Rachel Reeves is considering a £1bn-a-year taxpayer-funded subsidy to slash energy bills for manufacturers, amid warnings the UK faces “rapid deindustrialisation” without urgent action.
According to reports in The Sunday Times, the Chancellor is weighing up a new scheme where government would compensate firms when electricity prices rise above a fixed level, with companies paying money back when prices fall.
Similar models already operate in France, Denmark, Greece and Hungary.
Pressure is mounting on Reeves from business groups and ministers, with PM Sir Keir Starmer, business secretary Jonathan Reynolds and energy secretary Ed Miliband also having seen the proposal.
The plan comes as Reeves prepares to deliver her 2025 Spending Review this Wednesday.
She is expected to stick to her “iron clad” fiscal rules despite competing demands for cash, including a defence budget Starmer wants to raise to 3% of GDP.
Lobby group Make UK has warned by not addressing high industrial energy costs, we risk the security of our country. They say it would mean lack of investment in the manufacturing sector which will rapidly enter a phase of “deindustrialisation.”
Make UK’s plan would cost £1.1bn a year for five years from 2027, in return for a guaranteed energy price.
The group argues this would unlock £3bn a year for the wider economy by mid-decade.
At present, only energy-intensive industries such as steel, metals and chemicals benefit from government help via the British Industry Supercharger Scheme, which cuts policy-linked charges on electricity to help shield vital sectors.
