Chinese firms to sustain the UK’s automotive industry – mimicking the wave of Japanese investment in the 1980s. Maintaining an issue-by-issue approach to alignment would allow the UK to balance openness with strategic resilience.
Priority 3: Regions – Cultivating Clusters for Long-Term Growth
The Issue
The green transition presents opportunities to support regional development, but potential for new-job creation must be placed in context. Many green jobs, particularly in manufacturing, will only replace those lost in sunsetting industries rather than creating significant net new employment. Currently there are around 700,000 people who work in the oil-and-gas, automotive, boiler-manufacturing and steel-manufacturing sectors and their wider supply chains, which could all be considered at risk from the green transition. By contrast, in our scenario modelling, employment in green manufacturing could rise from around 55,000 jobs in 2022 to between 140,000 jobs and 425,000 jobs by 2050 (Figure 17). In part this reflects the lower labour intensity of some new green manufacturing sectors relative to the grey industries they are replacing (for example, green steel versus traditional steel). But in part this also reflects the long-term decline in manufacturing employment – as manufacturing sectors have become more efficient over time, they have accounted for a shrinking share of the workforce. The green transition is unlikely to reverse this long-term trend in the UK. By contrast, it is green services that offer the real potential to create a significant net increase in employment. In our scenario modelling, employment in green services could rise from just under 150,000 in 2022 to between 190,000 and 800,000 by 2050.
Potential jobs at risk versus job-creation figures
Source: ONS, Business Register and Employment Survey (via NOMIS), ONS 2019 Employment Multipliers, Oxford Economics and TBI.
Notes: The figures above refer to the number of people employed directly in each industrial sector and indirectly through wider supply-chain activity.
To deliver meaningful economic benefits, regional policy must therefore move beyond trying to simply replace declining fossil-fuel-intensive industries with their direct green equivalents. The focus should instead be on creating clusters of interconnected industries that generate strong economic spillovers, support job creation across diverse sectors and stimulate high productivity growth. Clusters like Canary Wharf’s financial hub in the 1990s demonstrate the value of this approach. Moreover, regional policy should not treat green industries in isolation. Linking green technologies with complementary sectors – such as smart-vehicle technology or data centres – can amplify spillovers and create more sustainable economic ecosystems. The government must take a broader, integrated view of cluster development to maximise the regional benefits of the green transition.
Policy Recommendations
1. Take a More Integrated Approach to Regional Clusters That Cultivates Synergies Between Green Industries, Other High-Tech Sectors and Services
The government should adopt a broader, cross-sector approach to developing regional innovation clusters that links green manufacturing and clean-energy deployment plans with other high-tech sectors and services. Successful clusters require more than tax incentives: they need coordinated policies that combine regulatory incentives, infrastructure investment and talent attraction.
The East Coast Cluster for CCUS in the North East shows how linking decarbonisation efforts with local industrial capabilities can create jobs while supporting the transition. Building on this model, the government should expand it to other regions and foster links between green industries and other emerging sectors. For example, the government could link the UK’s growing SMR industry with data-centre deployment to strengthen its position in AI and advanced computing.
Beyond green manufacturing, the government should also foster green service clusters. Leeds, for instance, is home to 13 per cent of the UK’s fintech firms and hosts the NWF, making it a strong candidate for a green-financial-services hub. However, to fully leverage Leeds’s strengths, any regional plan must address Leeds’s inadequate transport infrastructure to unlock the city’s potential.
2. Modernise Planning and Regulatory Frameworks to Create Green Investment Zones
The UK’s slow and onerous planning and regulatory systems often delay, deter or increase the cost of high-impact green projects, limiting their potential to drive regional growth. The government is already reforming the planning system to help enable more rapid development of new projects. But to complement these reforms, it should also create Green Investment Zones in economically disadvantaged areas, with streamlined site-level planning processes to attract and accelerate investment. These zones would build on the model of AI Growth Zones announced in the AI Opportunities Action Plan and could, in some instances, be merged to exploit the synergies between AI and clean tech. For example, more than 40 per cent of civil nuclear jobs in the UK are in regions with the highest investment needs, making these areas ideal candidates for accelerated development. Linking these zones to existing or new innovation infrastructure, such as existing universities or new Disruptive Invention Labs, would amplify their impact and align them with broader regional growth strategies.
