The following Statement was made in the House of Commons on Thursday 16 April.
“With permission, I would like to make a Statement on industrial energy costs.
When I became Business Secretary, I said that we needed to be bolder, to go further and to move faster to support British enterprise. Today, I want to set out what that means for reduced electricity costs for British industry. The events of recent days and weeks serve to demonstrate the strategic weaknesses and the economic threats inherent in Britain’s overdependence on the geopolitics of the global oil market. It is high time that Britain gained energy independence by ending that dangerous overreliance and instead transitioned to become a clean energy superpower.
My right honourable friend the Secretary of State for Energy Security and Net Zero is overseeing that transition; however, British manufacturing continues to have some of the highest electricity costs in Europe. That undermines our manufacturing base, impacts our manufacturing jobs, and damages the lives and livelihoods of cherished communities across the country. The Government were elected to halt and reverse Britain’s industrial decline. That is why our modern industrial strategy addresses high electricity costs for British businesses.
As part of our British industry supercharger package, I have already increased support for over 550 of the UK’s most energy-intensive businesses—those in our heavy industries. We have increased the network charging compensation scheme discount from 60% to 90%, saving companies up to £420 million a year on their electricity bills, and we have started building the UK’s first small modular reactor in north Wales, laying the groundwork for manufacturers to benefit from reliable, low-carbon electricity.
Last year, I launched the consultation on the British industrial competitiveness scheme—BICS—our plan to bring industrial electricity costs more closely in line with those in other European economies. I am grateful for the support of the Chancellor in establishing BICS. The response to our consultation, which we are publishing today, shows overwhelming business support for BICS. The scheme has been endorsed by the Confederation of British Industry and the Society of Motor Manufacturers and Traders. Our partners have done more than just support the policy; they have been co-creators, helping us shape the scope and scale of the scheme. BICS is bigger, bolder and better as a result of their hard work and partnership.
I am announcing today that BICS will benefit 10,000 electricity-intensive manufacturing businesses—those best equipped to drive growth in our economy. Those 10,000 businesses will save up to £40 per megawatt-hour from next year. They will be exempt from paying the indirect costs of three other schemes: the renewables obligation, feed-in tariffs, and the capacity market. BICS is designed to support eligible businesses across all regions of Great Britain. The eligible sectors collectively employ 900,000 people, of whom 700,000 live outside London and the south-east. That is a real advantage for working families and communities around the country, and it gives British businesses a real competitive advantage in the global economy. That is the difference that a Labour Government with an activist industrial strategy makes. This is not just about high hopes or warm words; it is real action to reduce energy costs and increase industrial competitiveness.
I pledged not just to be bolder and to go further, but to act faster in the interests of British businesses. Business is keen, as I am sure the whole House is, for the benefits of BICS to take into account the challenging economic reality that we face. I can announce a one-off payment for businesses eligible for BICS, covering the 2026-27 period, and reflecting the support that businesses would have received had the scheme been in place this year. It will be delivered next year, and my department will set out more details shortly.
Our focus now is on making sure that BICS is as strong and significant as possible, and that it delivers for our car industry, aerospace and defence—the best of British manufacturing. My department is inviting businesses to help us finalise the operational details of BICS. I invite all companies that can benefit from it to go to the Department for Business and Trade’s website, submit their views, and help us prepare for this final phase together.
This is a major industrial intervention and financial commitment by this Government. I am determined to get it absolutely right from the start. We said that our industrial strategy was never about a single publication or a single moment in time. It is a marked departure from the old economic orthodoxies of Thatcherite de-industrialisation and a failed free market ideology that let whole towns, regions and communities go to the wall. Ours is an activist industrial strategy, supporting British businesses when they need it, intervening when circumstances demand it, and investing in wealth creation and opportunity for all.
We recognise the instability in the global economy. As the Prime Minister has said, the conflict in Iran is not our war, but we must do everything in our power to shield British businesses from the worst effects of it. Businesses are rightly concerned about the impact of the conflict in the Middle East. The Chancellor will set out the principles guiding the Government’s thinking as we consider our response.
