Taxpayer will subsidise industry energy bills to help firms compete
British manufacturers will have their energy bills slashed and subsidised by the taxpayer under plans to boost the country's global competitiveness.
Ministers will announce a multibillion-pound package of support to the UK's most energy-intensive industries to bring their costs in line with international competitors.
The announcement next week will form the centrepiece of a ten-year industrial strategy under which the government provide bespoke support for sectors that are seen as critical for the UK's long-term growth.
Under the plan, Britain's industries, such as steel, ceramics and chemicals will see the standing charges they pay for their electricity supply fall by up to 90 per cent, saving them hundreds of millions of pounds a year.
But sources said that Rachel Reeves, the chancellor, and Jonathan Reynolds, the business secretary, wanted to go further and extend the support to other industries who are heavy electricity users but are currently ineligible for support.
They are launching a consultation to extend subsidised power to other key growth sectors such as AI databases and advanced manufacturing that are not currently covered by the existing scheme and cost the government several billion pounds.
This would see firms being exempt from paying towards the costs of the government's renewable energy policies — bringing the UK into line with others who largely fund the upfront costs of transitioning to net zero through general taxation.
One source described the government's move as a 'very significant intervention' which had the backing of the Treasury 'despite severe fiscal constraints'.
Another source close to the plans added: 'The attitude is that if the Office for Budget Responsibility are going to make us raise taxes by £15 billion anyway, we might as well add this for the sake of keeping jobs alive.'
Britain has some of the highest industrial electricity prices in the developed world, according to 2023 data from the International Energy Agency.
Since 2021, the average electricity price for UK non-domestic users has increased to 75 per cent higher than the average price at the start of 2021.
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UK firms currently pay about 25p per kilowatt hour for power compared with just 17p in France and Germany. Compared with the United States, prices are almost three times higher.
Industry has long argued that such high prices have deterred investment in the UK and made it far harder for existing British firms to compete in international market places.
They have also warned that the problem will be exacerbated by the government's wider net-zero plans to shift energy consumption away from gas towards electricity.
Sir Jim Ratcliffe, the founder of chemicals giant Ineos, warned last month that 'excessive' energy costs were 'squeezing the life out of the sector'. Reeves also acknowledged the problem when she addressed the GMB union earlier this month.
'There are a whole range of sectors where energy prices are making our British businesses uncompetitive with our counterparts around Europe where energy prices for industry are lower,' Ratcliffe said.
Stephen Phipson, chief executive of Make UK, which represents Britain's manufacturers, said it would be a 'genuine game changer'.
'At a time of falling confidence and weak economic growth, such a welcome move would help kick-start vitally needed investment and put industry on a much stronger footing to support the government's key mission of boosting the economy at a time when a shot in the arm to confidence is much needed,' he said.
The industrial strategy will set how the government intends to support eight key growth sectors, and 37 sub-sectors, with a particular focus on advanced manufacturing, clean energy industries, and defence.
The strategy lists 40 areas across the UK where sectors will be supported to 'cluster' — many in post-industrial areas where Reform UK is posing the biggest threat to Labour.
The document will also include a plan for boosting domestic digital and engineering skills, with further education colleges offered funding to set up technical courses which lead to particular career routes.
'It does not try to be all things to all people, so there will be some big losers,' the source said. 'This is about the type of economic growth as much as the scale of it.'
The strategy will also spell out which sectors will benefit from the two-thirds uplift to funding for the British Business Bank. One source said the government wanted to prioritise funding on small and medium-sized businesses, helping them to expand in the UK rather than having to rely on foreign equity.
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