Introduction
In the 1980s, the UK agonised over whether it mattered if an advanced economy manufactured less, and announcements of our balance of trade figures were pored over with grim fascination.
It had seemed that the debate was resolved, and for the last four decades, policymakers in Western Europe and North America operated on the broadly shared assumption that manufacturing was something advanced economies did less of as they matured, not more. Services were the future, comparative advantage pointed elsewhere, and the invisible hand of the market would allocate production to wherever it could be done most cheaply.
That assumption is now being urgently revisited and challenged in light of over-reliance on fragile supply chains and geopolitical tensions.
Why Reindustrialisation Has Returned to the Policy Agenda
In the UK, any argument for deindustrialisation was partly economic but with a smattering of ideology. Treasury orthodoxy suggested that the government had no business propping up sunset industries against a tide of globalisation, and that workers displaced from factories would find new opportunities in the knowledge economy. Other economies, notably France, had a completely different philosophy, arguing that a nation-state ceased production of some critical items at its peril.
Whatever the merits of the shift to a services-based economy, the UK (and others) certainly discovered that labour skills reinvention did not automatically dance to the tune of the new economic model, and, with an outcome which is relevant to the AI transitioning of today, a generation of workers did not return to high-value work again, and their communities are still struggling to thrive as a result.
Viewpoints on manufacturing are changing again, but this time it is events rather than politics that are shifting the dial. The COVID-19 pandemic provided absolute clarity on how exposed Western supply chains have become to disruption at source. When factories in China and South-East Asia closed, the consequences cascaded through sectors from pharmaceuticals and personal protective equipment to semiconductors and automotive components. Geopolitical tensions, particularly around Taiwan's position in the global chip industry, added a national security dimension, transforming the debate from one about economics to one about strategic vulnerability.
Adding to the rethink is a structural shift in the cost arithmetic of offshoring. Chinese average annual wages, which once made manufacturing there irresistible, have risen substantially in recent decades, narrowing the gap with Western wage costs to the point where automation-intensive onshore production can now be cost-competitive, especially if a small premium can be charged for proximity and delivery certainty.
The response has been varied
The policy response has been most dramatic in the United States, where the 2022 CHIPS and Science Act and the Inflation Reduction Act together deployed over £300 billion in targeted incentives for semiconductor and clean energy manufacturing. Private manufacturing construction spending in the US grew from £59 billion in June 2021 to £176 billion in June 2024, representing 44 per cent annualised growth. More than two million manufacturing jobs have been announced since 2010, with the most recent million arriving in just four years, primarily driven by those two pieces of legislation.
The European Union has responded through the European Chips Act, mobilising over £37 billion in public funding for semiconductor capacity by 2030, alongside the Green Deal's industrial strategy, which frames the transition to clean-energy manufacturing as a form of reindustrialisation. Germany has earmarked over £17 billion at the federal level for Chips Act-related measures and committed a further €0.95 billion to expand GlobalFoundries' chip manufacturing facility in Dresden.
Across both continents, governments have increasingly combined direct subsidies and tax incentives with "friendshoring", which is the deliberate reshaping of supply chains through politically allied nations, as well as "nearshoring," bringing production geographically closer to end markets, even if not fully at home. Total reindustrialisation investment globally is projected to reach around £3.5 trillion over the next three years.
The UK's Approach - Ambition With Caveats
The United Kingdom enters this race with a significant industrial base in aerospace, automotive, life sciences, and advanced materials, but also with the structural legacy of forty years of deindustrialisation, the trade frictions introduced by Brexit, and a national debt that precludes matching the subsidy scale of the United States or Germany.
The current Labour government's Modern Industrial Strategy, published in June 2025, represents the most serious industrial policy framework the UK has produced in a generation. The strategy identifies the eight priority sectors expected to drive growth and sets a ten-year framework for targeted government support. By the end of 2025, investment commitments into those sectors exceeded £79 billion, with more than 50,000 jobs announced.
The clearest success story is in electric vehicles and battery manufacturing, where the combination of EU rules of origin requirements (which compel UK-assembled vehicles to use domestically produced batteries to avoid tariffs) and substantial inward investment has produced a nascent EV supply chain. Nissan committed £2 billion to electric vehicle production at Sunderland, Jaguar Land Rover announced £15 billion in EV investment over five years, and its parent company’s £4 billion gigafactory in Somerset provides the battery capacity the business requires. Around 58 per cent of UK manufacturers are already claiming to be reshoring some operations, and among those, 90 per cent report successful outcomes.
Learning From the Past: The UK's Chequered Track Record
Any honest assessment of UK industrial policy must reckon with history. The post-war experience of the automotive sector, marked by underinvestment, fragmentation, and government intervention, is a case in point. The nationalisation of British Leyland in 1975, following a government-encouraged merger that created an unwieldy conglomerate of nearly 100 companies, is the case that haunts industrial policy debate to this day. By 1977, Britain had become a net importer of cars for the first time.
