Industrial Resilience: Assessing the foundations of UK industry

The National Preparedness Commission has launched a new report on UK industrial resilience.

Supply chain shocks, driven over recent years by geopolitical events and the COVID-19 pandemic, have revealed the vulnerability of the UK to disruptions of trade.  An increasingly volatile international environment, overlaid by growing climatic and cyber threats, points to an ever more fragile situation.

This report considers a scenario involving multiple hybrid shocks resulting in a severe impact on the UK’s import/export flows.

This is an area of key vulnerability as the UK has a heavy reliance on imported materials to make most of its critical items – such as defence equipment, electronics, pharmaceuticals, energy and even food.

Once the bastion of world manufacturing, the UK is now heavily dependent on imported goods to supply almost every part of the economy. The erosion of manufacturing in the UK has been driven largely by a lack of competitiveness and this has accelerated over the last two decades, with most supply chains being significantly hollowed out, leaving very little  industrial capability. Key materials required to support the manufacture of electronics, batteries and energy are neither mined nor manufactured in the UK and, under current circumstances, it is not conceivable that they could be on-shored in a commercially competitive way without a clear strategy and significant intervention.

Quite apart from the contribution to rising energy prices, the pathway to Net Zero – and specifically the growing reliance on intermittent renewables – is intensifying this vulnerability both because the technologies rely on imports of raw materials and components, and because uncompetitive energy costs are leading to the rapid contraction of the UK’s remaining production of fossil fuels, which are still, and will remain, critical for energy, transportation and as a feedstock for the majority of  industrial materials into the foreseeable future.

Policymakers must not equate a transition to a low carbon economy with an end to hydrocarbon production. As well as being essential to energy security hydrocarbons remain the building blocks for most everyday products from soaps to medicines to electronics and clothes. The loss of manufacturing capability to meet basic consumer essentials as well as more complex products such as batteries and electronics, only results in increased imports to meet demand.

The examples below illustrate the extent of the issues:

• Electronics production is limited to small-scale advanced sectors, while bulk electronics are all imported
• The UK has no end-to-end manufacturing capability for key products, such as batteries at scale
• In pharmaceuticals, the UK is heavily reliant on imports, with only 25% of generic drugs produced domestically
• Over 40% of food consumed in the UK is imported with the sector replying on just-in-time supply chains
• Some critical basic materials are no longer manufactured in the UK. An example is ammonia – little appreciated, but a key ingredient for a wide range of products including fertilisers, explosives, solvents and pharmaceuticals. The last manufacturing site in the UK closed in 2023. A further example of reduced capability is ethylene – the key building block to most materials today. SABIC closed one of the last ethylene manufacturing plants in 2024
• The UK is very exposed on energy, being reliant on intermittent renewables, which are not best suited to sustain shortage or crisis situations.

This report analyses the resilience of key industrial sub-sectors to a scenario combining a series of crises which significantly disrupts imports into the UK, requiring a high level of national self-sufficiency. It finds that the country’s heavy reliance on imports of materials, with complex supply chains and just-in-time deliveries, coupled with the lack of significant industrial capability to respond in such a crisis, poses significant threat to the UK’s national resilience.

A summary of the impact across key supply chains is shown in the table below, using  a RAG  (Red, Amber, Green) system to denote severity of the impact.