Foundations v Modern Industrial Strategy

The UK Government's "Modern Industrial Strategy" outlines a comprehensive plan to boost economic growth, primarily by focusing on eight high-potential sectors and addressing cross-cutting issues. This strategy can be critically analysed against the backdrop of the "Foundations: Why Britain has stagnated" report, which diagnoses deep-seated issues hindering the UK's prosperity.

 

Foundations: Why Britain has Stagnated – Key Challenges

The "Foundations" report argues that Britain's economic stagnation stems from a fundamental difficulty in building almost anything, anywhere. This pervasive issue prevents investment, drives up energy costs, and restricts the expansion of productive economic clusters, ultimately lowering productivity, incomes, and tax revenues.

Key specific challenges highlighted include:

• High Energy Costs and Low Generation: Industrial energy prices tripled between 2004 and 2021, and per capita electricity generation in the UK is significantly lower than in France or the United States. The UK has not built a new nuclear power plant in nearly three decades, and new projects are excessively expensive compared to other nations.
  
  
• Housing Shortages and High Costs: Britain has millions fewer homes than France despite similar population sizes. A restrictive planning system, introduced in 1947, effectively prohibits much-needed development, leading to house prices that are double the cost of building them. This stifles migration to productive areas and constrains the growth of successful companies.
  
  
• Expensive and Slow Infrastructure Delivery: British transport projects, such as trams and high-speed rail, are significantly more expensive than their European counterparts. The UK has not built a new reservoir since 1992, despite a 10 million population increase. A key reason for these high costs is the excessive centralisation of funding and consenting of infrastructure in the national government, which removes incentives for cost control.
  
  
• Chronic Underinvestment: The UK invests a lower percentage of its GDP in physical capital compared to most advanced countries. This is not due to a lack of willingness to invest, but because the state "bans most of the most productive investments". Historically, state ownership led to chronic underinvestment in capital.
  
  
• Low Productivity: Britain suffers from significantly lower productivity per hour compared to the United States, France, and Germany.

 

Modern Industrial Strategy: Addressing the Challenges

 

The "Modern Industrial Strategy" aims to deliver strong and sustainable economic growth by creating a new partnership between business and government. It focuses on enabling business investment and growth in eight high-potential "IS-8" sectors.

The Industrial Strategy proposes several interventions that directly respond to the challenges raised in "Foundations":

• Tackling High Energy Costs and Accelerating Clean Energy Deployment:
  • The strategy explicitly aims to reduce industrial electricity costs and ensure timely grid connections. It introduces the British Industrial Competitiveness Scheme to lower electricity costs for manufacturing industries and increases support for energy-intensive industries through the Network Charging Compensation scheme.
  • It also plans to accelerate grid connection timelines for major investment projects via a "Connections Accelerator Service" and new powers in the Planning and Infrastructure Bill.
  • The strategy commits significant investment to becoming a Clean Energy manufacturing and innovation superpower, supporting wind, nuclear fission (including Sizewell C and Small Modular Reactors), fusion energy, Carbon Capture Usage and Storage (CCUS), and hydrogen. This directly aims to increase energy supply and address high costs.
    
    
• Removing Planning Barriers and Accelerating Infrastructure:
  • The Industrial Strategy directly addresses the difficulty of building by setting a target of 1.5 million new homes and 150 major infrastructure project decisions by the end of the Parliament.
  • It proposes fast-tracking projects by reducing the average pre-application period for major infrastructure from two years to 12 months, streamlining judicial reviews, and providing funding for new planning officers.
  • Crucially, it includes commitments to build new reservoirs around Cambridge and Oxford, directly addressing a specific choke point identified in "Foundations" that limits development.
  • Investments in major transport projects like HS2, East-West Rail, and the TransPennine Route Upgrade are confirmed, alongside broader road and bus service improvements.
    
    
• Boosting Investment and Productivity:
  • The Industrial Strategy sets an explicit ambition to significantly increase business investment, with specific targets for sectors like Advanced Manufacturing.
  • It aims to expand access to finance through additional capital for the British Business Bank (£4 billion for IS-8 sectors) and a strategic steer for the National Wealth Fund (£27.8 billion capitalisation) to "crowd in" private investment.
  • Reforms to pension investments are expected to unlock £50 billion from pension funds for UK businesses and infrastructure.
  • The strategy also focuses on driving innovation with an £86 billion investment in R&D, targeted at the IS-8, and the creation of a Sovereign AI Unit.
    
    
• Reducing Regulatory Burdens:
  • Acknowledging regulatory complexity, the strategy aims to cut the administrative costs of regulation for businesses by 25% and reduce the number of regulators.
  • The Regulatory Innovation Office is established to facilitate bringing innovative products to market more quickly.
    