Yet the record is not uniformly negative. Rolls-Royce's nationalisation in 1971 preserved a genuinely world-class aerospace engine capability that could not have been achieved without bridging support. Rolls-Royce returned to private ownership in 1987 and remains one of Britain's most important manufacturers. UK participation in the Airbus programme, nearly abandoned on three occasions by successive governments, has sustained tens of thousands of highly skilled jobs in wing manufacturing at Broughton. The lesson is not that intervention fails, but that intervention can work when it preserves or catalyses genuinely competitive capabilities but where autonomy and innovation are retained within the business.
Ten Policy Approaches That Have Worked Internationally
The following approaches have the strongest evidence base for generating manufacturing jobs and regional economic development.
- Dual vocational training systems. Germany's apprenticeship model, combining classroom instruction with structured on-the-job training, co-designed with employers, remains the gold standard. With 1.2 million apprentices and 74 per cent retained in employment after qualification, it provides the skills pipeline without which all other manufacturing interventions struggle.
- Industrial cluster development. Concentrating related firms, suppliers, research institutions, and infrastructure in defined geographies creates a self-reinforcing competitive advantage. Emilia-Romagna in northern Italy, where 40,000 small manufacturers operate with multinational-scale efficiency, and Bavaria's targeted cluster policy are perhaps the best examples. Bavaria’s R&D policies increased firm innovation rates by up to 5.7 percentage points in supported sectors.
- Anchor firm investment incentives. Targeted subsidies or co-investment to attract a major manufacturer generates supply chain multiplier effects far beyond the primary jobs. BMW's location in Spartanburg, South Carolina, is now one of the highest-value car export facilities in the US and has transformed the regional economy. Nissan's Sunderland plant has played a comparable role in North East England for four decades.
- R&D tax credits and innovation incentives. Tax relief on qualifying research expenditure reduces the cost of innovation and encourages technology-intensive manufacturing to locate domestically. Firm-level evidence from the UK finds that R&D tax credits significantly boost research spending, and in the US, the CHIPS Act's combination of direct subsidy and tax credits has unlocked over $500 billion in private-sector announcements.
- University-industry partnerships and technology transfer. Embedding universities as active participants in regional industrial ecosystems through co-funded research, shared facilities, and graduate pipelines has been shown to sustain long-term manufacturing capability. Albany's "Tech Valley" in New York, built over twenty years of sustained state-university investment, culminated in GlobalFoundries locating one of the US's largest semiconductor fabs in the region. There are other similar examples all over the world – but each has required patience and large-scale ambition.
- Capital investment allowances and accelerated depreciation. Allowing faster write-down of plant and machinery reduces the effective cost of automation investment, making high-wage domestic production more economically viable. The UK's introduction of full expensing has been directly cited by manufacturers as an incentive for reshoring.
- Enterprise zones and freeports. Geographically targeted packages of reduced tax, simplified planning, and streamlined customs can attract inward investment to lagging regions. Ireland's Shannon Free Zone, established in the 1950s, catalysed the country's industrial development. The UK's freeports programme, post-2021, is too recent for definitive evaluation but is an example where central and regional government commitments are effectively combined.
- Strategic public procurement. Government purchasing power, when directed towards domestically manufactured goods, de-risks investment by guaranteeing demand. The US Buy American provisions embedded in CHIPS and IRA legislation are the most prominent current example; France has long used state purchasing to sustain domestic aerospace and rail manufacturing.
- SME automation and digital adoption support. Grant-and-advisory programmes helping smaller manufacturers adopt robotics and digital systems make domestic production cost-competitive with offshore alternatives. Germany's Mittelstand digital programme and the UK's Made Smarter initiative, which has registered thousands of SMEs and documented measurable productivity gains, are the leading examples.
- Industrial energy cost compensation. High electricity prices are among the most frequently cited barriers to manufacturing competitiveness in high-wage economies. France's nuclear-powered grid has sustained energy-intensive industries that may otherwise have moved offshore. Germany's industrial energy compensation scheme and the UK's planned increase in network charge relief from 60 to 90 per cent, effective from April 2026, reflect a belated recognition that energy costs are a structural issue, not a temporary one.
The Condition of Success
What separates these policies that work from those that fail is rarely the design of the instrument itself. It is the consistency and duration of commitment. Albany's semiconductor cluster took twenty years to build. Germany's vocational system has been refined over generations. The industrial regions of northern Italy developed their distinctive character over decades of accumulated social trust and shared commercial practice.
The UK's long history of launching industrial strategies and then abandoning them, often within a single Parliament, is precisely the pattern that undermines investor confidence and prevents clusters from taking root. The Modern Industrial Strategy's ten-year framework is explicitly designed to address this. Whether successive governments will honour that commitment, as economic conditions and political priorities shift, is the question on which the entire enterprise depends.
Making things again is achievable. But it requires the kind of patience that democratic politics finds genuinely difficult to sustain.
If you are interested in examining your own economic strategy or sector approach, contact Nigel Wilcock, Mickledore at nwilcock@regionaldevelopment.co.uk