Next Generation Manufacturing UK: What It Means for You

At the Make UK National Manufacturing Conference on 3 March 2026, Business Secretary Peter Kyle laid out a vision that every manufacturing director should understand. Against a backdrop of global change and new technology, he outlined a framework for next generation manufacturing UK businesses must embrace. This transformation is built on three pillars: conception, production and utilisation.

This is not abstract policy talk. It is a practical blueprint that will shape government investment, skills funding and support programmes. Understanding it could determine whether you lead the next wave of growth or struggle to keep pace.

The Strategic Imperative: Why This Matters Now

The numbers tell the story. UK manufacturing output increased by £21 billion in 2025, reaching nearly £639 billion. Productivity rose 1.4 per cent in real terms. Average output per employee climbed 2.9 per cent, adding £7,000 per worker.

Yet this growth came despite a workforce reduction of over 36,000 people and 2,500 fewer active manufacturers. The sector is achieving more with less. This trend will only accelerate as next generation manufacturing UK adoption grows.

Meanwhile, the UK ranks just 11th globally for manufacturing output at $279 billion. More worrying still, with only 119 robots per 10,000 workers, Britain has the lowest robotics adoption in the G7. We trail not just traditional rivals but emerging economies like Mexico and Turkey.

The Business Secretary was blunt: “Securing Britain’s transition to next generation manufacturing is not an option. It is a strategic imperative.”

Pillar One: Conception (How Things Are Designed)

The first pillar focuses on design, where value is increasingly captured before anything is physically made.

Digital Twins and Advanced Simulation

Rolls-Royce has pioneered digital twin technology in aerospace. They create virtual replicas of physical engines that can be tested, optimised and monitored in real time. This enables predictive maintenance, extends service intervals and cuts the manufacturing carbon footprint.

BAE Systems is using advanced modelling and AI in complex defence platforms. Their FutureWorks facility uses digital twins, Manufacturing Execution Systems and OpsCentre technologies to manage and track production.

The 2026 Innovate UK Manufacturing Survey found that digital twin adoption reduces time to market by up to 40 per cent. It also cuts prototyping costs by a third.

What This Means for Your Business

The factory of the future begins on a high-performance computer, not the shop floor. If you are not investing in digital design, simulation and data-driven engineering, you are ceding ground at the earliest stage of the process.

Consider:

• Where could digital twins reduce your prototyping cycles?
• What design decisions could benefit from simulation?
• How are you capturing and using design data across your supply chain?

Pillar Two: Production (How Things Are Made)

The second pillar addresses how we physically transform production. This is where the UK faces its most significant competitive gap.

The Robotics and Automation Deficit

The statistics are stark. Asia installs 73 per cent of new industrial robots globally. The EU maintains steady growth. But the UK’s modest 3 per cent growth rate signals a concerning trajectory. The global robotics market is projected to reach £283 billion by 2032.

Goldman Sachs forecasts that humanoid robots will become viable for factories by 2027. Countries including Australia and China are racing ahead with national robotics strategies.

As the National Robotarium’s CEO Stewart Miller argued: “The challenge is so urgent, the risk of falling behind so great, that nothing less than bold policy vision will do.”

Made Smarter: The Government’s Digital Adoption Programme

The Made Smarter Adoption programme is the main vehicle for closing the technology gap. Since November 2018, it has reached over 4,000 manufacturing SMEs.

Key facts:

• The government has committed up to £16 million in 2025-26 to expand to all nine English regions
• Scotland, Wales and Northern Ireland expansion is planned from 2026-27, reaching 2,500 additional SMEs each year
• A government study found 97 per cent of firms that adopted digital tech reported benefits
• Benefits included improved efficiency, better planning and reduced costs

The programme supports robotics, autonomous systems, AI, 3D printing and other emerging technologies.

AI Adoption: The Current Reality

The UK’s Technology Adoption Review 2025 found that just 8 per cent of manufacturers have introduced AI and machine learning. Yet automotive leads with 60 per cent adoption, followed by electronics at 55 per cent.

For UK manufacturing overall, a 1 per cent productivity improvement represents about £94 billion annually. The cost of delayed adoption is enormous.

Practical Steps for Production Transformation

1. Assess your baseline: Where are you on the digital adoption curve? Made Smarter offers digital roadmapping support.
2. Start with quick wins: Predictive maintenance, quality inspection and inventory optimisation often deliver rapid ROI.
3. Build internal capability: Technology achieves nothing without skilled people to run it.
4. Engage your supply chain: Production transformation needs integration across supplier networks.

Pillar Three: Utilisation (How Things Are Sold)

The third pillar may be the most profound shift. It marks the move from selling products to selling outcomes.

The Rise of Servitisation

The Business Secretary referenced Rolls-Royce’s “power by the hour” model. Aircraft engines are sold not as hardware but as a service. Performance is monitored digitally. Maintenance is predictive rather than reactive. Customers pay for outcomes rather than assets.

This servitisation model, pioneered by Bristol Siddeley in the 1960s, is now spreading across manufacturing. Tetra Pak, Xerox and Alstom have all become service-led businesses. Each shows year-on-year growth in service revenues.

Research shows that manufacturers adding services to products achieve 5 to 10 per cent annual growth.

Why Utilisation Matters

As the Business Secretary explained: “That combination of advanced engineering and digital service provision is where the margins are won. It is where profits are made. It is where shareholder value is built.”

The shift has major implications:

• Revenue becomes recurring rather than transactional
• Customer relationships deepen and lengthen
• Data from products in the field informs design improvements
• Barriers to competition increase as service ecosystems develop

UK Export Finance and Trade Policy

The government is mobilising UK Export Finance to support smaller manufacturers. Trade policy, export finance and diplomatic engagement are being aligned with manufacturing strengths.

