Britain wants its factories back. But does it want the jobs too?

There is something politically irresistible about a factory. It is physical. It employs hundreds of people. It occupies land. It produces something that can be pointed to. For a politician promising to "bring jobs back", a factory is considerably easier to sell than a tax incentive for software development or a new financial-services cluster.

That helps explain Britain's renewed enthusiasm for manufacturing. The government's ten-year Industrial Strategy places advanced manufacturing among eight sectors it believes can drive future growth, alongside areas such as clean energy, defence, life sciences and financial services.¹ The government says the strategy has already attracted more than £250bn of investment commitments and supported 45,000 jobs.²

There is a clear economic rationale. Manufacturing exports, creates demand for skilled workers and can generate substantial productivity gains. It also matters for national security: recent disruptions to global supply chains have reminded governments that relying entirely on foreign production can be costly.

Britain has not lost its factories

The story of a country that let its manufacturing disappear is not quite right. British manufacturing remains a large industry. In 2025, manufacturers sold goods worth £452.0bn, though that was down 1.8% from £460.3bn the year before, and in current prices, so a steeper fall once inflation is accounted for. The largest single division was not aerospace or batteries but food, at 22.9% of the total.³ Advanced manufacturing alone employed an estimated 770,000 people in 2025 and spans industries including aerospace, automotive, batteries and advanced materials.⁴

The uncomfortable part is what has happened to employment. A modern factory can produce vastly more output with far fewer workers than a comparable factory several decades ago. Robots, computer-controlled machinery and increasingly sophisticated logistics mean that the relationship between manufacturing output and manufacturing employment has fundamentally changed. In the industrial towns of twentieth-century Britain, manufacturing provided employment on an enormous scale (a steelworks, car plant or textile mill could employ thousands of people from the surrounding community), today a manufacturer is more likely to depend on robotics, software, advanced materials and specialised engineering.

The government estimates that advanced manufacturing generates more than £82bn in gross value added a year. That is a significant contribution, but it comes from a workforce a fraction of the size of Britain's industrial workforce at its twentieth-century peak.

The jobs that remain, however, are better ones and better distributed than the debate usually allows. Salaries in the sector run about 36% above the national average, and 88% of its employment sits outside London and the South East.¹

The international problem

Britain also faces an awkward international reality as it tries to rebuild manufacturing in a world where China already dominates much of it. China's manufacturing sector is enormous, deeply integrated into global supply chains and capable of producing at extraordinary scale.

Competing with it on low-cost mass production is nearly impossible, so Britain's comparative advantage has to lie elsewhere.

The government's industrial strategy implicitly recognises this by focusing on advanced manufacturing rather than simply trying to recreate traditional industries. The sector plan targets six priority areas: automotive, batteries, aerospace, space, advanced materials and agri-tech. The starting position is not uniformly strong. Petrol cars above 1,500cc remained Britain's highest-value manufactured product in 2025, at £16.0bn, but sales fell 23.1% in a single year.³

Germany is often held up as the European example Britain should emulate. Its manufacturing sector is larger, its Mittelstand is famous and its industrial exports have historically been a major source of national wealth. But Germany's recent experience also demonstrates the limits of manufacturing nostalgia. Its traditional industrial model was built around cheap energy, strong exports and enormous demand for machinery and cars, particularly from China.

That model has come under pressure. The energy shock following Russia's invasion of Ukraine exposed the vulnerability of energy-intensive industry. At the same time, Chinese manufacturers have moved from being major customers for German industrial goods to increasingly becoming competitors, particularly in electric vehicles.

Britain should be careful about copying yesterday's German economy. So what should a globally competitive manufacturing economy look like?

America provides a particularly interesting contrast. Manufacturing accounts for 9.4% of the US economy, but recent investment has been heavily concentrated in advanced technologies, semiconductors, batteries and artificial intelligence infrastructure.⁵

The American approach has increasingly been to use the state to change the incentives facing private capital. The Inflation Reduction Act and CHIPS Act channelled large sums towards strategic industries. The result has been a surge in private investment in factories and industrial infrastructure. The picture is not uniformly encouraging, however. American manufacturing was hammered last year by sweeping import tariffs, and capacity utilisation in the sector remains 2.4 percentage points below its long-run average; the AI spending boom has cushioned the drag rather than reversed it.⁵

Britain could learn from this. If the government spends £1bn building something itself, the economic effect is largely limited to that project. But if £1bn of public support causes companies to invest £10bn of their own capital, the potential multiplier is much larger.

