By: Andrew Hodge, Samuel Pienknagura
A key challenge facing the UK is to increase growth, which has slowed down markedly since the Global Financial Crisis. As part of the government's approach to this challenge, a new industrial strategy was published in June 2025. This paper discusses how to get the implementation of UK Industrial Policy (IP) right, to unlock its potential benefits while navigating the risks involved. IP has some potential to catalyze new investment and economic activity in key sectors, but the bar for getting it right is high. IP will only enhance productivity if well-targeted at overcoming market failures and the scale of IP is not too large, so as to mitigate potential distortions that it might introduce. Targeting IP is difficult because market failures are hard to identify, so an evidence-based approach is best, using quantitative metrics, as discussed in this paper. Monitoring the implementation of IP programs over time, using performance benchmarks to unlock continued funding, is important for ensuring IP's effectiveness and to limit fiscal costs. While IP can be a useful tool, horizontal policies and structural reforms, particularly in planning, skills and infrastructure remain the primary vehicles to lift UK productivity and are prerequisites for vertical IP interventions to be successful. The extent of what can be achieved with IP is also likely to be curtailed by the limited space for additional public spending, given high debt and interest costs.
