Reversing the decline and revitalising UK industry

This spring will see the launch of Cambridge Industrial Innovation Policy’s (CIIP) fifth UK Innovation Report, an annual publication designed to facilitate policy discussions on innovation and industrial performance – and the interplay between them. The Manufacturer spoke to one of its authors, Dr Carlos López-Gómez, to discuss some of the themes in the 2025 edition.

In the context of the government’s new Industrial Strategy, this year’s report provides a decade-long view of UK manufacturing competitiveness, benchmarking key sectors against leading economies.

A key focus of the study is to provide a rich picture of where key UK industries are in terms of competitiveness, and as Carlos stressed, improving this position needs to be at the heart of the Industrial Strategy.

“A successful Industrial Strategy cannot be achieved without improving the competitive position of UK industry on the international stage and is vital to achieve more industrial jobs and activity. That’s part of the reason that we’re not focusing on specific sectors this year, but rather, giving a big picture of UK industries in general,” he said.

Carlos also added that, while there are numerous R&D themed reports out there, most focus purely around science and innovation. What the CIIP Innovation Report tries to do differently is to connect this type of research with industry and bring R&D and industrial performance together as one.

He continued: “We’re very pleased that the report is quoted in the Industrial Strategy and we have also had invitations to present some of our findings to different parts of government and industry associations, so it’s clearly become a useful tool for discussions.”

Learnings from the past

A key message emerging from the previous editions of the report is that the UK has two parallel worlds that coexist. On one hand, the UK is a global leader in scientific research and innovation; ranked number one in the world for research quality (as measured by citation impact) and number three in research output (as measured by the share of total world publications). It is number two for the number of Nobel Prize winning scientists and the UK has three of the top ten universities in the world.

In addition, the UK’s strengths are not only in scientific research. This is the only country in Europe with a technology sector worth over $1tn. The UK is number two in the world for investment in university spin-out companies (after the US), and is number four in the world for the number of ‘tech unicorns’ (i.e. start-up firms valued at over $1bn).

On the other hand, the UK’s industrial sectors are facing significant challenges, foremost of which is losing competitiveness globally. The 2025 report looks at ten advanced industries, including motor vehicles, pharmaceuticals, chemicals, machine equipment, electrical equipment and computers. Worryingly, the UK’s global market share has dropped by nearly half since the turn of the century – from four per cent in 2000 to just over two per cent in 2020.

In addition, manufacturing value-added has declined from 16% GDP (in 1990 – which placed the UK in line with the global average) to around eight per cent (2022), with over 300,000 manufacturing jobs lost in the last ten years.

So globally, UK industries are declining in competitiveness. Fewer people are working in high value-added manufacturing, with that figure already being sizably lower than in competing countries, despite all the excellent research in some of these areas.

“As we have discussed in detail in previous editions of the UK Innovation Report, these high quality, high wage roles are being replaced in many UK regions, by low value-added jobs across retail, hospitality and delivery services etc,” Carlos added.

“And, we must remember, only two per cent of London’s GDP is from manufacturing. A job gained in finance is most likely a job gained in the capital. However, a job lost in manufacturing is likely to be a job lost in the regions. This is worrying and the Industrial Strategy should have a clear goal of counteracting this trend of competitive decline.”

Value translation

The UK has historically been a leader in research and at developing its education sector through its leading universities. Therefore, the UK has always been a popular place to come and study for foreign nationals. As such, it is a magnet for talent, and has also traditionally been successful in attracting international funding.

However, the truth is that this is not necessarily translating into economic value capture through industrial activity in the UK. One of the reasons might be the difficulty in finding industrial users for the research in the context of dwindling industrial activity.

Some sectors, like aerospace and automotive, still have a strong presence in the UK. So the primes have the capacity to absorb this knowledge and actually fund research projects. However, as the industrial base is eroding, fewer companies are able to do this, creating a disconnect and a situation where industrial wants and needs are not being met.

“If we erode our industrial base, we erode our capability to capture value from this amazing research resource we have in the UK. This country is very unique in being a relatively small economy, but with excellent research capability, know-how, investments and infrastructure. However, we’re currently missing that vital link.”

Several economists have questioned the notion that a country cannot develop without a strong manufacturing base; dubbing this commonly held belief as ‘the manufacturing delusion’ or ‘manufacturing fetishism’. This cites that manufacturing is a small part of the economy, not because we don’t produce as much as we used to, but because what we do produce is of increasingly low value, because of productivity growth.