3. Enhance Coordination Between the BBB and NWF for Regional Development
The NWF has a broad new remit, which offers opportunities to coordinate activity with other public financial institutions, particularly the BBB, to maximise the multiplier effects of public investment. The BBB and NWF should collaborate closely on regional projects, particularly in areas benefiting from large-scale infrastructure investments like offshore wind. A public financial-institution task force should be established to coordinate regional projects, working with Mayoral Combined Authorities to ensure that major investments funded by the NWF also stimulate smaller-business activity in local supply chains through BBB support, benefiting startups and scale-ups and promoting balanced regional growth.
Priority 4: Resilience – Strengthening Supply-Chain Oversight
The Issue
One of the key challenges for policymakers, as highlighted in the two chapters on the strategic framework at work, is assessing whether to intervene in a sector based on its vulnerability to supply-chain shocks. Understanding how these shocks might propagate across industries and whether private-sector actions will dampen or amplify their effects is critical for making informed decisions. However, this assessment requires access to detailed and timely data, which remains a noteworthy gap in the UK’s current capabilities.
The UK has made progress in building supply-chain oversight, particularly through the GSCIP. This AI-enabled initiative has helped map vulnerabilities and provided valuable insights to government departments. Yet these efforts need to go further. Supply-chain risks are becoming more pronounced in today’s shock-prone world, driven by geopolitical tensions, climate disruptions and economic uncertainties. Expanding and enhancing the GSCIP’s role is essential to creating a more resilient and adaptive economy.
Policy Recommendations
1. Designate GSCIP as Part of the UK’s Critical Infrastructure, Located in the Heart of Government
The GSCIP’s current position within the Department for Business & Trade and part funded by a handful of other government departments limits the scope of its work and its ability to address economy-wide supply-chain risks. The government should instead designate the GSCIP as part of the UK’s critical infrastructure and house it within a central body, such as the Cabinet Office or a newly created cross-departmental resilience agency. This would elevate its role, enabling it to provide actionable insights to policymakers across departments to help manage risks associated with government procurement and the economy at large. A centralised GSCIP would serve as a hub for real-time monitoring, predictive risk analysis and proactive decision-making, enhancing the UK’s resilience to supply-chain shocks.
2. Enhance Data Collection and Monitoring Capabilities
To strengthen supply-chain oversight, the government should improve data collection from domestic and international sources. Domestically, HMRC should collaborate with the Department for Business & Trade to gather additional data from UK importers and exporters; this would ensure that the overseas businesses they are dealing with are reported on trade documentation and create a more comprehensive picture of vulnerabilities. Internationally, the UK should work with trading partners to improve data sharing – building on the existing AUKUS partnership with the US and Australia. The government should also look to provide technical assistance to countries with weaker data capabilities, leveraging aid budgets where appropriate. This would not only support global resilience but also improve the reliability of UK supply-chain intelligence.
3. Expand Predictive and Strategic Capabilities
Currently focused on real-time monitoring, the GSCIP should develop predictive tools to anticipate future disruptions. Investing in advanced analytics and simulation capabilities would allow policymakers to forecast risks and identify vulnerabilities before they materialise. For example, GSCIP could first run every conceivable nodal disruption through its modelling to identify the most critical sources of risk and how they compound with one another, and then use this information to identify the triggers for such disruption and how best to mitigate them. This would help prioritise interventions on the most critical elements of the UK’s supply chain, enable proactive interventions and reduce the economic impact of potential shocks.
4. Leverage Supply-Chain Insights to Identify Growth Opportunities
Beyond managing risks, supply-chain intelligence can identify opportunities for economic growth. Having a world-leading capability to map global supply chains should allow the government to pinpoint industries where it has a comparative advantage and can fill critical supply gaps. These insights should help guide government investment decisions, ensuring resources are directed towards sectors with the greatest potential to strengthen resilience while driving growth.
5. Integrate Carbon-Intensity Tracking for CBAM Implementation
The GSCIP’s ability to map supply chains at a granular level presents an opportunity to align resilience efforts with climate policy. By incorporating carbon-intensity tracking and estimation into its systems, the GSCIP could facilitate the implementation of the CBAM. This would streamline the measurement of lifecycle emissions for imported goods, reducing compliance burdens for businesses and strengthening the UK’s climate leadership.
