CBI analysis: The Modern Industrial Strategy

Supporting the UK’s nations, city regions, and economic clusters

The Strategy includes targeted investment in high-potential areas, including economic clusters and growth corridors, to unlock regional growth and productivity. This will bring together Freeports and Investment Zones developed under the previous government, alongside newly identified growth zones.

It was made clear that the Industrial Strategy is “Unashamedly place-based” recognising economic clusters are distributed across the UK and that the Strategy will focus on those city regions with the highest growth potential.

Boost to place-based investment funds

Several place-based investment funds were announced, including a £600m Strategic Sites Accelerator, one of the recommendations in the Harrington Review strongly supported by the CBI. The strategy mentions a new £500m Mayoral Recyclable Growth Fund for mayors in the Midlands and the North who already have an integrated funding settlement to break down access to finance barriers for growth opportunities by providing patient capital. This aligns with recommendations in the CBI Growth Engines report and, alongside proposed changes to the role of the National Wealth Fund and the British Business Bank, could play a key role in bridging the so-called ‘Valley of Death’ for firms with scale-up potential.

Enhanced Industrial Strategy Zones to supercharge regional growth

The government announced enhanced Industrial Strategy Zones, that would incorporate the previous government’s Freeports and Investment Zone initiatives, continuing earlier policies including streamlined planning processes, support for accessing concessionary finance, and coordinated support on skills. This is a continuation of the ask the CBI made under the last government. The paper announced intentions to establish new AI Growth Zones across the UK with support for planning approvals, access to energy and partnerships with private sector. Collectively these interventions will send strong market signals that the UK is open to investment, clearing the pathway of bureaucratic hurdles – such as planning and grid connectivity – that have historically acted as an anchor on growth.

British Business Bank support and investment across cities in the regions and nations

Regional productivity inequality across the UK remains challenging, and the Strategy looks to support by boosting capabilities for city regions to attract investment through partnerships with the British Business Bank’s (BBB) new locally based Clusters Champions programme in seven English city regions – alongside Cardiff, Belfast, and Glasgow. BBB Industrial Strategy Growth Capital will be invested through existing capabilities across eight growth-driving sectors (the ‘IS-8’ sectors): advanced manufacturing, clean energy industries, creative industries, defence, digital and technologies, financial services, life sciences, and professional and business services – crowding in around £12bn of private capital.

Alongside new cluster champions, the BBB will benefit from an additional £350m to the Nations and Regions Investment Fund, covering the Southeast and East of England subregions, where investment capital in smaller towns, especially rural and coastal locations, is as challenging to raise as it is in the midlands and the north. This was an ask in the CBI’s 2024 budget submission.

Backing national growth clusters

The strategy identifies economic clusters with growth potential, aligned to the IS-8, the UK’s growth-driving sectors - across all English regions and devolved nations. This includes Welsh advanced manufacturing capabilities in semiconductors, Scottish strengths in clean energy and life sciences, and creative industries in Northern Ireland. The CBI has long championed the power of economic clusters, driving innovation, attracting investment, and boosting productivity by bringing together businesses, talent, and infrastructure in high-growth sectors. The Industrial Strategy supports the promotion of these opportunities on the world stage.

Backing the frontier industries that underpin growth

The Strategy indicates a focus on the IS-8 sectors, such as life sciences or creative industries, with a subset of ‘frontier industries’, such as pharmaceuticals, medtech, film production, and gaming technology. The CBI called for the government to use a strong data-led methodology to identify genuine economic strengths and growth potential within the IS-8 across nations and regions and not risk reliance on outdated SIC codes. It was felt this would allow the government to be sufficiently choiceful. It has rightly identified a small number of sub-sectors within each of the growth sectors, linking together with the place agenda we called for. The IS-8 are distributed across the UK meaning successful delivery will drive economic growth and prosperity, raising productivity, living standards, and investment.

Providing business confidence through resilient supply chains

The strategy emphasises the critical need for resilient supply chains in the face of rising geopolitical instability, climate change, and economic volatility. These factors have highlighted the vulnerabilities in global supply chains, making resilience a top priority.

The UK government has set out commitments to invest in critical supply chains and national security capabilities. This includes increasing

Given that the defence sector is distributed across the UK, it’s anticipated that this investment will be felt in all nations and regions.