However, Carlos added that recent global uncertainty has shown the strategic value of manufacturing across a variety of countries when it comes to resilience and national security. Many economies are looking at their industrial strategies alongside security concerns. For example, having a minimum capacity to produce medicines; ensuring food supply chains are not disrupted in the event of a war or pandemic; and establishing collaborations with partner countries to secure materials and minerals.

“Many countries have now realised that one of the reasons manufacturing is so important is because in emergencies, we need to have a minimum production capacity,” said Carlos. “The world is unstable and we need to secure our supply chains to ensure a certain level of production of so-called critical goods and infrastructure.

“That’s why other economies are prioritising manufacturing around the world. Let’s not forget that countries like Japan, Singapore, Korea and China, are all setting up targets of how much their manufacturing industries need to grow in order for them to be successful, wealthy and secure.”

Indeed, the team at CIIP responded to the questioning of manufacturing’s economic value by stating: ‘There is a manufacturing delusion, but it does not stem from succumbing to a manufacturing fetishism. Rather, it comes from a failure to grasp the vital but evolving role that manufacturing plays as part of any wellbalanced economy.’

Healthy competition

There is still a widely-held perception around the world that there’s no manufacturing left in the UK. Of course, that is not true, as Carlos highlighted: “There are still many pockets of excellence in the UK, and our report shows some of that data.

“The UK is still the eighth largest manufacturing nation and is a significant player within the aerospace and automotive sectors. Plus, the UK life sciences sector invested over £5bn in R&D in 2020, accounting for 11% of total UK R&D spend.

“There’s also niches of specialisation. For example, we found out in the report that the UK is the largest European manufacturer of construction equipment – more than Germany – and is a leading producer of high-end equipment in areas such as metrology, medical devices and biopharma.”

The key to reversing the decline

However, Carlos also pointed out that there are reasons to be concerned, as evidenced by the drop in the UK’s global market share mentioned earlier. Using and exploiting the UK’s leadership in research and innovation is key to addressing this slide, and Carlos stressed that bringing the two worlds of R&D and industry together should be the centrepiece of the Industrial Strategy; doing so will represent a huge opportunity.

“China’s strategy around how they can be world leading is focused on the need to build a research and innovation base, so the direction of travel for them is clear for all to see.

“So, making good use of the resources available is certainly important. However, there are also issues around what the government can do in terms of market access and how they respond to potential tariffs, for example, with the new US administration.”

The Industrial Strategy’s green paper, published last year, rightly identifies the potential of sector plans to support policy development and prioritisation. And Carlos added that the strategies that come out of those sector plans will be vital as they will be specific to how each sector is going to increase competitiveness.

Some will focus on innovation, some on investment, while others will look more closely at labour shortages. So, each plan will vary from sector to sector. “Set to be released alongside the final Industrial Strategy in spring 2025, the sector plans offer a historic opportunity to reverse the decline of UK industries,” Carlos continued.

“At the highest level, it’s about connecting industry with this great scientific base in the UK, having a clear view of how to play internationally, and bringing together forces through the sector plans and ensuring that government, industry associations and the private sector have a leading role to play.”

IfM’s new live data dashboard

To complement the findings of the report, Cambridge Industrial Innovation Policy has recently launched its UK Manufacturing Dashboard, which provides essential insights into the status of UK manufacturing, aiding strategic decision-making and policy development. With carefully selected indicators, it highlights manufacturing’s impact on the national economy and compares its performance on a global scale.

Carlos added: “The UK Innovation Report obviously gives the reader a picture of what’s going on in industry, but we wanted to have something live that tells you where the UK is. The dashboard also includes longer time periods.”

The dashboard serves to highlight the importance of manufacturing in the national economy, comparing the global scale, analysing competitiveness and how it compares to other countries. It paints the big picture of how manufacturing is performing with the most up to date data possible and our team of specialists is consulting with the Office for National Statistics (ONS) in order to achieve this. Importantly, it highlights the key problems that the Industrial Strategy needs to address.

“We believe, with the existing capabilities that still remain in this sector, the niches of specialisation and pockets of excellence, the UK has a great resource on which to build. We now have to connect those pocket of excellence with the science and research base, and with the UK’s engineering capacity,” added Carlos.

The UK Innovation Report 2025 launched on 20 March and can be downloaded at: https://www.ciip.group.cam.ac.uk/uk-innovation-report/