Priority 5: Climate – Embedding Decarbonisation Into Broader Economic Strategy
The Issue
The UK’s economic-growth policies are often designed within the Treasury, using traditional supply-side analysis that overlooks a policy’s impact on emissions, the UK’s stock of natural capital and the economy’s resilience to climate shocks. This narrow approach undervalues the significant benefit that well-designed climate policies can have on the economy.
At the same time, many of the UK’s climate policies developed within the Department for Energy Security and Net Zero have focused narrowly on achieving rapid decarbonisation, with less attention paid to their economic consequences. Poorly designed climate policies can inadvertently increase costs for businesses, undermine international competitiveness and fail to seize the economic opportunities of the green transition.
The root cause of these issues lies in a fragmented approach to policy design and analysis. Primary responsibility for economic and climate objectives lies in separate government departments, and technical capabilities to model the impact of policy changes on the economy and climate are siloed. To succeed, the government must integrate climate goals into economic strategy – and vice versa – to ensure decarbonisation efforts align with long-term economic priorities and become mutually reinforcing. This requires systematically addressing the interactions between economic and climate goals through the following actions:
Assess economic policies for emissions impacts: Fiscal or economic policy decisions – such as freezing fuel duty or raising vehicle excise duty on EVs – must systematically account for their emissions impact. Policies that inadvertently incentivise fossil-fuel consumption or discourage green alternatives risk undermining decarbonisation objectives and delaying progress.
Scrutinise climate policies for economic impacts: Climate interventions, such as renewable-energy subsidies, must undergo rigorous economic analysis to ensure they deliver value for money and support long-term growth. For example, poorly designed solar subsidies in Spain during the late 2000s created an unsustainable boom, leading to abrupt subsidy cuts during the financial crisis. This undermined investor confidence, caused significant financial losses and stifled the domestic solar industry. Policies should be carefully designed to balance decarbonisation objectives with economic sustainability, ensuring they avoid unnecessarily high costs on businesses and maintain the competitiveness of domestic green industries.
Embed climate risks into economic strategy: Economic plans must account for the risks posed by climate events to supply chains and industrial assets. The government should stress test the economy for vulnerabilities to climate shocks, identify critical infrastructure and industrial assets that amplify risks, and incentivise investment in resilience measures not only to safeguard the assets themselves but to minimise wider economic disruptions. Similarly, regional growth strategies must avoid siting major industrial assets in areas highly exposed to climate risks, ensuring long-term stability for regions dependent on these industries.
Design sectoral climate targets as economic tools, not political signals: Targets, such as the ZEV mandate and Clean Heat Market Mechanism, are powerful tools for aligning decarbonisation with long-term economic strategy. When designed well, they provide clear investment signals, incentivise innovation and drive economic activity. However, targets are effective only if paired with robust delivery plans that address barriers to success. For example, while the ZEV mandate is currently on track, there is a risk later this decade that EV sales may not rise fast enough to meet the mandate. Consumer adoption of EVs could falter due to misperceptions about charging-infrastructure availability, if EV prices fail to fall fast enough (for instance, due to unforeseen events like a supply-chain shock) or if consumers delay EV purchases in anticipation of better technology coming to market in the future. The government should be considering these risk scenarios now and designing proactive demand-side measures – such as a campaign to correct misperceptions of the availability of charging infrastructure – to ensure targets have the best possible chance of being met. The risk of not being prepared is that the government may have to row back on its targets – as happened in 2023 when the previous government delayed the phase-out date of ICE sales from 2030 to 2035. Altering targets can undermine trust in the government’s commitment to the green transition and discourage investment not just in the industry affected by the target, but more widely across the green economy. While occasional adjustments to targets may be necessary, they must be approached with caution and full consideration of the broader economic and reputational impacts. Providing clear, stable and predictable policies is essential for attracting the private capital needed to drive the green transition. Targets are too valuable a tool to be used for political virtue signalling – they must be designed in a hard-headed way.
The government already considers some of these interlinkages when designing policies, but the approach is inconsistent and varies significantly in quality and capability. To adopt a more systematic and effective approach, the government must go further.
Policy Recommendations
1. Direct the Treasury to More Fully Integrate Climate Change Into Fiscal and Economic Decisions
The government should oblige the Treasury to more deeply integrate climate change into economic strategy and fiscal policy. This would help ensure that decarbonisation policies are rigorously assessed for their potential to enhance long-term growth and economic resilience as well as their alignment with the broader growth strategy. Deeper alignment would also ensure that key fiscal and structural policy changes are assessed not only through traditional economic impact analysis, but also for their impact on emissions and the UK’s ability to capitalise on the long-term economic opportunities from the green transition.