Foundational sectors acknowledged as lynch pins of economic growth

The strategy is clear that the IS-8 cannot grow without resilient supply chains and strongly acknowledges the role the foundational sectors play in delivering this. Construction, critical minerals, chemicals, composites, clean energy, energy networks, materials, ports and steel have all been named as those providing the essential inputs and infrastructure needed for growth, meaning that they will benefit from government interventions in tackling high energy prices. The CBI championed foundational sectors throughout the consultation to keep these essential sectors front and centre in the mind of government in driving nationally inclusive, resilient growth.

The Industrial Strategy sets out ambitions for the government to be more deliberate in how it uses its purchasing power to invest in the UK’s most strategically important industries. This addresses a long-standing business challenge: the underutilisation of public procurement as a tool for driving innovation and strengthening domestic supply chains. By creating demand for cutting-edge products and services through government contracts, the strategy aims to boost UK competitiveness and reduce reliance on imports. This aligns closely with the CBI’s response to the National Procurement Policy Statement, which calls for procurement to be a catalyst for economic growth.

The government will also simplify The Green Book guidance and introduce ‘place-based business cases’ that evaluate interconnected projects—such as transport, housing, and commercial development—within a single locality. This integrated approach tackles the inefficiencies of fragmented investment and supports more coherent regional growth.

Additionally, the increased use of ‘blended finance’ mechanisms, including through the National Wealth Fund, will help overcome market failures, de-risk private investment, and shape incentives in sectors critical to the UK’s future. Together, these measures aim to unlock private capital, accelerate innovation, and deliver more strategic, impactful public investment.

Record investment and ten-year budgets for key R&D programmes

There’s a clear recognition that innovation is central to growth, for the economy and for firms right across sectors. More so than in previous strategies, this Industrial Strategy has a greater focus on measures to support UK businesses go from idea to value faster and more frequently. It also recognises the role of government in accelerating adoption of technology.

Many of the actions set out in the Industrial Strategy were announced as part of the Spending Review, including £86bn over five years for R&D and £2bn to ‘deliver the AI Opportunities Action Plan in full’.

As announced in the Spending Review, the headline £86bn R&D budget to 2029/30 is slightly above inflation increase. This falls far short of the CBI’s call for ambitious investment, but is a significant settlement in the current context. As long called for by the CBI, ten-year budgets were announced for key R&D programmes, including the Aerospace Technologies Institute and National Quantum Computing Centre, giving confidence for businesses to invest alongside government in key technologies for the long term. The Strategy also announced a welcome new Global Talent Taskforce and Fund to attract ten top researchers and their teams to the UK.

Investment in AI and data

The Strategy reiterated the £2bn allocated at Spending Review for implementation of the AI Opportunities Action Plan. This is very welcome but will be spread across a wide range of actions including expanding compute capacity, supporting UK AI firms to scale, and investment in AI skills. There were some further details set out on actions to increase AI skills, including establishment of Sparck Masters AI Fellowships, the TechFirst AI skills programme, and the introduction of short courses funded by the Growth and Skills Levy in digital, AI, and engineering. Government will need to work with industry to deliver these skills programmes at pace, and in a way that effectively equips workers with the skills businesses need to scale and grow.

The Strategy also recommits to the National Data Library initiative, backed by £100m in funding, alongside further measures to clarify and improve access to and use of public data, including a Data Valuation Framework and £12m for Data Sharing Infrastructure initiatives. Businesses will be keen to see further details on these schemes to understand how they can engage with and use these resources effectively.

Resilient supply chains and foundational sectors

While the government is right to name eight foundational sectors as vital to delivering growth in the IS-8, we feel they should have included airports (vital for trade in services), logistics (who make the supply chains function) and agriculture (vital for food security). Since they aren’t included, they may miss out on targeted support, especially for skills and Apprentice Levy flexibility.

Infrastructure and connectivity

There was nothing new or additional on improving the capacity or resources of Local Planning Authorities, which is essential to speed up the planning system.

Public-private partnerships and procurement

There remains a need to introduce mechanisms to foster continuous, clear dialogue between public and private sectors throughout the contract lifecycle, enabling early risk detection and smoother delivery.

The UK is at a moment of opportunity. If regions are to thrive, public-private collaboration must become faster, deeper, and more strategic. To make regional Public Private Partnerships (PPPs) work for business, five actions are needed:

1. Mayoral Strategic Authorities (MSAs) must embed PPPs delivery into their regional strategies, backed by clear governance.
2. Regional investment pipelines should mirror NISTA’s model – digital, transparent, and investor-focused.
3. Central government should support capability-building for regional PPPs delivery.
4. DBT should work with MSAs to promote regional pipelines to global investors.
5. NISTA should offer consistent standards, data and tools to help MSAs derisk and deliver projects.

