Britain to cut companies' energy bills in new industrial strategy

Britain is set to unveil a new industrial strategy for 2025-2035, aiming to boost economic growth and competitiveness by cutting electricity bills for over 7,000 electricity-intensive manufacturers by up to 25% from 2027, exempting them from certain levies like the Renewables Obligation. This comprehensive plan, the first in eight years, also includes an additional £1.2 billion annually for skills by 2028-29, expanded SME investment via the British Business Bank, and efforts to reduce regulatory burdens and increase R&D spending. The initiative seeks to address high energy costs and skill shortages, which have been cited as major impediments to UK business competitiveness, and is funded through energy system reforms without raising household bills or taxes.

Analysis

The UK government has unveiled a new industrial strategy for the 2025-2035 decade, its first in eight years, designed to combat stagnant growth and enhance the nation's competitive standing against the US and EU. A central pillar of this policy is a direct response to industry demands for lower energy costs, with a plan to cut electricity bills by up to 25% for over 7,000 energy-intensive businesses starting from 2027. This cost reduction will be implemented by exempting eligible firms from levies such as the Renewables Obligation. The strategy is further supported by an additional £1.2 billion annual investment in skills by 2028-29, an expanded mandate for the British Business Bank to channel capital to smaller companies, and commitments to reduce regulation and accelerate planning. The initiative has received an extremely positive reception from major industry bodies like Make UK and the Confederation of British Industry, who see it as a critical foundation for growth. The government states these measures will be funded through reforms to the energy system, without raising household bills or taxes, though the exact scope and eligibility will be determined following a consultation.

Key Decisions for Investors

• Investors should identify and evaluate UK-domiciled companies within energy-intensive sectors, such as advanced manufacturing and materials, which are poised for potential margin expansion from the planned 25% electricity cost reduction beginning in 2027.
• The strategy's broader focus on SME investment, skills, and R&D could serve as a long-term catalyst for UK domestic-focused equities, particularly in the small and mid-cap space.
• It is crucial to monitor the outcome of the forthcoming government consultation for specifics on the eligibility and funding mechanism for the energy subsidies, as any material changes or signs of un-funded mandates could pose a risk to the policy's effectiveness and its positive market impact.