Local Growth Plans: challenges and opportunities

Posted on: 9 May 2025 by Tom Arnold in Blog

As Local Growth Plans are developed by combined authorities across England, Tom Arnold highlights the challenges and opportunities associated with developing these strategies.

As part of its English devolution programme, detailed in the recent white paper, the government has asked local leaders to produce Local Growth Plans (LGPs). Combined authorities – including in Liverpool City Region – have been developing these plans, with many now published for consultation and others to follow over the coming months. LGPs are the latest in a line of government-commissioned documents aimed at shaping regional economic activity, following the Local Industrial Strategies commissioned by Theresa May’s government in 2017 and their successors, such as Liverpool City Region’s Plan for Prosperity. Many combined authorities have therefore produced several local economic strategies in recent years. Their challenge will be to bring together this existing knowledge with local expertise and apply it to a new economic context characterised by global turmoil, a government pushing for growth as one of its priority ‘missions’, and the urgent need to decarbonise and achieve net zero targets.

In its 2024 general election manifesto, Labour set out the rationale for LGPs, explaining that these statutory documents would identify “economic clusters and set out plans to build on their local advantages, the key binding constraints of their local economies and how they will use the powers devolved from central government to support local growth”. The plans are therefore expected to both identify specific sectors in which local economies have expertise and to set out priorities for developing the foundations for better growth.

Picking winners?

For several decades following the high profile failures of several publicly owned companies in the 1970s the concept of industrial strategy was demode, derided by critics as the state attempting to ‘pick winners’. More recently, however, successive UK governments have been more willing to embrace the idea that particular sectors have strategic national importance and should therefore be supported either directly or indirectly. The Industrial Strategy White Paper, published last autumn, identifies eight ‘growth’ sectors, including defence, clean energy industries and financial services. Although government’s intentions for the relationship between the industrial strategy and LGPs is at this stage unclear, many of the draft LGPs published so far mirror this approach. The North East LGP, for example, identifies offshore wind and other industries associated with the energy transition as growth opportunities, while the West Yorkshire plan highlights five regional specialisms. Along with guiding combined authority decision-making, the plans should be considered an opportunity for government to learn from the activity and local knowledge of mayors and other local leaders.

A central dilemma in identifying priority sectors is that industries with the highest levels of productivity, or the most significant growth potential, may not employ a large proportion of the workforce. Pharmaceuticals, for example, is one of the sectors with the highest levels of productivity, but according to the sector’s main representative body, employs around 125,000 people – just 0.37% of the UK’s total workforce. By contrast, accommodation and food services – one of the UK’s lowest productivity sectors – employs over 7% of the workforce. Encouraging workers to move from low productivity to high productivity sectors would likely boost growth, with automation and upskilling playing a key role in this process. However, growth will also be reliant on improving productivity in foundational economy sectors such as retail, food production and healthcare which facilitate functioning of the economy and employ at least 40% of the UK workforce.

Building foundations for growth

The challenge of identifying which sectors may grow over the coming decades means Local Growth Plans will also need to focus on the broader conditions that contribute to developing economic prosperity. This means addressing the ‘binding constraints’ on growth in regions such as Liverpool City Region, defined in an influential recent Harvard study of UK regional productivity as “not just a laundry list…but also a diagnosis of which of these constraints are the most binding – which constraints, when alleviated, will be more likely to generate growth?”.

These binding constraints will differ between places, but may include factors such as poor transport infrastructure, low levels of skills amongst the resident population, and low levels of spending on research and development. Policy interventions which focus on one constraint will not improve regional productivity (and therefore increase growth) unless other binding constraints are also addressed. This means it is important for LGPs to identify the specific constraints on growth in their region and develop a suite of policies which tackle these concurrently. The rollout of deeper devolution encompassing a greater range of powers and responsibilities over coming years, alongside the introduction of multi-year, integrated settlements for established Mayoral Combined Authorities (including Liverpool City Region), can enable regional leaders to develop long-term, holistic plans to tackle the main barriers to growth and develop stronger foundations for prosperity.

Local growth in an era of polycrisis

Local Growth Plans are being developed during a period of significant global economic turmoil. The unilateral imposition of tariffs on all imports by the Trump administration throws a grenade into a world economy still recovering from the Covid-19 pandemic, its aftershock effects on inflation and supply chains, and Russia’s invasion of Ukraine which prompted a rapid rise in European energy costs. There will undoubtedly be more turmoil to come. Local Growth Plans will need to be responsive to the rapid pace of change, embedding resilience and acknowledging that the economic future is uncertain.

That said, there are some certainties that should help guide development of LGPs. The UK’s commitment to achieving net zero remains, with strong public support for hitting the 2050 target. Decarbonisation and the transition to clean energy will be central to the UK’s economy for the next half century and beyond. The rapid development of AI poses challenges for policymakers but also opportunities to improve productivity. Spending on defence and national security will increase as a percentage of GDP and much of the growth in these sectors will be in regions outside London and the South East.

Government has set out its support for combined authorities to be the delivery vehicles for economic growth. The developing Local Growth Plans will set out a roadmap for this growth and how it will provide long-term benefits to residents and businesses beyond the current political cycle. 

Image credit: Roger Sinek