Today’s announcement of our bigger, bolder scheme is proof positive of our commitment to backing British businesses for the long term. It sits alongside our continued focus on short-term impacts, on which we will not hesitate to act where needed. We will continue using our activist industrial strategy to create the right conditions for British firms to succeed and grow. We do so because we know that when the Government and enterprise work in partnership, we can make Britain stronger, wealthier and more resilient. I commend this Statement to the House”.
My Lords, the Minister will soon trumpet the British industrial competitiveness scheme as being very good for business. But, for all the rhetoric and self-congratulation, this policy will have no meaningful impact on the overwhelming majority of British businesses. By the Government’s own figures, around 99% of firms will see no benefit whatever. So while the Government speak grandly of intervention and support, the reality for most businesses—our small manufacturers, our family firms, pubs, farmers, retailers and countless others—is unchanged. They will go on facing the crippling costs that we heard about in the previous debate, with no help at all from this announcement. Even with the reliefs that have been announced, they are staggered, and the earliest will kick in only in April 2027.
What is the wider context in which this Statement must be judged? It is one not of support for enterprise but of cost, burden and damage inflicted by this Government on British industry. Employers have been hit by increased national insurance contributions. Businesses now face the additional costs of the Employment Rights Act, which, by their own admission, run into the billions, together with the further burden of expanded trade union access to workplaces. That is something many employers will regard, in practice, not as access but as a licence to raid workplaces, disrupt operations and undermine confidence. Having said that, we must acknowledge one delicious irony of the Employment Rights Act: the Prime Minister will be seeing the first high-profile victim of an uncapped unfair dismissal award, which we on these Benches warned about.
The Government will now seek to blame the war in the Middle East, but that explanation simply will not wash. Britain’s industrial electricity prices were already among the highest in Europe and around four times those in the United States—long before this latest crisis. These are not sudden or unforeseeable problems; they are the product of policy failure. They are the result of loading electricity bills with the cost of an energy system increasingly structured around subsidising intermittent renewables, managing grid constraints and paying for mechanisms such as contracts for difference. Those costs were there before the latest conflict, and industry has been warning about them for years.
My Lords, this debate picks up from the Oral Question earlier on the IMF, which warned that the global economy is losing momentum as a result of the Iran war, with the UK expected to be the hardest hit of the G7 economies. The Government need to rethink in the shadow of war, not just to watch and wait.
That brings me to BICS. We welcome plans to bring down some of the highest energy prices in the world, and we are pleased that BICS, which benefits 10,000 of the most energy-intensive businesses, will also provide a one-off payment to cover this year. However, the money will not actually come until next year, so when will those businesses, all of which have to plan ahead and need to know the details—indeed, many are negotiating a whole variety of contracts as we speak—find out exactly what they will get, including which benefits and when they will come?
Many other businesses are threatened by rising costs here and now. I am not clear that the Government have recognised the acute energy cost problems for food businesses and agribusinesses, which not only will have a huge impact on the cost of living of ordinary people but, as we are now starting to hear from some reports, might even lead in certain areas to food shortages. Surely this is a call to action, so what action can we expect?
Frankly, many SMEs, the backbone of our communities, are on the brink from many kinds of pressures, as the Government will be very much aware. SMEs are exposed to a deregulated energy market, with very little support to face it. There is widespread concern about a lack of competition, which has the effect of locking them out of good deals by which they can price energy more effectively. SMEs with more than 50 employees do not even have access to the Energy Ombudsman. The hospitality industry is an extreme case right now and, frankly, it is pretty desperate. Will the Government at the very least instruct the CMA to open an urgent investigation into the state of competition in the energy retail market for hospitality? Will they find some quick solutions for all the areas I have covered? We cannot afford for these industries to endure any more stress and potentially curtail or curb their business.
I am grateful to the noble Baroness for bringing the topic back to the British industrial competitiveness scheme.
