Rachel Reeves has pledged to slash electricity bills by up to a quarter for more than 10,000 British manufacturers, in a move Whitehall hopes will shore up the country’s battered industrial base and blunt criticism that ministers have been slow to tackle the highest energy costs in the developed world.

Speaking from Washington, where she is attending the spring meetings of the International Monetary Fund, the Chancellor confirmed on Thursday that the British Industrial Competitiveness Scheme (BICS) will be widened by 40 per cent, bringing an additional 3,000 firms under its umbrella. The scheme, first trailed in last year’s Modern Industrial Strategy, will exempt qualifying businesses from the indirect costs of three legacy green levies: the Renewables Obligation, Feed-in Tariffs and the Capacity Market.

Treasury officials put the value of the relief at roughly £35 to £40 per megawatt hour, or up to £600 million a year once the scheme takes effect in April 2027. Crucially, ministers insist that neither households nor businesses outside the scheme will see their bills rise as a consequence, with the cost being met through a mixture of changes within the energy system and Exchequer funding. Full details are to be set out in next year’s Budget.

In a concession to firms that have been lobbying hard for immediate relief, the Chancellor has also agreed to a one-off backdated payment in 2027, replicating the support manufacturers would have received had BICS been operational from April 2026. Exemptions on the Renewables Obligation and Feed-in Tariff levies will kick in from April 2027, with Capacity Market exemptions following that October.

Eligibility will run the length of the industrial spectrum, from sprawling steelworks and automotive plants to smaller recyclers, plastics producers, metal fabricators and pharmaceutical manufacturers. Aerospace companies, nuclear fuel processors and makers of cooling and ventilation equipment are also expected to qualify. Relief will be calculated site by site, based on the proportion of electricity used to manufacture eligible goods. Sites where less than 25 per cent of power is used for qualifying production will receive nothing; those between 25 and 50 per cent will get a half exemption, and any site above 50 per cent will benefit in full. Notably, the scheme draws no distinction between large corporates and SMEs, a point likely to be welcomed by smaller firms in the supply chain who have often found themselves shut out of previous industrial aid programmes.

Ms Reeves said the measure was part of the Government’s broader push to deliver “stability, keeping costs down, and boosting competitiveness” at a time when the Middle East crisis is once again rattling global energy markets. “This Government has the right plan for the economy: backing British industry, cutting electricity costs, and building a stronger, more resilient future,” she said, adding that the announcement would help manufacturers “compete, win and create good jobs across the country”.

The Business Secretary, Peter Kyle, framed the move as a response to the number one complaint he hears on factory visits. “When global instability puts businesses under pressure we’ll always do what’s needed to support them,” he said. “By extending the reach of BICS by 40 per cent, we’re acting decisively to tackle the number one issue that businesses face head-on.”

Business lobbies offered a qualified welcome. Rain Newton-Smith, chief executive of the CBI, said the Chancellor had shown she was “listening to firms grappling with volatility in global energy markets”, though she stressed that BICS should be viewed as “an important step” rather than “job done”. Lasting reform, she argued, would require stripping policy costs from electricity bills altogether, scaling up energy efficiency support and accelerating the rollout of renewables.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, described the final design of BICS as “a major win” for the car industry, saying it sent “a clear and immediate signal that we are open for business and a prime destination for investment”. Shevaun Haviland, director general of the British Chambers of Commerce, welcomed the backdating in particular, which the BCC had lobbied for.

Not everyone was satisfied, however. Stephen Phipson, chief executive of Make UK, delivered the sharpest riposte, warning that relief coming in 2027 was cold comfort to manufacturers renegotiating their contracts now. “Manufacturers are staring down the barrel of huge increases in their energy bills this month,” he said. “Many simply can’t wait until 2027 for relief.” The UK still labours under the highest industrial electricity costs in the developed world, he noted, and failing to act immediately risked “substantial job losses and further deindustrialisation of a sector vital for our national security and resilience”, a sector that supports 2.6 million skilled jobs.

Thursday’s announcement follows the £420 million boost delivered on 1 April through the British Industry Supercharger, which lifted the discount on electricity network charges for around 500 of the most energy-intensive firms from 60 to 90 per cent. Together with BICS, ministers argue the two schemes represent the most significant intervention in industrial energy pricing in a generation.

A second consultation on the regulatory changes needed to bring the scheme to life closes on 14 May, with legislation expected on the statute book by the autumn. A full review of BICS is pencilled in for 2030. The full list of eligible SIC and HS codes is due to be published on gov.uk later today.

Whether the package is enough to arrest the slow erosion of Britain’s industrial base, or whether, as Make UK fears, it simply arrives too late for firms already on the brink, will now become the defining question of the Chancellor’s industrial policy in the run-up to the Budget.

Amy Ingham

Amy is a newly qualified journalist specialising in business journalism at Business Matters with responsibility for news content for what is now the UK’s largest print and online source of current business news.