What does the EU’s Clean Industrial Deal mean for UK competitiveness?

What has been announced?

On 26 February 2025, the European Commission unveiled a new plan to support industrial competitiveness and resilience across the European Union. The Clean Industrial Deal promises to secure the future manufacturing in Europe, accelerate decarbonisation and tackle high energy costs and ‘unfair’ global competition.

Recognising that aviation is one of the hardest sectors to decarbonise, the Clean Industrial Deal proposes a Sustainable Transport Investment Plan to provide support for specific renewable and low-carbon aviation fuels. Further, a Hydrogen Mechanism will be launched this year to open up financing and de-risking opportunities in hard to decarbonise industrial sectors and transport like aviation.

Building on the EU Green Deal, the Clean Industrial Deal will further mobilise over €100bn of funding to support EU-made clean manufacturing. Regulations will also be amended to increase InvestEU’s risk-bearing capacity and to approve state aid measures more quickly via new framework.

Proposals will also see the establishment of a Union of Skills to reinforce sectoral skills for strategic industries, including in relation to reskilling. And further, the EU will take the opportunity to reduce barriers to growth by optimising the regulatory environment.

What does it mean for the UK?

For some time now, ADS has been warning that the UK needs to up its game if it is to secure advantage in an increasing competitive world. The Clean Industrial Deal further underlines the urgency of that mission. The suite of initiatives announced by the EU is comprehensive, taking in a variety of measures from skills to subsidy control, and regulation to risk tolerance.

Aerospace is an international industry dominated by large, mobile companies. That means the UK must not fall behind the EU and other international competitors if the economic opportunities of decarbonisation are to be harnessed. The Industrial Strategy will represent a big step forward with aerospace set to be explicitly recognised as a priority subsector within advanced manufacturing. There is also cause for optimism in relation to skills, apprenticeships, regulation and subsidy control.

Yet the Clean Industrial Deal is by no means a silver bullet. While industry has welcomed the inclusion of charging infrastructure and low-carbon fuels such as hydrogen, the Clean Industrial Deal omits any mention of new aircraft technology, air traffic management optimisation or sustainable aviation fuels (SAF). That leaves an opportunity for the UK to step up and fill the gap, supporting research and innovation, airspace modernisation and domestic SAF production. To that end, ADS welcomes a new, second government consultation on the establishment of a Revenue Certainty Mechanism which ought to be supported on a competitive basis.

Seizing these opportunities will be essential if the UK is going to secure the production of next generation aircraft wings and engines here in the UK. And with key decisions on next generation aircraft set to be made during the course of this Parliament, time really is of the essence.

How can the UK compete?

The UK must not be outflanked by the EU on one hand and the US on the other. While the direction of travel from the US is uncertain – and Inflation Reduction Act funding remains frozen – it is also true that the US’ appetite for risk and deregulation drives US competitiveness. With the EU responding in kind, the UK needs to adapt to the new international reality.

The UK can best compete by adopting a comprehensive Industrial Strategy that works hand-in-hand with reform to subsidy control regulations and to the skills landscape. The UK’s aerospace sector has delivered growth of 16% in value add over the last decade but has significant additional growth prospects, highlighting the scale of opportunity if the UK gets this right.

Better supporting the commercialisation of new technologies will be critical to securing UK advantage. While ADS warmly welcomed the confirmation of £975m for the Aerospace Technology Institute (ATI) at the Autumn Budget, we are also calling for a 10-year funding settlement to catalyse significant industry co-investment and provide long-term certainty for the aerospace sector. Support to industrialise ATI funded innovation is also needed to end the age-old UK cycle of good discovery and poor exploitation.

By doing the above and more, the UK can find a sweet spot whereby competitiveness is secured via a series of highly targeted reforms. No one is pretending that the UK can match the breadth or level of support being offered in the larger US and EU markets; however, there is no reason that the UK cannot continue to punch above its weight with the right policy interventions from government.