We are making this intervention because the party opposite left us with the highest industrial energy prices in Europe. When it entered office in 2010, electricity prices were 8.42p per kilowatt hour; when it left office in 2024, they were 25.97p per kilowatt hour. It is no surprise that, under the previous Government, output in the UK’s energy-intensive manufacturing industries fell to the lowest level in 35 years. That is why we have to take action. We are learning the lessons of other previous schemes to do so in a way that is responsible, keeps to our fiscal rules and is funded, focused and targeted. That is why the BIC scheme is targeted as it is. It will be of benefit and is aligned with those areas of the industrial strategy that will support the growth in manufacturing that we all want to see.
We have been clear that the conflict in Iran is not our war. We will do everything we can to shield businesses from its worst effects. The BICS has been designed as a long-term measure to support growth and competitiveness in our strategic manufacturing sectors. It is not a short-term response to fluctuations in oil prices. The best way we can progress in that sense is to de-escalate and learn the lessons of the past. Reliance on fossil fuels has caused some of this volatility. In the last decades, we have seen spikes in energy prices caused by fossil fuel shocks, which is why we are committed to our clean power mission. With clean, homegrown power, we will secure better energy security and more resilient energy supply.
I was asked about the position in the North Sea. We value production from the North Sea and its workforce. We will introduce new transitional energy certificates that will enable some oil and gas production in areas adjacent to already licensed fields linked via a tie-back or in areas that are already part of an existing field. Developers can also apply for these transitional energy certificates for production in areas adjacent to already licensed fields linked via a tie-back. But they will not be able to carry out new exploration because, regardless of where it comes from, the price of oil and gas in the UK is determined by international markets. We are price takers, not price makers. The only way to take back control of Britain’s energy and bring down bills for good is with clean, homegrown power.
I congratulate the Minister on the beautiful complexity of a scheme that picks winners and allocates taxpayers’ money to those winners so that they can avoid paying a subsidy to other winners that have been picked in the energy sector. Tony Benn would be proud.
My home city is Aberdeen. Given how competitive the energy sector is overall, can the Minister tell us: as a result of this and other government interventions, over the next five years will the number of jobs in the energy sector in Aberdeen rise or fall?
On support for the transition, we have set out a lot of detail on the energy transition with the Clean Energy Jobs Plan. On the North Sea specifically, the North Sea Future Plan sets out how we will scale up our North Sea clean energy industries, such as the government-backed Acorn, Viking and East Coast carbon capture clusters, the UK’s first regional hydrogen network and our plan to host the world’s biggest offshore wind farm. We are very supportive of places and industries as they transition from fossil fuel economies to the clean power agenda.
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In what sort of alternative reality does it make sense to have to come up with various schemes—this, the BICS, the supercharger package, the energy-intensive industries compensation scheme, the network charging compensation scheme and all the rest, all of which are of mind-bending complexity and designed to mitigate the effect of the Government’s own policies with taxpayers’ money?
Then we come to domestic energy production. At precisely the moment when Britain should have been strengthening resilience and insulating itself from geopolitical shocks, this Government have moved in the opposite direction. They have imposed a punitive 78% tax burden on North Sea oil and gas producers—a windfall tax on windfalls that, in many cases, simply do not exist. They have halted new licences at exactly the wrong moment, when domestic production is needed most to buffer Britain from volatility abroad. The Jackdaw gas field could provide 6% of Britain’s gas needs. As my noble friend Lord Moynihan noted in the previous debate, there is no case not to do this. The result is plain to see: jobs are being exported, gas is being imported, rigs are leaving, investment is frozen, and capital is fleeing to more stable and more welcoming jurisdictions. Hundreds if not thousands of skilled jobs are being lost and Britain is becoming more, not less, exposed.
The Government will soon blame the high international gas price, which is used to set the domestic electricity price two-thirds of the time. But, as any O-level student knows, increasing supply lowers prices. Will the Government therefore reverse the ban on these licences? Is not the simple truth that the Government have chosen to make this country more vulnerable to geopolitical shocks, including conflict in the Middle East, than it needed to be?