2. Futureproof UK Growth by Assessing Climate Risks to Supply Chains and Regional Assets
The government must strengthen climate impact analysis to identify and mitigate risks to critical industrial assets and supply chains. This includes stress-testing the economy for vulnerabilities to supply-chain disruptions caused by severe climactic events that affect production in the UK and overseas, and implementing resilience measures to safeguard key assets. Regional growth strategies should also take account of climate resilience by avoiding the development of major industrial assets in areas highly exposed to climate risks (particularly flood risk), safeguarding the stability of regions dependent on these industries.
3. Design Decarbonisation Targets Carefully With Long-Term Economic Strategy in Mind and Back Them With Robust Delivery Plans
Climate targets must be paired with clear delivery plans that align with economic opportunities, fiscal constraints and sector-specific needs. These plans provide investors with the certainty needed to make green projects bankable, particularly for large-scale infrastructure investments with long payback periods over 15 years. Reversing targets should also be approached cautiously, as it risks undermining investor confidence not just in the affected sector but across the green economy.
4. Equip Economic Agencies With the Tools to Align Climate and Economic Goals
To deliver on these recommendations, the government must invest in enhanced modelling and forecasting capabilities that integrate climate and economic outcomes in the long run. Given the location of climate and economic expertise across government, this analysis should be housed within a new unit that spans the Treasury and the Department for Energy Security and Net Zero (DESNZ). This unit should then support the Treasury in integrating climate impacts into its economic analysis and vice versa for DESNZ.
Chapter 8
Green industrial strategy has the potential to drive economic growth and accelerate the UK’s progress towards net zero. But realising this ambition requires coherent, long-term policymaking and agile delivery that gives the private sector the confidence to invest. History, however, tells a different story.
The UK has long struggled to maintain consistent industrial strategies. Political shifts have led to frequent policy changes, which have undermined investor trust and disrupted progress. Since 2010, the UK has cycled through 11 industrial strategies, growth plans or their equivalents, with initiatives frequently abandoned or rebranded.[_] The abrupt withdrawal of the 2017 Industrial Strategy and the disbandment of the Industrial Strategy Council in favour of the 2021 Plan for Growth epitomises this inconsistency.
This lack of stability has left critical sectors adrift. For instance, the government reversed its early commitment to carbon capture and storage in 2015, only to revisit it years later. Similarly, regional “levelling-up” initiatives have suffered from rebranding and short-termism, diluting their impact. Such volatility stifles investor confidence and hinders the long-term collaborations needed between government, industry and academia to drive innovation and growth.
A durable strategic framework, as outlined above, is a necessary foundation for tackling this legacy of strategic volatility – but it is not enough on its own to ensure success. Without good governance, poor coordination and unclear accountability risk creating a vacuum where decisions are delayed, implementation falters and progress stalls. Weak governance can leave strategies vulnerable to reversal whenever ministerial priorities or leadership change, fuelling uncertainty, eroding investor trust and hampering the sustained collaboration needed to deliver transformative change.
Effective governance is therefore essential to ensure that green industrial strategy is both delivered and endures. It provides clear accountability for decision-making, defines responsibilities for implementation, and establishes systems to monitor progress and adapt to new challenges. In a policy area as complex and cross-cutting as industrial strategy, this clarity is indispensable. Governance aligns efforts across departments and sectors, resolves conflicts and sustains momentum, making the strategy resilient to political and administrative shifts.
To meet the scale and complexity of the green transition, governance must deliver three critical elements:
Predictable long-term goals: Businesses need clear and consistent policy signals to invest with confidence. These goals must be durable yet flexible enough to accommodate technological advances and changing market conditions.
Integrated and coherent policies: Governance must break down silos across departments, regions and sectors, ensuring alignment and avoiding conflicting signals to industry.
Agile delivery: Policies must be implemented quickly and adaptively to respond to global competition, seize emerging opportunities and overcome unexpected challenges.
This chapter outlines a governance framework to embed the clarity, accountability and agility needed to make the UK’s green industrial strategy a success.