For manufacturers ready to export outcomes rather than just products, this is a significant opportunity.

The Skills Revolution: Funding and Reform

None of this transformation happens without people. The skills challenge is acute.

The Scale of the Problem

Make UK CEO Stephen Phipson highlighted that manufacturing apprenticeship starts are down 40 per cent over the past decade. Almost one million young people are not in education, employment or training. A quarter of the workforce is expected to retire within a decade. Half of vacancies in some areas remain unfilled.

The sector currently faces 70,000 vacancies. Wellbeing-related workplace ill health affects 1.9 million people, over half due to stress, depression or anxiety.

Growth and Skills Levy: What Is Changing

From April 2026, the reformed Growth and Skills Levy brings major changes. This is a key enabler of next generation manufacturing UK skills development:

• Levy funds can be used on short, modular training courses in AI, digital and engineering
• The government will cover apprenticeship costs for eligible under-25s at SMEs
• Level 7 apprenticeships for adults 22+ will no longer be supported by the levy
• Skills England is consulting with manufacturing employers to prioritise training

The government has pledged over £1 billion in tailored sector skills packages. Related reforms are already underway, as covered in our analysis of Government apprenticeship reforms and what £725m means for UK manufacturers.

The Advanced Manufacturing Upskilling Programme

New short courses funded through the Growth and Skills Levy launch from April 2026. They focus on digital skills, AI and engineering.

Make UK is calling for the release of £1 billion in skills funding currently held by government. This could create a significant number of apprenticeships for young people.

What This Means for Your Workforce Strategy

1. Review your levy position: Understand what you can now fund that was previously excluded.
2. Map skills gaps: Where do you need AI fluency, data capability, automation expertise?
3. Partner with education providers: FE colleges and universities are receptive to industry collaboration.
4. Invest in leadership capability: Manufacturers at the conference named leadership as their top skills priority.

Energy: The Persistent Challenge

Energy costs remain what Stephen Phipson called “an existential threat” to UK manufacturing. The Business Secretary acknowledged this, referencing schemes to support high-energy industries.

The British Industrial Competitiveness Scheme launches in April 2027. But Make UK is calling for faster action and broader scope. Until UK energy costs come down and grid access improves, manufacturers will struggle to compete.

Schneider Electric’s Leeds facility has cut CO2 emissions by 82 per cent alongside major efficiency gains. This shows what is possible. But many manufacturers face barriers: long grid connection queues, rising electricity costs and confusing planning processes.

National Grid’s planned £70 billion investment offers medium-term hope. Short-term challenges remain pressing.

Defence and Resilience: A New Strategic Context

The Business Secretary opened his speech acknowledging the geopolitical situation in Iran and across the Middle East. He urged businesses with regional interests to follow Foreign Office travel advice.

This shapes the broader call from Make UK for a new national vision combining economic and defence security. The UK is working to maintain US trading relationships, improve EU relations and restore a more positive relationship with China. For more on this diplomatic shift, see our coverage of the UK-China trade reset and what Starmer’s Beijing deal means for manufacturers.

Defence spending is increasingly viewed as a growth driver and skills accelerator. Make UK is calling for a roadmap to increase defence spending to 5 per cent of GDP.

The Industrial Strategy: Delivery Is Everything

The Industrial Strategy underpins all of this. But concerns about pace persist. Stephen Phipson warned that while some areas show progress, “some Departments are moving faster than others and there is a danger that it is misfiring”.

Make UK wants the Industrial Strategy Advisory Council to have a stronger role in holding government to account.

The Critical Minerals Strategy, DRIVE35 programme for electrification, and Supercharger Policy are all part of this framework. The question is execution.

Five Actions for Manufacturing Leaders

Based on the government’s vision and the competitive landscape, here are five priorities for manufacturing directors:

1. Audit your digital maturity across all three pillars Map where you are on conception (design and simulation), production (automation and AI) and utilisation (services and outcomes). Identify gaps relative to your competition.

2. Engage with Made Smarter If you have not already, contact your regional Made Smarter team for digital roadmapping support. The programme offers funded advisory services and grant support.

3. Prepare for the Growth and Skills Levy changes Review what modular training becomes available from April 2026. Map this against your skills gaps in AI, digital and engineering.

4. Explore servitisation opportunities Consider where you could bundle services with products. What outcomes do your customers actually want? What data could you capture from products in the field?

5. Engage with your MP and trade body on energy policy The British Industrial Competitiveness Scheme needs to be accelerated and broadened. Make your voice heard through Make UK or your trade association.

Conclusion: Shape It or Be Shaped by It

The Business Secretary posed the question directly: “The question is not whether this transformation in manufacturing will occur. It is whether Britain will shape it. Or be shaped by it.”

UK manufacturing has shown remarkable resilience. Output increased by 27.8 per cent in real terms since 2020 despite workforce reductions and global uncertainty. But resilience is not enough. The sectors achieving the strongest growth — aerospace, pharmaceuticals, chemicals, metals and machinery — are those investing in next generation manufacturing UK capabilities, automation and productivity-enhancing technologies.

The framework is now clear: conception, production, utilisation. The funding mechanisms are being put in place. The question for every manufacturing director is whether they will move fast enough.

The evidence from the Make UK conference was clear: UK manufacturers are ambitious, innovative and ready for partnership. But they need a skills system, an energy system and a policy environment that match that ambition.

The next generation of manufacturing is not a future state. It is being built now, in factories across the country that are investing in digital capability, workforce development and new business models. The only question is whether your business will be among them.