    
• Enhancing Skills and Attracting Talent:
  • The strategy includes reforms to the skills and employment support system, increased technology training, and specific boosts for engineering, digital, and defence skills.
  • A new Global Talent Taskforce and visa system reforms are intended to attract skilled individuals to the UK.

 

Potential Gaps in Policy

Despite the comprehensive nature of the Modern Industrial Strategy, some of the deep-seated issues identified in "Foundations" may not be fully addressed, or the approaches differ significantly:

• Fundamental Planning System Reform vs. Incentives: While the Industrial Strategy aims to "accelerate infrastructure delivery and house-building through ambitious planning reforms", "Foundations" explicitly criticises the 1947 Town and Country Planning Act for removing the financial incentive for local councils to approve development by detaching tax revenues from development value. The Industrial Strategy's focus on faster decisions and national targets might not fully overcome local opposition ("fierce opponents of development") if the underlying financial incentives for local authorities and residents are not fundamentally re-aligned to benefit directly from new building. The strategy mentions local authorities' fees covering service costs and Mayoral Recyclable Growth Funds, but it does not detail a direct re-establishment of local financial benefit tied to the value created by new development, which "Foundations" suggests would push against regional inequality.
  
  
• Centralised Infrastructure Funding: "Foundations" strongly argues that the excessive centralisation of infrastructure funding and consenting in national government is the primary cause of spiralling costs and lack of accountability. It advocates for more private or locally-funded models, where cost control incentives are stronger. The "Modern Industrial Strategy", despite some support for local authority funds, still primarily relies on and outlines substantial national government capital investment (e.g., £725 billion over the next decade). This continued reliance on central funding, according to "Foundations", inherently leads to "outrageous cost bloat" because the cost is diffused across a vast electorate, making it "invisibly small" per person and reducing the incentive to suppress costs.
  
  
• Nuclear Power Costs and Strategy: "Foundations" highlights that UK nuclear construction costs are "eye-wateringly high" and among the world's highest, contrasting them sharply with South Korean costs. It suggests either radical streamlining of approvals or directly leveraging South Korean expertise (e.g., "call KEPCO"). The Industrial Strategy commits significant investment to Sizewell C and Small Modular Reactors (SMRs) and mentions streamlining regulatory systems. However, it does not explicitly detail how the UK will fundamentally overcome the systemic cost drivers identified in "Foundations," such as "gold-plating designs," excessive consultations, and vulnerability to judicial review. The emphasis on "designing and building strategic sovereign capabilities" may imply a preference for developing UK-based solutions over directly importing cheaper, established South Korean methods, potentially keeping costs higher than they could be in the short to medium term from the "Foundations" perspective.
  
  
• Intermittent Renewables vs. Nuclear Power: "Foundations" expresses concern that the reliance on intermittent renewables (wind and solar) leads to "high and rising energy costs" due to significant system-level costs (transmission, grid balancing, backup capacity). It strongly advocates for nuclear power's constant output as a more reliable and potentially cheaper alternative if built efficiently. While the Industrial Strategy supports nuclear power, it also heavily prioritises wind energy (onshore, offshore, floating offshore) and mentions significant investment in offshore wind supply chains. This suggests a continued, and even intensified, reliance on a mix that "Foundations" argues contributes to higher overall electricity bills, despite the stated aim to reduce them. The Industrial Strategy's goal of "translating the cheaper wholesale costs of clean power into lower bills" directly contrasts with "Foundations'" argument that intermittent sources are "nowhere near commercially competitive" once system-level costs are factored in.
  
  
• Targeted Sectors vs. Foundational Economy: While the Industrial Strategy focuses on supporting eight "high-growth sectors" (IS-8), "Foundations" argues that the core problems of housing, transport, and energy are universal "economic foundations" that all productive industries need to grow, not just a selected few. Although the Industrial Strategy acknowledges "foundational industries" like steel and ports and offers some support, its primary framework might still lead to a selective approach rather than a broad, economy-wide removal of building obstacles that "Foundations" posits is necessary for overall prosperity.

In conclusion, the "Modern Industrial Strategy" directly confronts many of the symptoms of Britain's economic stagnation identified in "Foundations," particularly concerning energy costs, infrastructure delivery, and investment levels. However, from the perspective of "Foundations," its approach may not fully address the fundamental underlying causes related to planning incentives and the centralisation of infrastructure funding, and its emphasis on intermittent renewables alongside nuclear may perpetuate some of the energy cost issues highlighted.

 

Source material

• Foundations why Britain has stagnated by Ben Southwood Samuel Hughes and Sam Bowman 2024
• The UK's Modern Industrial Strategy Presented to Parliament by the Secretary of State for Business and Trade by Command of His Majesty Department for Business and Trade June 2025