Harnessing regional innovation for a dynamic UK Industrial Strategy

Posted on: 27 February 2025 by Roger Baxter in Blog

The first in a series of blog posts from Heseltine Institute Policy Analyst Roger Baxter on the UK Government's recent Industrial Strategy Green Paper.

In October of last year, the UK Government published the Industrial Strategy Green Paper, essentially an open consultation on what the final form of its Industrial Strategy should look like. Across forthcoming blog posts, I’ll bring out the key insights from the responses given by the Heseltine Institute and conversations with leading academics from the University of Liverpool, illustrating how a more flexible, forward-looking strategy can accelerate growth, boost productivity, drive Net Zero transition and ensure equitable sharing of prosperity across the UK. The first of these posts focuses on key areas for growth, including subsectors in which the University plays a leading role.

For cities and regions such as Liverpool, the challenge is twofold: identifying new ways to create value, while also reinforcing foundational elements that underpin long-term prosperity. Robust infrastructure – quality schools, reliable public transport, modern housing, vibrant public spaces – is not merely a backdrop for economic activity, but a critical driver of shared prosperity. In many areas, entrenched cycles of deprivation, low skills, and poor health continue to undermine progress. In the Liverpool City Region, for instance, productivity levels remain significantly below the national average, with a third of local areas ranking among the most deprived in England.

Identifying key subsectors: beyond a narrow focus

In a rapidly evolving global economic landscape, the UK government faces a crucial task – crafting an Industrial Strategy that not only channels national investment where most needed, but also leverages the diverse strengths of regional clusters. It must take a dynamic, regionally inclusive approach that identifies high-impact opportunities across the country—whether these lie in well-trodden sectors or in emerging fields that conventional data might overlook.

A central concern in the current debate is the risk of concentrating national investment on a select few “favoured” subsectors that are already well-connected to policymakers in Whitehall. While such a focus might offer short-term clarity, it risks overlooking the transformative potential of sectors that are dispersed across different regions or that feature networked, rather than strictly hierarchical, supply chains. The Industrial Strategy should therefore be tailored to opportunities with the highest socio-economic impact—wherever they exist in the UK. This means recognizing that regions outside London and the South-East may harbour latent strengths that, if properly nurtured, could drive long-term growth. In particular, the fields of materials innovation and sustainable manufacturing offer a prime example of the potential that lies in harnessing regional expertise.

Consider the groundbreaking work at the Materials Innovation Factory at the University of Liverpool. Through extensive partnerships across sectors—from laboratory automation and high-technology coatings for net zero buildings to green hydrogen and sustainable battery manufacturing—this initiative demonstrates how regionally anchored research can generate ready-to-launch projects. By widening the scope of the Industrial Strategy to include sectors based on their socio-economic benefits rather than geographic proximity to power, the UK can foster a more resilient, dynamic, and inclusive economy.

Embracing emerging sectors and technologies

The pace of technological change means that conventional data sources cannot adequately capture many sectors poised for future growth. To keep pace, the government must build long-term partnerships with discipline-specific experts from academia, industry, and government-funded research agencies. By tapping into the wealth of expertise in universities, large businesses, and SMEs, the UK can identify emerging markets and technologies before they become mainstream.

Proactive engagement can be further supported by leveraging alternative data sources—such as publication records, patent filings, and insights from collaborative R&D grants provided by UK Research and Innovation (UKRI). Initiatives like Innovate KTN, Catapults, and targeted research council funding can serve as critical touchpoints for spotting early signs of breakthrough innovations.

In the Liverpool City Region, academic institutions and local authorities are well-prepared to host roundtables and discussions focused on local strengths such as Advanced Manufacturing, Health and Life Sciences, and Digital and Creative Industries. Such platforms enable a continuous dialogue between policymakers and technical experts, ensuring that the Industrial Strategy remains agile and responsive to new technological trends.

This networked approach not only bolsters the UK’s capacity to innovate, but also democratises the process of identifying growth opportunities, reducing the risk that emerging sectors are sidelined due to a reliance on outdated or incomplete data.

Integrating foundational sectors and value chains

A robust Industrial Strategy must also recognize the importance of foundational sectors and value chains by aligning sectoral priorities with regional assets, competencies, and emerging strengths. By doing so, the government can stimulate innovation, boost productivity, and drive skills development in a manner that is both geographically balanced and economically sustainable.

