Government doubles down on Britain’s strength as a services superpower in its new industrial strategy

The Government’s new industrial strategy – which identifies eight priority sectors for the UK – has doubled down on leveraging Britain’s strengths as a services superpower, and offers a huge opportunity to boost growth in major cities, the Resolution Foundation said today (Monday) in response to the Industrial Strategy Green Paper.

The Green Paper identifies eight priority sectors for a new industrial strategy: advanced manufacturing; clean energy industries; creative industries; defence; digital and technologies; financial services; life sciences; and professional and business services.

This represents a major pivot compared to the UK’s previous industrial strategy – the 2021 Build Back Better plan, led by then Prime Minister Boris Johnson – as it explicitly identifies priority sectors, rather than thematic areas like innovation. The four services sectors identified in the Green Paper alone account for a quarter of the UK’s overall economy (25.6 per cent of UK GVA).

The Foundation says this pivot towards services represents a welcome, and long overdue, recognition of Britain’s economic strengths. Last year it was the biggest exporter of services in the world after the US.

These strengths should be leveraged in both domestic and international policy, given that in the year to date 2024 the UK’s services exports are up 17 per cent compared to the year to August 2019 levels (at the same time that we saw a 15 per cent fall in goods exports).

Furthermore, the UK already enjoys a comparative advantage over its international peers in five of the sectors identified (creative industries; defence; digital and technologies; financial services; and professional and business services) so is well-placed to build on them.

Doubling down on services sectors is likely to mean that the UK’s economic strategy is more city-focused than previous industrial strategies (although the UK advanced manufacturing, clean energy, life sciences and defence sectors are spread throughout the country). This is a huge opportunity to boost productivity outside of the capital, given that all of England’s major cities outside London currently have productivity levels below the national average.

The challenge now is to see this new Industrial Strategy delivered in policy terms, with the upcoming Budget the perfect opportunity to show how Britain is investing in its priority sectors, and the cities in which they tend to be based.

However, the Foundation says that for this industrial strategy to be successful, the Government will need to make progress across other policy areas too. More affordable housing, better connected public transport and a greater provision of level 4 skills will all be needed for cities, and the firms they want to attract, to thrive.

Greg Thwaites, Research Director at the Resolution Foundation, said:

“In setting out the terms of its new industrial strategy, the new Government has doubled down on Britain’s strength as a services superpower – with UK firms exporting more services to the rest of the world than any other country bar the US.

“This doubling down on services is a welcome recognition of where Britain’s strength lie, and offers a huge opportunity for Britain’s currently under-performing major cities to excel, as this is where service sector firms tend to base themselves.

“But for this industrial strategy to succeed, the Government will need to deliver on other fronts too. The Government must also deliver the new homes, better connected transport, and greater skills provision that our great cities need to thrive.”