Governance Priority 1: Decision-Making – Building Coherence and Stability
The Issue
Effective decision-making is essential for delivering a successful industrial strategy, yet the UK’s governance structures remain fragmented. Responsibilities for green sectors are dispersed across multiple departments, often leading to siloed policymaking and conflicting signals. The Clean Power Mission provides one model for improving coherence, with a mission board coordinating cross-departmental efforts and “mission control” overseeing implementation. However, the broader industrial strategy, with its multiple sectors and overlapping dependencies, requires an even more integrated approach to ensure policies are aligned, conflicts are resolved, and decisions are made swiftly and transparently.
Recommendation: Establish an Industrial Strategy Board
The government should establish an Industrial Strategy Board as a ministerial sub-committee of the Growth Mission Board to oversee decision-making across all priority sectors. This board would provide the coordination and accountability needed to deliver a coherent and effective industrial strategy. Key features of the board should include:
Central leadership: The Industrial Strategy Board should be chaired by the Chancellor of the Exchequer to ensure alignment with broader economic and fiscal priorities. This leadership would embed the industrial strategy within the government’s growth agenda and ensure policies balance economic and environmental objectives.
Cross-departmental membership: The secretary of state for business & trade should be deputy chair, with the secretary of state for energy security & net zero and the secretary of state for science, innovation & technology attending most meetings, given their cross-cutting remits. Additional ministers should be invited for sector-specific discussions – for example, the secretary of state for transport when discussing EV policy or the secretary of state for defence when addressing civil nuclear programmes. This structure would enable the board to coordinate policies across departments and address interdependencies between sectors.
Systematic regional and devolved representation: Regional and devolved voices should be systematically integrated into the decision-making process. Representatives from the devolved administrations and relevant mayors should be consulted whenever relevant place-based policies are discussed, ensuring decisions reflect regional strengths and needs. To formalise this collaboration, the Industrial Strategy Board should hold quarterly joint meetings with the Council of the Nations and Regions to align priorities and provide input on draft proposals before final sign-off.
Conflict-resolution mechanism: The board should act as the central forum for resolving conflicts between sectoral priorities. For example, rapid offshore-wind deployment might conflict with cultivating the UK’s domestic industry. In such cases, the chancellor would have the final decision, guided by a transparent decision-making framework to weigh trade-offs.
The Industrial Strategy Board would provide the clarity, coherence and stability needed to drive the UK’s industrial strategy. By embedding decision-making within a coordinated structure, it would ensure policies are aligned with economic priorities, deliver long-term predictability and support rapid progress across sectors.
Governance Priority 2: Monitoring and Advisory – Delivering Evidence-Based Policy
The Issue
Effective decision-making and implementation depend on access to robust, timely and actionable insights. The UK currently lacks an integrated mechanism to monitor the progress of its industrial strategy, track global technological developments and provide forward-looking analysis to inform policy. While the reintroduction of the Industrial Strategy Advisory Council (ISAC) is a step in the right direction, its success will partly depend on its ability to deliver high-quality advice, real-time monitoring and analytical depth.
The complexity of green industrial strategy magnifies these challenges. Understanding how global supply-chain vulnerabilities affect domestic industries or how international decarbonisation policies impact UK competitiveness requires advanced monitoring and forecasting capabilities. Without these tools, the government risks making reactive rather than strategic decisions.
Recommendation: Establish an Enhanced Secretariat for Monitoring, Analytics and Collaboration to Support the ISAC
The ISAC should serve as the UK’s central hub for tracking the implementation of industrial-strategy policies, monitoring sectoral progress, identifying risks and opportunities, and ensuring alignment with climate and economic priorities. This requires the development of an integrated monitoring, analytics and collaboration function, located within an enhanced ISAC secretariat, which should:
Be staffed with dedicated policy and modelling experts: Equip the ISAC with its own pool of policy and modelling resources, blending expertise from within government and external sources. This team should include:
Experienced civil servants: Individuals skilled in navigating Whitehall and aligning insights with policymaking processes.
External experts: Analysts proficient in advanced modelling techniques, forecasting and scenario planning.
Harness enhanced data collection: Conduct a review to identify high-value data sources across government and from private-sector providers, such as global venture-capital flows, supply-chain data and technology costs. Centralising the procurement of private-sector data will ensure timely access to critical information.
