Why the UK’s modern Industrial Strategy should prioritise the chemical industry
The clock is ticking on the UK’s status as an attractive and competitive location for future manufacturing investments and jobs. The Government’s ‘Invest 2035’ industrial strategy is an opportunity to prioritise the chemical sector and recognise its contributions to UK growth. With around 95% of all manufactured goods containing chemicals, it is difficult to imagine a modern economy without a thriving chemical industry.
Despite our critical contributions, the chemical sector is not directly mentioned in the Government’s eight priority growth sectors, making it easy for our importance to be overlooked. However, the sector’s role in enabling clean energy innovations, advanced manufacturing processes, life sciences, and defence capabilities cannot be understated. Our contributions demand recognition as a foundation industry that is helping to tackle the biggest challenges of our time, from climate change to health to sustainability.
The chemical sector is perhaps uniquely placed to support the new Government’s stated missions of driving economic growth and becoming a clean energy superpower, and is fundamental to the UK economy in three main ways.
The direct contributions of the sector and its economic impact
Our sector directly employs 138,000 people with salaries 21% higher than the manufacturing average and 27% higher than the economic average. Beyond these direct roles, half a million additional jobs depend on the sector, often in part of the country that need those jobs more. Thanks to the high value of our products, our gross value added per employee is also strongly above manufacturing average. Moreover, we are the second sector for value of exported goods making up 15% of all UK exports and generating £61bn in 2023.
For the UK to retain its competitiveness, the Chemical Industries Association (CIA) has called for an industrial strategy that creates an attractive investment environment. Many of the UK’s chemical production hubs are located in regions outside urban centres, primarily in the North and Midlands. Supporting these industries not only provides a strong domestic manufacturing base but also aligns with the government’s agenda for growth, addressing economic disparities and creating jobs in areas that often face underinvestment.
Ensuring security and resilience for critical infrastructure
UK chemical businesses not only make a substantial macro-economic contribution in terms of turnover, trade, and the creation of highly skilled and well-rewarded jobs but also underpin much of our critical national infrastructure.
A study from Petrochemicals Europe1 shows that chemicals are present in over 95% of all manufactured goods. Additionally, data from input-output tables from the ONS show that over 43% of UK chemicals are purchased by other manufacturing sectors making us an essential component in ensuring secure and resilient supply chains.
So, how does the chemical industry support essential systems across defence, energy, health, and water.
Defence - Some of the compounds produced in the UK and essential for the UK defence infrastructure include ammonium nitrate and nitrocellulose which are key raw materials used in the formulation of explosives, whilst carbon fibres are increasingly being used in aircraft manufacturing.
Energy - Chemical businesses are at the core of research around the production of green and blue hydrogen as well as producing key materials for solar panels, wind turbines, and energy storage/transportation.
Health - Modern health systems are based on the use of chemicals both within pharmaceutical products and healthcare goods. We provide key ingredients for pharmaceuticals (including the COVID vaccine), hydrogen peroxide used in sanitisers, latex for surgical gloves, and chemicals used in laboratory testing.
Water - Water treatment facilities rely on the use of chemicals for coagulation, flocculation, and disinfection processes key to water purification. Some of the chemicals used in these processes are: chlorine, chloramine, aluminium salt and iron salt2.
Chemicals at the Core of the Energy Transition
UK chemical business, as well as providing materials crucial for any type of manufactured good, also play a role in providing materials for the net zero transition. For example, it contributes to sustainable transport through advanced batteries, biofuels like E10, synthetic e-fuels, and lightweight materials for road vehicles, methanol and low-carbon ammonia for shipping, and sustainable aviation fuels and hydrogen for aviation. In power generation, it supplies materials for solar panels, wind turbine blades, carbon capture technologies for gas and biomass power stations. Additionally, the sector supports energy storage with batteries and hydrogen and improves building efficiency through heat pumps, insulation, and double glazing. These are only a few examples.
The nature of the chemical industry is cyclical but since 2022 we have lost 21.5% of our global market share and we are seeing some restructuring in the country and on the European continent. The main driver behind this shrinking trend of our industry resides in the competitiveness of the UK compared to other regions.
The CIA identified the main factors driving this relative disadvantage of conducting business in the UK compared to other regions. The UK chemical industry faces significant challenges due to uncompetitive feedstock prices and supply. Analysis from the Department for Energy Security and Net Zero (DESNZ3) shows that in 2023 UK industrial electricity prices were 43% above the International Energy Agency (IEA) average and about 4 times higher than in the US. Industrial gas prices in the UK are slightly more competitive, being 7% lower than the IEA average, but remain 4 times higher than in the US. Compounding these issues are global competition for investment coupled with divergence from a level playing field in terms of government support for industries, higher operating costs related to labour and raw materials as well as regulation and taxation (employment and business rates).
The Government’s ambitions for economic growth, environmental progress and social inclusion over the next decade will largely depend on key foundational sectors such as the chemical industry.
Failing to support the chemical sector would mean missing out on the adoption of transformative technologies and the growth opportunities they provide. By supporting this foundational industry, the Government can drive innovation, sustainability and secure the economic growth needed to achieve its long-term ambitions.
References
- Available at: https://www.petrochemistry.eu/wp-content/uploads/2023/08/Petrochemistry-FlowChart_V102023_HQ-withoutFolds-1.pdf
- How Water Treatment Works; Centre for Disease control and prevention. Available at: https://www.cdc.gov/drinking-water/about/how-water-treatment-works.html?CDC_AAref_Val=https://www.cdc.gov/healthywater/drinking/public/water_treatment.html
- These figures come from the latest release (26 September 2024) of ‘International industrial energy prices’ from the Department for Energy Security and Net Zero and refer to prices including taxes. Available at: International industrial energy prices - GOV.UK
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