“Quo vadis” for the foundational industries in the UK
Daphne Vlastari, Head of Communications and Government Relations, UK & Ireland
| BASF
With the launch of its ‘Invest 2035’ industrial strategy, the UK government must prioritise foundational industries like chemicals to bolster supply chain resilience and boost economic growth. While often overlooked, these industries underpin the growth-driving sectors.
Just after hitting the 100 days milestone, the UK government published its Green Paper ‘Invest 2035: the UK’s modern industrial strategy’. Since then, many welcome aspects of the strategy have dominated discussions, such as the strategy’s long-term perspective, the eight growth-driving sectors, the place-based approach, the focus on regulatory reform, and links to both the trade strategy and the spending review.
One aspect that deserves greater attention is the reference to foundational industries, brief as it may have been. Despite the Green Paper acknowledging that there are ‘critical dependencies’ on foundational industries, this aspect of the growth puzzle is often overlooked. But the reality is that developing credible sector plans for the growth-driving sectors cannot be done without understanding the relevant value chains that support them and developing a plan for their future.
Unpacking critical dependencies on the ‘foundational’ sectors
Traditionally, the foundational sectors include metals, ceramics, glass, chemicals, paper and cement. They are all critically important to many aspects of the economy, but they should not be treated as a monolith. They are diverse in terms of output and the value chains they support but also in terms of the UK’s competitive advantage and industrial footprint.
Take chemicals as an example, a sector with some of the most complex and at the same time prevalent value chains supporting most industries. In recent years, some trends have become more pronounced: while the UK has long relied on EU trade, dependency on imports is now increasing, with the UK becoming less self-sufficient when it comes to chemicals needed to support the domestic manufacturing sector. The UK chemicals trade body, the CIA, recently published a report highlighting that UK chemical production has declined by over 25 per cent since pre-pandemic levels. The national picture and underlying factors may look very different for other foundational sectors.
A tailored approach for the foundational sectors is therefore needed. On the one hand, to address specific regulatory barriers and create a more enabling business environment to optimise how these sectors operate today and safeguard jobs. On the other hand, to outline how the foundational sectors can contribute to the growth mission: prioritising sub-sectors needs to be underpinned by a value chain assessment of their dependencies on specific foundational sectors and a vision for addressing those in line with the government’s stated ambition to ‘reduce supply chain and other vulnerabilities in growth-driving sectors which could harm their long-term growth or ability to deliver critical outputs.’
Delivering a vision for the chemicals sector
Chemical value chains provide solutions for the majority of the identified growth sectors including advanced manufacturing, clean energy technologies, life sciences and defence. Given the sector’s cross-cutting contribution, it is hard to imagine how we can develop a meaningful Industrial Strategy and sector plans without a vision for chemicals and relevant chemical value chains that will matter for UK growth.
It is indicative of the importance of the sector that in Germany the Chancellor has set up a series of meetings with key industries including chemicals to address competitiveness challenges, whereas from Ireland to Greece national chemical transition pathways are being developed highlighting priority areas for reaching net-zero. The new European Commission has also committed to a Clean Industrial Deal within 100 days of coming into office, including a specific package for the chemicals industry.
Acknowledging the contribution of the sector and the challenges it faces as part of the Industrial Strategy would be a unique opportunity to provide the sector with clarity and confirm the government’s commitment to addressing several long-standing industry concerns, including regulatory barriers. This is a critical topic for the sector, not least given the highly complex, integrated and cross-border nature of chemical supply chains and the number of technologies needed to meet net-zero ambitions.
Missing out on a clear view of the chemicals sector would also mean missing out on the deployment of new technologies – and by extension the growth opportunities they provide – which both the UK government and businesses have supported in recent years. Two examples of where BASF is involved: the first is through EPSRC’s prosperity partnership programme where BASF and Imperial are leading a consortium to advance innovative chemical manufacturing technologies that would help contribute towards net-zero and supply chain resilience, particularly for high-value chemicals such as pharmaceuticals and agrochemicals. The second is Flue2Chem, where through Innovate UK funding, a consortium of global product manufacturers, chemical companies, academics and others have come together to explore how an alternative source of carbon – captured carbon – can be used instead of virgin fossil fuel for manufacturing consumer products. R&D projects such as these hold significant growth potential, but their deployment would depend on the Industrial Strategy providing a vision for the future of such technologies in the UK.
Developing an iterative process with co-creation at its heart
The Secretary of State has committed to a process of co-creation for developing the Industrial Strategy. Given the complexity of sectors like chemicals, this process also needs to be an iterative one to build on, refine and progress on identified priorities. This will require ongoing engagement with particular sectors so establishing the right mechanisms for doing so and supporting delivery will be just as important ahead of and after spring 2025.
Given how central the Industrial Strategy is to the growth mission, it should not be a surprise that it has generated high expectations, particularly for manufacturing industries. Taking a step back and looking at the broader government priorities, it is also clear that not all policy changes will be delivered through this document alone. For example, the Green Paper highlights the links to net-zero and the circular economy, but policy detail for capturing growth opportunities around industrial decarbonisation or circularity can also be delivered through separate documents.
However, as the Industrial Strategy and sector plans will be the golden thread that binds forthcoming policies together setting out priority areas of action, most sectors, including chemicals, will be looking at those flagship policy documents for a sense of direction regarding the future of their industry in the UK.
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