Reeves mulls taxpayer-funded subsidy to cut manufacturers’ energy costs
Rachel Reeves is looking at plans for a £1bn taxpayer-funded annual subsidy to bring down the energy costs for manufacturers after warnings the UK faced “rapid deindustrialisation” without intervention.
The Chancellor is facing mounting pressure to lower energy costs for industry with fears high prices are holding back investment opportunities and stifling the country’s competitiveness.
The fresh plans would include taxpayers compensating manufacturers when electricity prices go above a set level and manufacturers returning money to the government when prices fall below a fixed level.
This model is currently operated in several European countries, including France, Denmark, Greece and Hungary.
Prime Minister Sir Keir Starmer, business secretary Jonathan Reynolds, energy secretary Ed Miliband have seen the proposal along with Reeves, according to The Times.
The calls add to mounting pressure from all directions for Reeves to meet sector spending demands.
Reeves will deliver her 2025 Spending Review on Wednesday, where the Chancellor is expected to take the axe to departmental spending as she attempts to follow her “iron clad” fiscal rules.
The Spending Review also comes amid rising priorities for government spending including defence, where the Prime Minister has voiced ambition to meet the NATO target of three per cent of total GDP despite rising questions where the capital will come from.
Soaring energy costs risk security of country
Manufacturing lobby group Make UK have sounded the alarm on the crucial need to support the industry, in a document seen by The Sunday Times, warning the government: “If we do not address the issue of high industrial energy costs in the UK as a priority we risk the security of our country.
“We will fail to attract investment in the manufacturing sector and will rapidly enter a phase of deindustrialisation.”
Make UK’s plan would cost £1.1bn a year for five years from 2027 in order to provide a guaranteed energy price. The body argues this “upfront cost” would be offset by its estimates of a £3bn a year boost to the economy in the medium-term.
A limited number of energy sectors, including steel, metals and chemicals, are eligible for the British Industry Supercharger Scheme, introduced under the Conservative government in 2024.
The scheme aims to lower electricity costs for the most-energy intensive industries through exempting or reducing charges linked to government policies aimed at supporting renewable energy.
A government source told The Times: “This is a government determined to bring good jobs to every part of the country as part of our plan for change, which will put more money in working people’s pockets. The industrial strategy will deliver the long term certainty our industrial heartlands need”