In her upcoming Budget speech on Wednesday, Rachel Reeves, the first Labour Chancellor, faces a pivotal opportunity to signal a transformative approach to fostering industrial growth. Despite difficult economic circumstances and as the Labour government seeks to capture the economic narrative, Reeves can make a compelling case for a robust, future-focused industrial strategy that fosters innovation, strengthens supply chains, and attracts green investment, essential for sustained economic resilience. If she creates the right economic conditions now the UK can enjoy a strong industrial revival and push our growth rate back to that of the world average of 3% which is the aim of our institute.
The UK’s industrial sector, once the backbone of the national economy, has struggled in recent years. Manufacturing, construction, and other industrial fields have been impacted by supply chain vulnerabilities, and rising operational costs as well as burdensome planning regulations, the cost of manufacturing and skills shortages. Reeves' Budget must address these challenges head-on, creating a clear, practical plan to revive industry and support economic stability.
One of the most impactful directions Reeves can take is toward promoting green industrial growth. The global race for a sustainable future has intensified, and the UK has the potential to be a leader. Reeves should prioritize investments in renewable energy technologies, including offshore wind, solar power, and carbon capture. This is in line with Labour’s promise of a "Green Prosperity Plan," which aims to create a net-zero economy by 2030. To achieve this, she could allocate funding to support research and development (R&D) in renewable technologies, incentivize private sector investments, and enhance partnerships between government and businesses.
Additionally, Reeves could introduce tax breaks or subsidies for companies making substantial progress toward reducing carbon emissions, which would provide immediate benefits for businesses while encouraging long-term sustainable practices. This approach would create jobs, attract environmentally conscious investment, and strengthen the UK’s standing as a leader in green technology. But to attract that investment we need to ensure it is profitable to invest in the UK and that must surely mean the government considers examining the feasibility of an exchange rate policy to make the Pound more competitive against foreign currencies.
Industrial growth is closely tied to innovation, and for the UK to be competitive globally, it must become a hub for R&D. Reeves can bolster innovation by proposing substantial R&D tax credits for businesses in manufacturing, tech, and energy sectors. Currently, the UK's spending on R&D lags other advanced economies and we lose a lot of our patents to the far east. By doubling down on R&D incentives, especially for small and medium-sized enterprises, Reeves could unlock new technologies and advancements that increase productivity and efficiency but attached to this must be the fundamental policy of making it profitable to invest in R&D in the UK.
In addition to tax credits, Reeves could also create grants or low-interest loans for industries that are pioneering new technologies, such as artificial intelligence, robotics, and materials science. The aim here should be to increase the percentage of GDP allocated to R&D, with a target of 3% by the end of the decade. Increased innovation funding will attract more high-tech companies to the UK, creating jobs and potentially reversing the brain drain. Crucially we must ensure that the benefits of that enhanced investment in R&D is realised in the UK and not lost to Eastern economies.
The UK’s industrial sector requires not just funding but also reliable infrastructure. For industries to operate efficiently, they need access to reliable transport networks, stable energy supplies, and digital connectivity. Reeves should allocate funds toward infrastructure improvements that address these needs, prioritizing regions with strong industrial potential outside of London and the Southeast. It also means the government must accelerate its commitment to Planning Reform. We need to plan for the new factories and warehouses, the new plants and depots. The objective should be to revitalise regional hubs with historic links to manufacturing and ensure they benefit from improved transportation, high-speed internet, and energy infrastructure, creating an environment that attracts businesses to set up operations and invest locally. Only through a revitalisation of industry can we grow our economy faster.
One of the most significant barriers to industrial growth is the skills gap, especially in technical fields. Reeves’ Budget should focus on reskilling and upskilling programs that align with the demands of a modern industrial economy. This could include vocational training, apprenticeships, and partnerships with universities for STEM programs. Reeves could offer tax incentives or subsidies to businesses that invest in workforce development, particularly in underrepresented areas for example by allowing deductions in business rates based on new employees trained or employed for designated periods of time. Creating a “Skills Development Fund” aimed at sectors like engineering, renewable energy, and digital technology would support a steady pipeline of talent. Additionally, by expanding apprenticeship programs and creating partnerships between industrial companies and educational institutions, the UK can cultivate a generation of skilled workers prepared for the evolving demands of the workforce.
Encouraging Domestic Production to Bolster Supply Chains
The pandemic exposed vulnerabilities in global supply chains, and there is growing consensus around the need for more resilient domestic production. Reeves should advocate for policies that encourage UK-based production, particularly for essential goods. Tax incentives for companies relocating production to the UK, alongside subsidies for businesses producing critical materials, would strengthen local supply chains and create jobs. She could even look at implementing a new Corporation Tax rate for manufacturers made in Britain of 15%.
By investing in reshoring strategies, the UK can reduce reliance on overseas suppliers, creating greater economic stability in the face of global disruptions. Reeves could also emphasize support for industries such as semiconductors, pharmaceuticals, and electric vehicle components, all of which are vital to the UK’s economic security.
A thriving industrial sector requires clear, sustained commitment from government. The Chancellor and the Business Secretary have announced a long-term industrial strategy that focuses on collaboration between government, industry leaders, and trade unions to provide stability and foresight in policymaking. The Budget must compliment these measures and ensure that the UK becomes more competitive by looking at all those areas in this article. In her Budget, Reeves has a chance to champion an ambitious industrial vision. By prioritizing green innovation, investing in infrastructure, supporting a skilled workforce, and strengthening supply chains, she can lay the groundwork for a more resilient and dynamic industrial base. Going for growth means revitalising industry and that must be the mission of this government.