Leverage advanced analytics: Utilise AI and scenario-modelling tools to conduct sensitivity analyses and forecast the potential impacts of geopolitical events, technological breakthroughs and global trade shifts on UK industries. The secretariat should also experiment with using AI as a crosscheck to improve the consistency of decision-making – as described in the box below.
Provide a monitoring dashboard: Develop an accessible dashboard to track key metrics, such as investment flows, supply-chain resilience, technological readiness and emissions reductions. This dashboard would highlight progress, identify bottlenecks and provide actionable insights for policymakers.
Strengthen collaboration across the public sector: Given the cross-cutting nature of industrial strategy, the secretariat should also draw in the best available analysis and policy advice from elsewhere in government and the public sector. This includes drawing insights from the Global Supply Chains Intelligence Programme, the proposed new climate-economic joint modelling unit between the Treasury and DESNZ, and particularly the Climate Change Committee (CCC). The ISAC should meet with the CCC at least every quarter to focus on shared research priorities, such as assessing emerging clean technologies from both climate and economic perspectives. This collaboration will provide a holistic view of opportunities and risks, supporting integrated policymaking.
The ISAC should be the analytical engine of the UK’s industrial strategy, equipped to provide actionable insights, track progress and anticipate challenges. By integrating enhanced monitoring and analytics, expanding access to policy and modelling resources and fostering collaboration with the rest of government, the ISAC can deliver the evidence base needed to drive success.
Harnessing AI to improve the consistency of decision-making
A key issue with recent UK industrial strategy has been that decision-making has been inconsistent over time. This is partly because even structured assessments like the ones we conducted in the earlier chapters on the strategic framework at work are subject to individual bias. These problems are compounded when the people making the decisions frequently change. Re-establishing the UK’s Industrial Strategy Advisory Council (ISAC) and putting it on a statutory footing is a welcome step to help improve this consistency. But the government could go further by drawing on technology to aid decision-making. For example, the ISAC secretariat proposed above could explore using artificial intelligence to help provide an objective baseline “model assessment” of the evidence across sectors, to serve as a neutral cross-check to policymakers. This model would need to be trained appropriately – able to ingest a wide variety of quantitative indicators (in a similar way to how macroeconomic models are used to produce forecasts for the economy) plus qualitative information – comparable to how human forecasters make holistic judgements based on a wider range of evidence. To be clear, such a tool should not be used as a replacement for human judgement in making complex policy decisions but as a complement: a disciplining device to ensure that decision-makers are assessing judgements in a consistent way and, where they do deviate, they have a clear rationale for doing so that can then be internalised within the model for the future.
Governance Priority 3: Delivery – Driving Rapid and Coherent Implementation
The Issue
The UK cannot compete with superpowers like the US and China on the scale of financial resources available for industrial strategy. However, it can compete on agility – delivering policy and investment with speed and precision to create a more attractive environment for private-sector investment. Agility is critical for ensuring that the UK stays competitive in a rapidly changing global landscape.
Historically, delivery has been a weak point for the UK. Fragmented responsibilities across multiple departments and delivery bodies, coupled with structural barriers like slow planning processes, have slowed progress and created uncertainty for investors. However, more efficient delivery mechanisms are possible. Indeed, the Clean Power Mission, with its mission board and dedicated “mission control”, has begun to demonstrate how clear accountability and empowered leadership can align efforts and focus on outcomes. Scaling these principles across the green industrial strategy will be essential to turning ambition into action.
Recommendation: Appoint Sector Tsars to Lead Delivery
The government should appoint dedicated sector tsars for each priority industry within the industrial strategy. These tsars would serve as “mission control” for their sectors, providing a single point of accountability and coordination. To ensure stability, coherence and responsiveness, the following structure should be adopted:
Appointment process and fixed terms: Sector tsars should be appointed by the Chancellor of the Exchequer through an open and transparent process, similar to how members of the Bank of England’s Monetary Policy Committee are selected. Appointments should be made for three-year fixed terms, with the option for one renewal. This helps to ensure some stability over the political cycle while recognising that the tsar model has typically worked best when individuals join government for short periods.[_] The ISAC should conduct a review of each tsar’s progress six months before the end of their term and have the authority to recommend reappointment or dismissal to the chancellor.
Reporting and oversight: Tsars should report directly to the Industrial Strategy Board to seek approval for major policy decisions and should regularly report on progress to the ISAC to receive independent advice and ensure alignment with system-wide goals. This dual reporting structure will strengthen coherence across sectors while maintaining the strategic focus of the Industrial Strategy Board.