This is why Britain's current industrial strategy is focused heavily on attracting private investment rather than simply expanding state-owned manufacturing. The government says its advanced-manufacturing strategy aims to nearly double annual business investment in the sector from £21bn to £39bn by 2035, backed by up to £4.3bn of public funding, including £2.8bn for research and development over five years.¹ However, whether private investment follows is a different question, particularly given Britain's tax burden.

The real prize is productivity

This is ultimately why manufacturing matters to Britain. Productivity growth is the foundation of rising living standards. Britain's productivity problem is well documented. In the first quarter of 2026, output per hour was only 0.4% higher than a year earlier, while output per worker fell by 0.1%. The second-quarter flash estimate did little to change the picture: on the Labour Force Survey measure output per hour was 0.2% lower than a year before, though the administrative-data measure the ONS now prefers showed a 0.7% rise.⁶ If Britain wants wages to rise without generating inflation, businesses need to produce more for every hour worked.

Manufacturing can help. Highly automated businesses can generate enormous output from a relatively small workforce. Such businesses require workers with advanced technical skills, and they generate demand for suppliers, engineers, logistics companies and research institutions, with the agglomeration effects that follow.

A significant hurdle, however, may be the politicians' false promise that manufacturing will bring back the large numbers of secure, moderately skilled jobs once provided by heavy industry. Those expectations will be disappointed, because the modern factory is simply too productive. The government itself recognises this. Its Advanced Manufacturing Sector Plan describes a sector being transformed by decarbonisation and digitisation, not one about to re-employ a lost industrial workforce.

Policy should instead ensure that workers can move into the higher-value jobs created by the same technological change. Moving workers from assembly roles into engineering, maintenance or programming is the obvious route, but the scale is modest and the barrier is real. Skills England projects that priority occupations in advanced manufacturing will grow by just 47,000 between 2025 and 2035, a rise of 13%, with a further 101,000 workers needed simply to replace those leaving. On a less optimistic scenario the growth figure is 23,900. The government's own explanation is that the sector pursues growth through capital investment and technology rather than by expanding its workforce, which is why projected employment growth is low relative to other sectors. Of the additional jobs expected, 84% require qualifications at level 4 or above, while completions of level 2 and 3 manufacturing technologies apprenticeships, the route into welding, metalworking and technician roles, have fallen 53% in two years.⁴

Every training route grew except the one feeding the factory floor

Overall, there is a significant difference between subsidising a low-productivity factory because it provides jobs today and supporting an industry because it creates capabilities that make the economy richer tomorrow. Britain should prioritise industries where it has a plausible comparative advantage: aerospace, pharmaceuticals, defence, advanced materials, clean energy, precision engineering and technology. Additionally it should judge support not by the number of ribbon-cutting ceremonies or jobs announced, but by what happens afterwards, changing policy to directly answer questions such as "Does private investment increase?", "Does productivity rise?" or "Do exports become more competitive?".

An economy cannot thrive indefinitely if it becomes increasingly dependent on consumption and low-productivity services while underinvesting in productive capacity. But the solution is not to recreate Britain's industrial past. If anything, Britain may discover that it does not require the old industrial economy, but a boost to productive capital instead.

Footnotes

1. UK Government, the UK's Modern Industrial Stratergy (opens in a new tab), 23rd June 2025. ^{2 3}

2. Department for Business and Trade, UK's Industrial Strategy hits the ground running, securing £250bn in investment and supporting 45,000 jobs (opens in a new tab), 7th October 2025.

3. Office for National Statistics, Manufacturing and production industry (opens in a new tab), 24th July 2026. ²

4. Skills England, Sector Skills Needs Assessment: Advanced Manufacturing (opens in a new tab), 4th August 2026. ²

5. Reuters, Motor vehicles, AI boost US manufacturing production; supply shortages from war loom (opens in a new tab), 15th May 2026. ²

6. Office for National Statistics, Productivity flash estimate and overview, UK: April to June 2026 and January to March 2026 (opens in a new tab), 18th August 2026.