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Plans to lower energy costs for thousands of businesses by exempting them from some green energy levies have been set out as part of the government’s new 10-year industrial strategy.
The measures, which could slash energy bills by up to 25% for more than 7,000 UK businesses, have been unveiled alongside other plans aimed at boosting growth.
Prime Minister Sir Keir Starmer told the BBC the strategy intended to “stabilise” and help “mitigate” challenges to the UK from abroad.
Acting shadow energy secretary Andrew Bowie criticised the plans, saying the UK needed “a serious approach to energy policy” that “tackles the root cause of our high energy prices”.
He said it was “astonishing” Labour was “finally admitting that the costs of net zero are so high that they’re having to spend billions of pounds of taxpayers’ money subsidising businesses’ energy bills to stop them going bust”.
Manufacturers in the UK currently pay some of the highest electricity prices in the developed world.
A new British Industrial Competitiveness Scheme will cut costs by up to £40 per megawatt-hour from 2027 for more than 7,000 manufacturing firms by exempting them from certain extra charges that currently support green energy and back-up power supply systems.
Details of which businesses are eligible and further details on the exemptions will be determined following a two-year consultation period.
About 500 of the most energy-intensive firms, including the steel industry, chemicals and glassmaking, will also have their network charges cut.
Those firms currently get a 60% discount through the British Industry Supercharger scheme, which will increase to 90% from 2026.
Monday’s announcement also contained measures to speed up the time it can take to connect new factories and projects to the energy grid.
The prime minister said the industrial strategy gave businesses “the long-term certainty and direction” they need to “invest, innovate and create good jobs that put more money in people’s pockets”.
Following the events in the Middle East, Sir Keir also told the BBC that the strategy was intended to help the UK “mitigate the effect of issues and challenges from abroad”.
“One of those challenges has been energy prices… this strategy delivers cheaper electricity prices in this country in the long term”.
The government has said the changes can be made without increasing bills or raising borrowing, with funding coming from tweaks to existing green measures.
Officials say existing subsidies for renewable energy producers will be stretched over a longer time frame, meaning more money in the pot in earlier years, while the UK’s proposed readmission to an EU system for trading carbon emissions will raise revenues and reduce costs.
Boosting skills
Other plans within the industrial strategy include:
improving UK workers’ skills and reducing reliance on foreign workers by spending an extra £1.2bn each year for skills by 2028-29attracting “elite global talent” to come and work in the UK with visa and migration reformshiring more planners and streamlining application processes to reduce planning timelines and cut costs for developersboosting research and development spending to £22.6bn per year by 2029-30 to drive innovation – including £2bn for AIThe government said it would be focusing on eight specific sectors where the UK is already strong and therefore should have the potential for faster growth.
These sectors are advanced manufacturing, clean energy industries, creative industries, defence, digital and technologies, financial services, life sciences, and professional and business services.
When Labour won the election last year, it made boosting economic growth its top priority.
While the economy grew by more than expected in the first quarter of this year, it shrank by 0.3% in April – its worst contraction for a year-and-a-half – and analysts are predicting weak growth in the months ahead.
Businesses have also complained about rising wage costs and taxes, and have raised business groups raised concerns that the government’s Employment Rights Bill could hit growth.
Chancellor Rachel Reeves said the industrial strategy will “see billions of pounds for investment and cutting-edge tech, ease energy costs, and upskill the nation”.
Hospitality sector ‘disappointed’
Manufacturer’s organisation Make UK’s chief executive Stephen Phipson said the government strategy set out plans to address “all three” major challenges facing industry – “a skills crisis, crippling energy costs and an inability to access capital for new British innovators”.
Trades Union Congress (TUC) general secretary Paul Nowak welcomed action “to reduce sky-high energy costs for manufacturers”.
He said: “For too long, UK industry has been hamstrung by energy prices far above those in France and Germany. It’s made it harder to compete, invest, and grow.”
However, not all businesses are happy with the proposed plans. Retail and leisure sectors have not been included in the strategy despite many complaining of high energy bills and the rise in staffing costs.
Kate Nicholls, chief executive of UKHospitality, said: “We were desperate to see a plan for hospitality and the High Street, which together employs over 7 million people. We were disappointed.
“How can national renewal be properly delivered if 70% of the economy is excluded from the government’s flagship plan for growth?”
Business Secretary Jonathan Reynolds told the BBC: “It’s neither picking winners or picking losers, it’s about having a business environment where for the most internationally mobile capital sectors we’re competing across the world.”
He added that this would “direct benefits to every other sector of the economy”.
Liberal Democrat business spokesperson Sarah Olney said government plans “must contain real solutions to bring down businesses’ sky-high energy costs and upskill workers around the country” and ministers must ensure small businesses “are right at the heart” of measures.
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