The decline in UK manufacturing and the country's heavy reliance on imported materials to support critical areas of electronics, pharmaceuticals, energy and food, means it is becoming increasingly vulnerable to supply chain shocks.
In recent years, these shocks have arisen due to geopolitical events and the pandemic. But climate change impacts, cyberattacks and economic shocks could also test the country’s resilience.
These are among the conclusions from a report released by the National Preparedness Commission and SCI. The report: Industrial Resilience: Assessing the foundations of UK industry, looks at the impact of future crises on UK industry and reveals “a startling vulnerability and lack of resilience.”
The report considers a scenario involving multiple hybrid shocks resulting in a severe impact on the UK’s import/export flows and warns that in a crisis, where imports were seriously disrupted, the country’s key industries would struggle to function.
The UK could be forced to function with limited supplies of oil, gas, raw materials, food, components and finished products. This would require a rapid prioritisation and reallocation of the industrial activities and resources most critical to the security, economy, health and communications of the country.
The report warns that key materials to support the manufacture of electronics, batteries, and energy are neither mined or 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.
"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," the report warned.
Sharon Todd, SCI CEO said: ‘These industries are critical to the UK economy and security, but we’ve shown that there are significant vulnerabilities that need to be addressed. The government’s Modern Industrial Strategy outlines ambitious plans for growth in advanced industrial sectors which need to be underpinned by strong foundational industries.’
Todd added “Industry is the base of today and tomorrow’s economic success and the government needs to take action immediately to halt its decline.”
The report also highlights that the growing reliance on intermittent renewables, as the country heads toward net-zero, is intensifying the UK’s vulnerability. This is attributed to the fact that the renewable 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.
The analysis also warns that that it is essential for the UK’s ongoing security to maintain the use of fossil fuels.
“Policy makers must not equate a transition to a low carbon economy with the end of hydrocarbon production. As well as 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 report says.
It adds: “Manufacturing around key building blocks is declining at a worrying rate, leaving the UK dependent on complex international supply chains.”
Lord Toby Harris, Chair of the National Preparedness Commission said: “While we cannot easily predict crises like pandemics or cyber-attacks, we can assess how ready the country is in the event of these shocks taking place. Our report shows that the situation is concerning. Industrial resilience is low, and we recommend that Government takes action to address vulnerabilities.”
In summarising the resilience of critical supply chains across five key sectors, the report used the Red, Amber Green (RAG) system to denote the severity of the impacts.
Three of these sectors: fossil-based energy and material feedstocks; solar/wind energy; and electronics came up as red. This indicates that in terms of domestic raw material supply these supply chains would not function, due to their reliance on imports.
The other two sectors’ batteries and pharmaceuticals fared slightly better. In terms of domestic raw materials batteries came up as amber-red with amber indicating some capabilities but there would be major disruption in supply chains. Pharmaceuticals came up as amber-green, with green denoting moderate capabilities but would be self-sufficient in the worst-case scenario.
Setting out recommendations, the National Preparedness Commission and SCI are calling on the government to take urgent action on identifying and addressing the product areas that are essential for national preparedness; support manufacturing in key products areas; and take further action to ensure future energy cost competitiveness.
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