IoD perspective on Industrial Strategy

The IoD is an independent, non-party political organisation representing approximately 20,000 company directors, senior business leaders, and entrepreneurs. It is the UK’s longest-running organisation for professional leaders, having been founded in 1903 and incorporated by Royal Charter in 1906. Its aim is to promote good governance and ensure high levels of skills and integrity among directors of organisations. It campaigns on issues of importance to its members and to the wider business community with the aim of fostering a climate favourable to entrepreneurial activity in the UK.

Summary of the IoD view

We continue to welcome this government’s commitment to delivering an industrial strategy – something which enjoys strong support among business leaders. The initial perspective on industrial strategy set out in the government’s green paper is broad, encompassing close to a third of economic activity. Refining down the sectors being backed, and in so doing, clarifying the strategic approach to industrial strategy being adopted, is a crucial next stage in the process. Industrial strategy entails difficult choices: often the challenges are whether to back winners in scaling, thus running the risk of spending public money where private money would otherwise have been spent, or whether to back sectors struggling to receive private backing, thus incurring a higher risk to the public purse. Our perspective is that the most vital role government can play is in setting a stable operating framework for businesses which creates the right incentives for high-growth and strategically important firms and sectors to flourish. Meanwhile, it is welcome to see reference to the important role of tracking the performance of the industrial strategy in the council’s remit. As in business, learning from both failure and success transparently is an important driver of effective delivery and impact. Likewise, the complexion of the council, encompassing both academia and business, seems set to provide the right composition of expert advice into government as the strategy is refined, delivered and refined again.

Cross-cutting enablers

Industrial strategy has retained consistently strong interest from across the IoD’s membership. When surveyed in May 2023, 88% were in favour of an industrial strategy, and it was the second most important priority for the new government in the first 100 days from our June research.

Feedback from our members reflect a mixture of important growth priorities for the UK, across both vertical and horizontal economic levers. When surveyed in 2023, members felt innovation and R&D should be the top priorities, followed by skills and vocational education:

In more recent feedback in July 2024 and November, the overarching priority returned by business was that the industrial strategy should deliver stability and foster growth. A large number of comments reflected the need for a long-term approach, to provide an environment in which firms can invest and plan for the future. The need to address the skills gap and better align education with the needs of the modern workplace is also a recurring theme in our membership. Many argued that while the government should play an important role in creating stability for business, they should balance this with, as many put it, ‘staying out of the way of business’ and respecting the free market. And while many expressed the view that government should not intervene too much in the daily affairs of business, respondents were keen for the government to engage with industry in the creation of the industrial strategy.

Four primary areas stood out:

1. First, a focus on reskilling the workforce, particularly in areas like sustainability, AI and tech;
2. Second, consensus was that the areas which require the most government investment are infrastructure (digital and transport), net zero and housing in order to foster a climate for growth;
3. Third, firms are also looking for easier access to funding themselves, especially SMEs and particularly for R&D, international growth, cybersecurity and resilience;
4. Fourth, a big sticking point for businesses is also the UK’s relationship with the EU. Businesses see the current state of the trading relationship as a significant barrier to growth.

The policy landscape

Industrial strategy has an important contribution to make to the government’s overall commitment to policy stability and long-termism. In our July Policy Voice survey, policy uncertainty was identified as the top impediment to growth (53% of respondents):

The industrial strategy green paper starts from a very broad base, which is understandable and the intention is to prioritise and target from here. There are a lot of considerations referenced in this strategy: strategic priorities, principles, objectives, sectors, cross-cutting areas. A balance will need to be struck between ensuring that policy changes take appropriate due regard to these factors but also don’t get over-specified in design, entrenching inflexibility and increasing cost, with excessively bureaucratic processes. Feedback from our members emphasises the need for a focussed and clearly articulated strategy that seeks to avoid being all things to all sectors. This should embed a strategic vision for issues like innovation, planning reform, net zero strategy, transport, infrastructure and energy security. Done well, this can facilitate the willingness of the private sector to make long-term investment decisions.

The Industrial Strategy Advisory Council (ISAC)

We welcome the launch of the Industrial Strategy Advisory Council which will offer independent advice and recommendations to government as it develops the Industrial Strategy. It’s incredibly important to see the role of businesses in designing and delivering the government’s growth mission given prominence in the membership of the council to ensure a deep and complete understanding of the needs and challenges faced by different firms. SMEs make up over 99% of the business population in the UK, account for 60% of employment and 48% of turnover. It will be important to ensure that representatives of this tranche of business are engaged in the design of industrial strategy to build in diversity in supply. It is also good to see that the council will have a role in holding the government to account in the effective delivery of industrial strategy through data, analysis and reporting. This is vital to ensure active and transparent learning.