The experience of the Liverpool City Region provides a compelling case study. Here, longstanding partnerships between academia, industry, and local government have generated significant transformative economic and societal impacts. One striking example is the collaboration between the University of Liverpool and Unilever, which led to the rapid scale-up and manufacturing of a new polymer. This achievement—realised in just two years—translated into an unprecedented return on investment of over £400 million. Such success stories illustrate how targeted support in foundational sectors like manufacturing can yield tangible, high-impact results.

Moreover, by integrating foundational sectors such as chemicals, pharmaceuticals, materials science, and energy into the Industrial Strategy, the government can tap into established sectors that are already significant contributors to the economy, while also increasing efficiency over issues such as rising energy costs. Recognising and nurturing these industries – which not only offer substantial current economic benefits but will also be key to Net Zero transition – will enable a broader, more inclusive strategy that addresses regional disparities.

Focusing on important subsectors: maritime and beyond

While the Industrial Strategy spans a wide range of sectors, some subsectors deserve special attention for their multiplier effects on the wider economy. For example, the maritime sector, plays a critical role in Liverpool City Region and across the UK’s coastal areas. Employing around 50,000 people in the Liverpool City Region alone and contributing roughly £5 billion to local business turnover, maritime is closely linked to advanced manufacturing, clean energy, and defence.

Maritime transport is not only integral to global trade, but also accounts for a significant share of human CO₂ emissions. Decarbonising freight traffic in and around key ports such as Liverpool is therefore an urgent priority as is investment in non-road freight infrastructure. Recent initiatives like the DePoLARiZE project are exploring practical measures for reducing emissions and advancing net zero goals.

Beyond maritime, other critical areas include advanced materials, AI-driven solutions, and health and life sciences. The emerging synergies between robotics, AI, and manufacturing promise to accelerate innovation across sectors – from streamlining production processes to optimizing patient treatment pathways. The integration of AI and multi-omics, for example, is already leading to breakthroughs in personalised healthcare and disease prediction.

Leveraging UK strengths: research, innovation, and University partnerships

The UK’s robust research base and its world-class universities remain among its greatest assets. Success in innovation across all sectors hinges on the strength of academic research and its capacity to drive both scientific discovery and commercial application. The University sector, with its leading role in patent filings and academic applications, is indispensable to the long-term success of any Industrial Strategy.

In the Liverpool City Region, for example, the University of Liverpool has cultivated specialised centres of excellence that demonstrate the power of academic-industry partnerships:

• Materials Chemistry: The combined chemicals and pharmaceuticals sector is a cornerstone of UK manufacturing, generating £75 billion in annual turnover and employing over 140,000 people nationally. The Materials Innovation Factory exemplifies how decades of research, bolstered by sustained funding, can translate into industrial breakthroughs.
• Biofilms: The National Biofilms Innovation Centre stands as a national flagship in biofilm research. Planned investments of £50 million aim to further enhance its capabilities in surface and materials design, high-throughput robotics, and AI—technologies that are vital for next-generation industrial innovation.
• Microbiome Research: A thriving ecosystem of microbiome research underpins advances in consumer health, household products, and bio-inspired manufacturing. The collaboration between the University of Liverpool and Unilever has produced one of the world’s largest databases of skin microbiome data, fuelling product innovations valued at over £150 million.

By capitalizing on these areas of expertise, the UK can reinforce its position as a global leader in research and innovation. A strong university-industry nexus not only unlocks new opportunities for growth but also ensures that innovation is geographically distributed, thereby mitigating regional disparities.

Enabling growth and overcoming barriers

Austerity measures and reduced local spending over the past 15 years have diminished capacity in Liverpool City Region to address critical social and economic issues. Moreover, the UK’s highly centralised fiscal system limits autonomy for local and city-regional leaders compared to international peers, restricting any ability to directly address community needs.

To foster a more resilient and inclusive economy, the government must consider a strategic redistribution of power. Enhancing local ownership and control over policy design and spending is essential for correcting regional imbalances and equipping cities to lead net zero transition. Regional strengths—embodied by centres of excellence above—are critical engines of innovation. Local partnerships not only drive research and development, but also help to ensure the benefits of economic growth are distributed more evenly across the country.

Ultimately, a modern Industrial Strategy must be as ambitious and multifaceted as the challenges it aims to overcome. It is not enough to concentrate on short-term gains or rely solely on traditional sectors; instead, the strategy must embrace emergent technologies and regional opportunities to redefine the UK’s economic landscape in the 21st century. Through a balanced and inclusive approach, the UK can secure its position as a global leader in innovation, drive transition to net zero, and build a future where prosperity is shared by all regions.