The colour palette for the front cover was the same, and whizzy light beams were again used to denote go-getting national ambition. But the big difference between Greg Clark’s 2017 industrial strategy andJonathan Reynolds’s “modern” version on Mondaywas supposed to be the latter’s emphasis on reducing the sky-high cost of electricity for UK industry. Does it deliver?
Well, it acknowledges the problem, which is a start. But then it’s impossible to avoid the UK’s woeful position on electricity prices. The statistics are aired alongside every de-industrialisation story from thePort Talbot steelworksto theGrangemouth oil refinery. The lobby group Make UK estimates costs for UK steelmakers of £66 per megawatt hour in 2024-25 compared with estimated German prices of £50 and French ones of £43.
So a plan to “slash industrial electricity prices” for 7,000 companies and “move us from being an outlier to right in the middle of the pack,” as Reynolds put it, is definitely a step towards sanity. The detail, however, matters. For at least three reasons, this looks more like a sketch of a plan rather than a fully worked-up scheme.
First, the new “British industrial competitiveness scheme” won’t arrive until 2027, which leaves an uncomfortably long period for more crises to occur. Shouldn’t the government have made up its mind by now? The forerunnerInvest 2035consultative document was issued last October, but the outcome on Monday was a further consultation on eligibility criteria for the headline measure. At least the separate and established “British industry supercharger” scheme, aimed at the likes of the steel, chemicals and glass industries, will deliver bigger discounts next year – but that scheme covers only about 500 firms.
Second, the tally of 7,000 firms in the new scheme is not enormous in the context of a broadly-defined UK manufacturing sector of 140,000 companies. The hospitality industry and others grumble about how painful electricity bills also bite on them, but most within manufacturing sector will also be outside the fold. Food and drink manufacturers, which are still a substantial part of the economy, are not a priority, for example.
Third, the savings for eligible firms will be “up to” 25%, raising the obvious question of how many will get the full whack. Net-zero levies, such as renewables obligations for wind and feed-in-tariffs for solar, will be removed from their bills, but those costs still have to be funded and the government has simultaneously promised that other bill payers will not pay more. So the money will come from “bearing down on levies and other costs in the energy system” plus the proceeds from “the strengthening of UK carbon pricing”.
How much does that yield in practice? Most energy experts agree UK carbon prices should float upwards, yielding a gain for the Treasury as the the country aligns with the EU carbon market. But precision is impossible. As for reforms in the energy system, that’s a reference to persuading windfarm developers to accept a lower headline price-guarantee for, say, a 20-year contract than they would for a standard 15-year one. The economic principle makes sense, but the length of the contract is not the only current consideration. Rising cost pressures on off-shore windfarms, as evidenced by Ørsted’s decisionto shelve a huge scheme of the coast of Yorkshire, cannot be wished away.
None of which is to deny the basic logic of trying to remove renewable levies for key non-domestic users. We need those companies to survive the costs of energy transition and contribute to the running of the system in the future. Nor is to deny that other aspects of the wide-ranging industrial strategy generally got a cheer from business, especially on skills and startup funding.
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But electricity prices for industry were always going to be the focus. On that score, the dial is being turned, but it’s simply not clear how far. The government doesn’t have huge sums to throw at the problem. That is also familiar.