Responsibility for investment facilitation and business engagement: Acting as the designated point of contact for the office for investment, tsars would serve as ambassadors for their sectors. They would engage directly with investors and businesses, streamlining interactions with government and creating clear pathways for investment. This role would ensure that the UK remains an attractive destination for global capital and innovation.
Authority to drive coordination and delivery: Tsars should have the authority to coordinate across government departments, regional authorities and delivery bodies, breaking down silos and ensuring policy coherence. They would oversee the implementation of key projects, resolve bottlenecks and accelerate progress, acting as the central figure for delivery within their sectors.
Support and resources: Each tsar should be supported by a small, expert team comprising technical specialists, policy analysts and administrative staff. This team would provide the capacity needed to respond quickly to challenges and opportunities, ensuring that tsars can focus on strategic leadership.
Building a Governance Framework for Green Industrial Strategy
Delivering the UK’s green industrial strategy requires a governance framework that overcomes fragmented responsibilities and drives effective implementation. To address the three governance issues identified in this chapter, we have developed a three-tiered governance framework that would embed coherence, accountability and agility:
1. Decision-making: An Industrial Strategy Board should be established as a cabinet-level subcommittee of the Growth Mission Board. This should decide on recommendations put forward by the ISAC and sector tsars. It should be chaired by the chancellor who has veto power, with the secretary of state for business & trade as deputy chair and rotating attendance by other cabinet members depending on the sector being discussed. This committee would coordinate policies across sectors, resolve conflicts and engage systematically with regional and devolved leaders.
2. Monitoring and advisory: The newly appointed ISAC should be supported by a well-equipped secretariat that utilises advanced analytics and expert resources to provide real-time monitoring, forward-looking analysis, and coordination across the public sector. The ISAC – which is made up of 16 independent experts from business, academia and policy – is already responsible for advising ministers on all areas of industrial policy, including trade-offs between sectors.[_] It should also be made responsible for monitoring industry tsars’ progress and be given the power to recommend reappointment at the end of each tsar’s term.
3. Delivery: Sector tsars, appointed for three-year fixed terms (renewable once), would be responsible for leading implementation for priority industries, acting as the main point of accountability. They would coordinate inwardly across government departments and externally – acting as the focal point for inward-investment promotion and business engagement.
Chapter 9
The UK stands at a critical juncture. Structural shifts in the global economy have spurred other nations to adopt more interventionist industrial policies, driving fierce competition to dominate the industries of the future. If the UK is to compete, it requires a strategic, coordinated response.
To succeed, the government must break from the mistakes of the past – characterised by inconsistency, incoherence and poor delivery. Since 2010, the average lifespan of a UK industrial strategy has been little over a year, reflecting its failure to provide the private sector with the certainty it needs. This must change. With a strong political mandate and parliamentary majority, the government has a rare opportunity to chart a new course. But time is short. It needs to adopt a hard-headed approach to industrial strategy, rooted in robust evidence, system-wide thinking and professional delivery. Legacy assumptions and pet projects that offer little economic return must be set aside in favour of a resolute focus on genuine growth.
This report provides a roadmap for this transformation, offering fresh economic analysis, a robust strategic framework, and actionable recommendations to build a dynamic, resilient and competitive economy. By applying these insights to the green economy as a test case, the government can refine its methods and extend the lessons to industrial strategy more broadly.
The stakes could not be higher. Britain’s ability to lead in the industries of the future hinges on whether policymakers can navigate trade-offs, make bold but evidence-based decisions and inspire investor confidence. Strategic focus, openness to global opportunities and decisive action will be essential. The choice is clear: the UK must seize this moment to shape its industrial future or else it will be left behind.
Acknowledgements
Helena Bennett, Senior Associate, UK Programme, European Climate Foundation
Ilana Gottlieb, Economist, Economics and Sustainability, Oxford Economics
Jake Kuyer, Associate Director, Economics and Sustainability, Oxford Economics
Carina Manitius, Economist, Economics and Sustainability, Oxford Economics
Sarah Nelson, Lead Economist, Economics and Sustainability, Oxford Economics
Ralph Palmer, Transport & Air Quality Programme Manager, Labour Climate & Environment Forum
Louis Willis, Manager, UK Programme, European Climate Foundation