Supporting English devolved regions

The English Devolution Bill is expected to be laid before parliament in July. This follows the publication in December 2024 of the English Devolution White Paper, which sets out ambitions to transfer more power and responsibilities to Mayoral Strategic Authorities – and in so doing give those regions direct powers to deliver the government’s growth mission.

Infrastructure and connectivity

Work is being undertaken through the ten-year infrastructure strategy to launch a new dynamic infrastructure pipeline in July 2025. This will provide industry with transparency and clarity on long-term infrastructure planning. Legislative changes are being taken through in the Planning and Infrastructure Bill to ensure planning supports the development of infrastructure in the IS-8 like gigafactories, datacentres, and entertainment studios.

Public-private partnerships and procurement

The government will consult on additional primary legislation on procurement. The CBI will convene the government as a partner steering group to draft a response from members to this legislation. To join this steering group or input your ideas, please contact Nicky Williams.

The Growth and Skills Levy made more flexible

The Industrial Strategy embeds greater levels of flexibility into the new Growth and Skills Levy by extending out the list of training it covers to include non-apprenticeship short courses in AI, digital, and engineering from April 2026.  Offering a broader range of training funded via the Levy has been a longstanding CBI policy ask.  Skills England will determine which courses will be prioritised in the first wave of the rollout, informed by the Industrial Strategy. No further details on delivery timelines or funding for eligible short courses have been provided.

Further funding for education providers

Channelled through the Skills Mission Fund, £200m will be allocated for further education providers in England to invest in new facilities, equipment, technical qualification and collaboration with other training providers and employers – including expanding technical excellence colleges beyond construction.

The Lifelong Learning Entitlement (LLE) launching in January 2027 will enable individuals to learn, upskill, and retrain across their working lives. The first modular courses for approval will support progression into the eight IS priority sectors.

The Adult Skills Fund continues to target local skills needs through various mechanisms, including Skills Bootcamps, Sector-based Work Academy Programmes, and Free Courses for Jobs. These programmes are designed to provide pathways into the priority sectors while addressing regional economic needs.

The Industrial Strategy commits to £1.2bn additional investment in skills per year by 2028/29. However, it’s unclear how much of this is new money versus funding reallocated from existing departmental budgets or re-prioritisation of existing funds towards young people.

Apprenticeship Levy reform needs to go further and faster
Though the government has delivered on our ask to extend the Levy out to include non-apprenticeship training in some areas (digital, AI, and engineering), more detailed guidance about when further changes will come into effect and what courses will be eligible is needed.

Immigration skills charge unresolved
Concerns remain about how the 32% increase to the Immigration Skills Charge (ISC) announced in the Immigration White Paper will impact businesses’ ability to invest and address their shortages which cannot be solved by the domestic workforce. At a minimum, we would expect a commitment to allocate the full amount of funds raised through both the ISC and the Apprenticeship/Growth and Skills Levy to be invested in skills and training initiatives.

Technology adoption is rightly on the radar, but businesses were expecting a more coherent plan

The expansion of Made Smarter to professional and business services, announcement of an AI Adoption Fund, and plans for robotics adoption hubs signal recognition of the importance of accelerating technology adoption for growth. But government could move much further and faster in this space – ensuring businesses across the economy can access support and expertise to adopt new tech. The signal that government will increase coordination of technology adoption policy is welcome, as the CBI has long called for a cross-government National Technology Adoption Plan, but we now need a mechanism in government to take this forward with permission, purpose, and accountability.

Continue to push for meaningful Levy reform

We’ll continue to push for a more ambitious approach to Levy reform, including a roadmap to achieving full Levy flexibility that enables businesses to effectively train their workforces to meet business needs and deliver tomorrow’s workforce. This involves calling for a long-term strategy to reduce pressure on the apprenticeship budget in England by funding SME provision from outside of the Levy, which will help increase the financial headroom for greater levels of non-apprenticeship flexibility. We will also push for the full funding raised through the Immigration Skills Charge to support the cost of skills and training, and particularly greater levels of short-term Levy flexibility, in our conversations with government.

Develop the evidence base on how greater levels of Levy flexibility can support productivity-led growth

We’re collecting case studies from businesses on how rigidity in the Levy is affecting training investments, and how the ability to use the Levy to invest in a wider range of quality, non-apprenticeship training can help businesses to develop people and skills. If you would like to support this, please contact Robert West.

