The UK government has set its vision for a modern industrial strategy in an Industrial Strategy Green Paper. Details will be set in the forthcoming Industrial Strategy White Paper, due in the first half of 2025. Gov.uk analyzed the past and reformed UK industrial strategy and subsidies experience, and the impact of past policies on productivity, investment, innovation, employment and competition, and the economic dynamism and competitive dynamics of the growth-driving sectors as identified in the UK government’s industrial strategy green paper. The Subsidy Control Act 2022 created a new domestic subsidy control regime, designed to suit the needs of the UK.
The UK’s new industrial strategy
In October 2024, the Government set out its proposals for a modern, 10-year industrial strategy: Invest 2035. Its goal is to capture a greater share of global investment in strategic sectors of the economy and encourage domestic businesses to scale up.
Industrial strategies are policies that the government coordinates. These strategies have extended interest for economists and policy-makers alike in recent years.
The Competition and Markets Authority (CMA)’s new report turns the lens onto the UK and some of its peers. It shows that countries vary widely not only in how much they spend on industrial policies but also in what mix of policies they use. The UK, for instance, has tended to allocate a larger share of industrial policy spending to tax credits than grants or loans, in comparison with its peers, including Italy, Germany, and France.
Refining the UK Subsidy Control Regime
The subsidy control regime includes 2 distinct categories of subsidy or subsidy schemes that have been identified as having greater potential to lead to distortive effects on competition:
Subsidies or schemes of interest (SSoI)
Subsidies or schemes of particular interest (SSoPI)
The thresholds for these categories are set out in the Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022.
Subsidies between £5 million and £10 million outside of sensitive sectors are considered subsidies or schemes of interest (SSoI). Public authorities intending to give or make SSoI may voluntarily refer their assessment of the subsidy or scheme to the CMA for review before the subsidy or scheme is granted or made.
The CMA can choose whether to accept SSoI referred to them, according to its prioritization principles.
The UK industrial strategy and subsidies, and the government policy
The industrial strategy is a pillar of the UK government’s growth mission. In February 2025, the UK Government announced some rates. The aid spending will lessen from 0.5% of impure national earnings (GNI) to 0.3% of GNI in 2027. Aid would have reached £15.4 billion if aid had remained at 0.5% of GNI. As a proportion of GNI, spending will be at the lowest level since 1999.
The Spring Statement determines how the government is making a fully funded commitment to increase NATO-qualifying defense spending to 2.5% of Gross Domestic Product (GDP) by 2027.
The government will consider the UK industrial strategy and subsidies’ impact on assessments when determining plans.
The UK’s post-Brexit subsidy regulation
Brexit caused significant disruption to the UK’s financial services. This procedure is with the end of the passporting regime that allowed UK firms to operate in the EU, and vice versa. With London and its regulatory framework now lying outside of the EU, an exodus of UK firms establishing operations in other European cities was unavoidable. The economy over the last five years has felt a growing complexity, a decrease in harmonization, and a fragmentation of regulatory regimes.
Brexit still appears large in the UK’s relationship with the EU. Regulatory divergence is a main concern. Under the UK-EU Trade and Cooperation Act, the UK accepted to limit subsidies that distort a level playing field. The UK imposed more limitations on labour and environmental standards.
UK subsidy control consultation
Prior to the Labour Party’s victory in the UK General Election in early July 2024, there were uncertainties. The question is about whether a new Labour government might revisit the issue of UK industrial strategy and subsidies.
Three policy trajectories were possible regarding the UK industrial strategy and subsidies. The first was that the new government might bring the UK regime closer to that of the EU. The second was that it might highlight the contribution of subsidy control to the planned Industrial Strategy. The third was a business-as-usual approach.
Since the election, the third option has prevailed.
Unsurprisingly, alignment (bringing the UK closer to the EU rules) has not been a priority for the new UK government, even if latest evidence suggests a general trend in this direction since mid-2024. To some extent, the UK’s post-Brexit subsidy control regime already mirrors the EU regime. This is a consequence of Title XI, Chapter 3 of the UK-EU Trade and Cooperation Agreement (TCA). TCA contains a relatively lengthy set of provisions outlining the UK’s state aid (subsidy) obligations.
The labour market implications of Brexit
Brexit affected exports and imports. It also affected prices, especially food prices. Moreover, it led to labour shortages in many sectors. The sectors include transport, hotels, restaurants and bars, agriculture, and the health and care segments.
The relationship between vacancies and unemployment, the so-called ‘V/U ratio, needs to be investigated. This labour market disruption must be tackled. The V/U ratio is an indicator of labour market tightness (when there are more job openings than available workers). The analysis is based on difference-in-difference methods.
Financial Planning for a New Labor Government: Breaking into the Pensions Piggy Bank
Over the past decades, the UK industrial strategy and subsidies have built up a range of generous tax incentives for savings. These tax incentives are from pensions to ISAs. In recent years, the generosity has cooled to some extent. Labour may continue to turn the dial, especially as part of the unclear “pension reform” it mentioned in its manifesto.
Because tax relief on pensions accrues at your marginal Income Tax rate, the richest receive the largest savings. This may spur Labour to reform pensions toward a single, flat tax rate on pensions (20% or 30%) regardless of income band.
A flat rate of tax would be much harder for employers and savers to administer. It would lead to double taxation for higher-paid workers. This is because, at a flat rate of, say, 30%, higher-rate taxpayers would pay 10% on income deposited in their pensions. It is (because their marginal rate is 40%) and then another 20% (if they are Basic Rate taxpayers at retirement). It is all when they withdraw them years down the line.