In the other place, the Secretary of State, Peter Kyle, said that this package would deliver for Britain’s manufacturing, but what have the Government done to British manufacturing? The manufacturing base has already been damaged by the Government’s disastrous steel strategy, which has raised the cost of both domestic and imported steel. That matters profoundly for sectors such as the automotive sector, where steel is not incidental but foundational. One cannot claim to back manufacturing on Monday while making core industrial inputs more expensive on Tuesday.
The Secretary of State also cited the support of the Society of Motor Manufacturers and Traders, but does the Minister accept that the motor industry is simultaneously being hit by other government policies that are doing real harm? The electric vehicle mandate is imposing enormous costs on manufacturers, and the industry itself has warned of a multi-billion-pound burden—around £6 billion by the SMMT’s own assessment.
The Government’s rhetoric is one thing, but the reality is quite another. They speak of backing British industry while, in practice, they are crushing parts of our industrial base under the combined weight of energy costs, regulation, mandates and taxation. Will the Government consider abolishing, or at least relaxing, the EV mandate to give much-needed relief to the British automotive sector?
Yes, we welcome the announcement that the carbon price support will be removed from April 2028, but if the Government now accept that this burden damages competitiveness, why on earth are they waiting until 2028? Why must British industry continue to suffer for another two years before any relief is given? British industry needs lower costs, a competitive tax regime and a Government who stop making this country harder in which to invest, to manufacture and to do business.
Of course SMEs need to achieve energy efficiency, but we all know that means upfront costs. Will the Government set up an energy security bank as a mechanism to provide SMEs with low-cost finance so that they can invest in energy tech? They can then repay that finance because of the savings they make, so it would be a sensible and appropriate way to generate a circle of financing. With that, we would need a real overhaul of the business rates system. At the moment, firms are penalised if they invest in productive energy saving investments made on their premises. This is surely the opposite of what the Government want. Will they take action on these fronts quickly?
Drilling in the North Sea is simply too marginal to make a difference to the overall supply of commodities traded in an international market. The North Sea has been in natural decline for the past 25 years. New licences to explore new fields would also take up to 10 years to be developed and would not make any difference to UK domestic energy production now.
The noble Baroness raised a question about the timing and implementation of the payments. In our consultation, we heard strong calls from the industry for the Government’s support to be felt sooner. That is one of the reasons why we have announced that there will be an additional payment for businesses that are eligible for the BICS. That payment will be delivered next year and will reflect the support that businesses would have received had the scheme gone live sooner.
I was asked about the scope of the BICS. It covers 10,000 electricity-intensive manufacturing businesses. Why are more businesses not eligible? The answer is that the BICS is targeted where it will have the greatest impact on growth. It focuses on the highest growth potential sectors identified within our industrial strategy, such as the car industry, aerospace and defence—those most exposed to high electricity prices. It is right that we implement this tailored scheme for them so that we give those businesses a fair shot at winning in the global economy.
On timing, the BICS will be delivered next year, in line with the commitment set out in our modern industrial strategy. The exemptions on bills will take effect from April next year for the renewables obligation and the feed-in tariff levies. Exemptions from the capacity market levy will then kick in from next October. In our consultation paper, we have set out the regulatory changes and the scheme delivery to make sure that the BICS works effectively.
On support for SMEs and the hospitality sector, we are closely in touch with other sectors. We are engaged in supporting the development of high streets and hospitality with sense of place. The scheme will be open to SMEs in those eligible sectors, and I encourage any businesses that are considering whether they are eligible to consult the eligibility checker, which we will make available in the summer, to see whether they qualify, and then to go through the process of applying for the BICS.
The BICS is an excellent targeted scheme that will bring down electricity prices, with an average discount of 25%. For those businesses, it will bring electricity costs in line with other economies in Europe, and it will set us up over the long term as we create the pro-business, pro-investment environment that we need for growth.