The British Industrial Competitiveness Scheme

The Strategy outlined reducing industrial electricity costs and accelerating grid connections to enhance competitiveness. Through the new British Industrial Competitiveness Scheme – open from 2027, manufacturers and foundational industries in eight high-growth sectors will be exempt from the Renewables Obligation, Feed-in Tariffs, and Capacity Market levies. Eligibility is subject to consultation.

It is widely recognised that the UK Is an outlier when it comes to energy costs and the impact on our competitiveness. The CBI strongly advocated for the government to consider a solution that particularly supports energy intensive sectors, one that will not add additional costs for other businesses.

Uplifts to the British Industry Supercharger

The CBI asked for support for energy intensives through the British Industry Supercharger uplift. The Strategy indicated that compensation for network charges will rise from 60% to 90% for eligible energy-intensive businesses. The Energy Intensive Industries Compensation Scheme – which supports industrial decarbonisation and energy efficiency – will continue, with a review due later this year.

New Connections Accelerator Service

On behalf of our members, we’ve long called for the principle of speeded up grid connections. The New Connections Accelerator Service is intended to speed-up grid connectivity for strategically important demand-side projects and extends connection reform already underway for generator projects. Extensive consultation will be required to determine accelerator prioritisation criteria.  

Support for low-carbon energy projects, including offshore wind, nuclear power, and hydrogen technologies

‘Frontier’ clean energy industries were prioritised. These technologies are considered to have the greatest growth potential: Wind (Onshore, Offshore and Floating Offshore), Nuclear Fission, Fusion Energy, Carbon Capture Usage. Sector-specific reforms focused on speeding project delivery.

£1bn of Great British Energy’s (GBE) allocation will support a new Clean Energy Supply Chain Fund. Alongside the existing National Wealth Fund, GBE, and British Business Bank allocations, climate technology is eligible for scale-up funding under the new £4bn Industrial Strategy Growth Capital Fund. Significant detail is needed to determine how funding mechanisms will deliver.

Support for electricity networks

Alongside ongoing reforms, a new Market Demand Guarantee is being considered to stimulate domestic production of key electricity network equipment. This would speed the build-out of transmission infrastructure required for most low-carbon energy projects.

Electricity prices continue to be a barrier to decarbonisation

In the sectors outside the high-growth industries, electricity prices continue to be a barrier. These include transport, industrial processing, and the built environment – which require significant decarbonisation support to meet the UK’s pathway to net zero. The Climate Change Committee, CBI and other business organisations have suggested that electricity costs are cheaper for all businesses.

Clarity for CCUS and hydrogen projects to progress

There was no timetable for progressing track-1 projects and future allocations in track-2. A lack of clarity around the future of the business hydrogen model (HAR) also remains. These will be key outcomes for the Autumn Budget.

Uncertainty around UK CBAM
Plans to introduce a Carbon Border Adjustment Mechanism in 2027 lack detail, which could unsettle exporters.

Key decisions to determine investment in the low-carbon sector remain outstanding

The government is due to confirm how electricity markets will be reformed this summer, and which renewables projects will be supported in the next (AR7) auction round.

Economy-wide decarbonisation requires greater focus on demand-side policy frameworks

The CBI is supporting the development of the government’s Carbon Budget Delivery Plan, due this Autumn.  

Simplifying regulation

The Strategy reflected an ambition to cut the administrative cost of regulation for businesses by 25%, including the creation of a new unit in the Treasury to challenge unnecessary regulation.
The government intends to streamline duties for UK regulators, with a stronger focus on growth and investment to increase dynamism and enterprise, and to increase and improve scrutiny and a commitment to improve regulator performance through stronger transparency and accountability.
Targeted regulatory changes support the eight Industrial Strategy priority sectors, and integrate standards with smarter, complementary regulation. The Regulatory Innovation Office will tackle the biggest regulatory obstacles to innovation, including driving change in regulators’ behaviour and attitudes to innovation.

A clear action plan

The strategy was missing a clear action plan, including the delivery mechanism for achieving the ambition to cut business red tape by 25%. An updated approach to economic regulation was also missing – though this is expected to come by the end of 2025.

CBI members would also like to see steps taken to tackle chronic skills shortages and capacity challenges in regulatory bodies, and a commitment to push outcomes-focused, principles-led regulation. Steps to enhance strategic dialogue among government, regulators, and the regulated is also welcome to address poor regulatory outcomes.