The North will not be revived by an old-fashioned manufacturing boom

Creating hi-tech industrial clusters in automation, AI and sustainability can help in the push to ‘level up’

‘The reality is if production is not automated in the UK, it is likely to be automated somewhere else’

It is tempting to imagine that a new golden age of manufacturing would revitalise the UK’S Covid-hit economy and rebalance regional variations. And yes, coming out of the pandemic, there are exciting opportunities for British industry, both at home and abroad. By 2030, a fifth of the world’s profits are likely to be made in the manufacturing sector. Furthermore, if challenges with global supply chains continue, some of the UK’S domestic suppliers may be able to take market share from imported goods.

Nevertheless, the future role of manufacturing in the UK’S economy and society is likely to stand in noticeable contrast to the past, in at least three ways. First, the manufacturing sector will not be a direct source of a large number of new jobs. Second, much of its comparative advantage will come from intangible assets and services, not just physical goods or equipment. Third, its geographic footprint is likely to be different from that of the UK’S industrial legacy.

In fact, the manufacturing sector has not been a creator of net new jobs for at least 50 years. According to a Government Office for Science

Foresight report, the UK’S manufacturing employment peaked in 1966. Boosted neither by cheap energy nor raw materials, low-cost labour, large-scale capital investment, hi-tech facilities, or stellar productivity, Britain’s share of global production has been waning. A similar fate has befallen other developed nations: among 30 OECD countries, not a single one increased the number of hours worked in manufacturing between 1998 and 2019. The decline in the UK was, however, by far the sharpest: a reduction of nearly 40pc, against an average of around 20pc.

This trend reflects several different factors across a range of sub-sectors, all of which have contributed to the decline. Let me give three examples: in labour-intensive sectors, such as furniture, the UK’S labour costs (adjusted for productivity) are not competitive with emerging economies, so a large proportion of production has moved overseas. In the technology space, much of the production of goods such as electronics has been automated and now requires less labour. Other sub-sectors, such as chemicals, were not labour intensive to start with and are facing increased feedstock and energy costs as a result of falling North Sea production and the transition to a zero-carbon economy.

So where could UK manufacturing find comparative advantage in the future? Examples include research and innovation, such as in pharmaceuticals; automation and sustainability, such as in vehicles or food production; and Ai-driven design and services, such as leasing of aircraft engines or operation and maintenance of wind farms. For successful firms and sectors, intangible assets – strategic, intellectual, digital, human, brand and customer relationship capital – will be as important as physical plant and equipment.

This shift in operating models means that the industries of the future are unlikely to be big job creators. Research suggests that almost 50pc of the hours worked in the UK’S manufacturing sector could be automated using today’s technology. The reality is that in a globalised economy, if production is not automated in the UK, it is likely to be automated somewhere else and the goods imported into the UK. Either way, future employment growth in the UK will likely come from other sectors, emphasising the importance of reskilling those workers whose jobs are at risk.

The location of future manufacturing jobs is also likely to be different from the past. Successful established firms in growth industries may not move, but new start-ups, scale-ups and unicorns are more likely to emerge from geographic clusters where the entire innovation and growth ecosystem – from universities and research facilities to talent pools, suppliers and customers – is well connected.

On one hand, the populous cities of the North could have many of the ingredients to create such hi-tech manufacturing clusters based on their higher education institutions, established businesses, entrepreneurs and connectivity. Even with a limited number of new direct jobs, the local economies would benefit from the increased demand for all the services that manufacturing businesses use. These range from logistics and utilities to recruitment services, computer programming, engineering and market research.

On the other hand, in areas that represent the UK’S mining and manufacturing legacy, nearly 10pc of employment is still in less competitive, fast-declining sub-sectors, compared to 5pc in the UK overall. These places tend not to have some of the advantages of larger cities, such as universities, dense business networks and human capital. Around 35pc of their workers have a qualification lower than an A-level (compared to the UK average of 27pc), and more than 30pc of their secondary school pupils in 2020 were in schools rated “inadequate” or “requires improvement” by Ofsted (compared to 20pc in England on average).

For the at-risk local areas, rather than manufacturing, new jobs are much more likely to be derived from an upgrading of business-relevant adult skills – such as problem solving, computer literacy, customer service and management. Since many of these places already enjoy higher-thanaverage broadband speeds, they could also tap into the recent step-change in remote working. Employers’ costs for similarly qualified labour in these regions could be as much as 25pc lower than in London or the South East.

Overall, we start to see a picture where the UK’S success will not be simply reliant on specific sectors or specific regions, but a complex interplay between the people and businesses across them. The majority of the megatrends shaping the economy – from climate change mitigation and the evolving shape of globalisation to rapidly developing technology – are global. Yet the challenges and opportunities are distinctly local. To thrive in this context, UK manufacturing may be best served by not trying to rewind but by pressing fast forward.