The government’s forthcoming industrial strategy must provide certainty, clarity and stability to business to avoid a “chilling effect” on investment, ICAEW says.

In its response to the Invest 2035 green paper, ICAEW says that policies and incentives that change too frequently would deter businesses from investing and stifle economic growth. The industrial strategy should demonstrate long-term policies to encourage investment and boost growth over a 10-year period, it says.

The UK economy “thrives when it embraces what it does best and encourages open and free trade across the world”, ICAEW adds in its submission.

ICAEW also believes the industrial strategy – due to be published in spring 2025 – should focus on developing skills, including helping individuals identify the skills and qualification pathways into the sectors that need talent for growth. 

Data to monitor performance

Meanwhile, the new Industrial Strategy Advisory Council (ISAC) should use data on well-defined metrics to measure specific barriers to investment, and monitor performance of the industrial strategy against them.

ICAEW also calls for a commitment from government to follow through on its existing policy commitments, finish projects already under way, and invest sufficient resources in government departments and the private sector.

Iain Wright, ICAEW Managing Director, Reputation and Influence, said a modern industrial strategy is critical to ensuring the foundations are in place to generate strong economic growth. “It is always difficult to strike the right balance between policies that help the entire economy, or targeted intervention in certain sectors, which boosts growth in those areas in which we in the UK have a global advantage. We think that with this green paper the government has got that balance about right.

Industrial strategy to address policy churn

“A strategy that lacks a clear plan, or includes policies and incentives that change too frequently, is likely to have a chilling effect on investment. Businesses can’t and won’t invest when there is fast policy churn; the industrial strategy has to address that,” Wright said. 

“We were delighted to see recognition of the professional and business services sector as one of the areas with the highest growth opportunity for the economy and business, as it is key to the building of a highly skilled economy.

“We want the UK to be the best place to invest and to start, run and grow a business. Our members have enriched our response through their insights and experiences. We’re pleased to have contributed to this process and stand ready to play our part going forward,” Wright added.

ICAEW’s response welcomes the government’s decision to include the professional and business services sector, which accounted for one in seven UK jobs last year, in its list of growth sectors.

Higher education as growth sector

ICAEW is also urging the government to include higher education as the ninth sector in the industrial strategy, in addition to the eight growth-driving sectors already prioritised for a targeted approach to investment.

The sector, worth £41.9bn since the 2021/22 academic year, according to a report from London Economics, would provide a major export value as well as wider benefits to the UK economy through access to leading international talent and expertise, ICAEW says.

However, it warns that improving access to high-level skills is critical to boosting the economic performance of growth sectors, and says action is needed to help people more easily plot their path from school leaver to skilled worker. To measure this, the industrial strategy should reintroduce the metric tracking the proportion of those who hold a technical qualification as their highest educational attainment.

Security strategy essential

Following a series of ‘once-in-a-lifetime' shocks, including the ongoing war in Ukraine and the global financial crisis, the Institute emphasised the importance of injecting resilience into the economy.

The strategy should identify those key sectors and value chains likely to be compromised by geopolitical uncertainty and subsequently exposed to issues such as supply-side challenges and price hikes, ICAEW said.

The Institute said the new industrial strategy should also:

• Support productivity growth and innovation in the accountancy sector by improving data-sharing processes with government departments, introducing a digital identity system, providing greater insight into how AI regulation will work in practice and leveraging skills bootcamps; 
• Deliver a tax roadmap for businesses that identifies areas holding back business activity and growth, and potential tax policy options, such as reforms to business rates and VAT;
• Put ISAC on a legislative footing, to make it difficult for any subsequent government to abolish it without taking parliamentary steps to repeal it;
• Set out strategies for planning reform, housing, infrastructure, energy security and transport, and investigate barriers to infrastructure investment in pension fund risk profiles;
• Grant cluster status for cities and regions to champion technologies to enable better integration and targeting for existing government interventions, including local skills improvement plans, freeports and investment zones and research and development (R&D) investment;
• Commit to spending 3% of GDP on R&D, and provide a roadmap for achieving this, including levers relating to regulation and taxation, and support from HMRC; and
• Explore a new version of the growth voucher scheme and consider more bespoke resources to facilitate scale-ups in the UK, to ensure access to financial advice is more readily available.

View ICAEW’s full consultation submission here.