Government cuts electricity bill for 10,000 manufacturers in boost for UK competitiveness
Summary
DESNZ will exempt over 10,000 manufacturers from Renewables Obligation, Feed-in Tariff, and Capacity Market levy costs on their electricity bills from April 2027, cutting bills by up to 25% (£35-40/MWh). The scheme expands eligibility by 40% from 7,000 to 10,000 businesses, with a one-off backdated payment covering April 2026 to March 2027, and is expected to cost £600 million per year funded through unspecified 'changes within the energy system' and Exchequer funding.
Why it matters
This is the exemption-regime pattern at scale: rather than removing the levies that make GB industrial electricity uncompetitive, the government builds a 10,000-firm compliance apparatus to selectively undo their effects. The £600m/year cost does not disappear — it shifts to remaining consumers and taxpayers, with funding details deferred to Autumn 2026. Incumbents in eligible SIC codes benefit; firms just outside the threshold or below the 25% manufacturing-use floor get nothing.
Key facts
- •Eligible firms exempt from RO, FiT, and Capacity Market indirect costs — worth £35-40/MWh
- •RO and FiT exemptions from April 2027; Capacity Market exemptions from October 2027
- •Eligibility expanded from 7,000 to 10,000 businesses (40% increase)
- •Sites must use ≥25% electricity for eligible manufacturing to qualify; 25-50% gets 50% exemption, ≥50% gets 100%
- •One-off backdated payment covering support from April 2026
- •Expected cost: up to £600 million per year from April 2027
- •Second consultation on regulatory changes closes 14 May 2026
- •Legislation expected Autumn 2026
- •Scheme review in 2030
- •Follows Supercharger (£420m, 500 firms, 60%→90% network charge discount from 1 April 2026)
Timeline
Areas affected
Related programmes
Memo
What changed
DESNZ has finalised the British Industrial Competitiveness Scheme (BICS), which exempts eligible manufacturers from three electricity levy costs: the Renewables Obligation, Feed-in Tariffs, and the Capacity Market. RO and FiT exemptions apply from April 2027; Capacity Market exemptions from October 2027. Eligibility expands from the 7,000 firms in the original proposal to over 10,000, a 40% increase. A one-off backdated payment will cover the period from April 2026 to March 2027, compensating firms for the gap between announcement and implementation. The scheme is expected to cost £600 million per year from April 2027, funded through "changes within the energy system" and Exchequer funding — with full details deferred to Budget 2026 and an Impact Assessment in Autumn 2026.
This follows the Supercharger, which took effect on 1 April 2026 and increased the network charging discount for the 500 most energy-intensive firms from 60% to 90% (worth £420m). BICS is the second layer: broader eligibility, different cost categories, same direction of travel.
What this means in practice
Who benefits. Over 10,000 manufacturers across eligible SIC and HS codes — automotive, aerospace, steel, pharmaceuticals, metal fabrication, plastics, recycling, nuclear fuel processing, cooling and ventilation equipment, among others. Eligibility is not size-dependent: both large firms and SMEs qualify, applied site by site based on the share of electricity used to manufacture eligible products.
How the exemption works. Three tiers based on eligible electricity share at each site: - 50% or more eligible electricity use → 100% exemption from the three levies - 25% to less than 50% → 50% exemption - Below 25% → nothing
The exemption is worth £35–40/MWh, which DESNZ says translates to a bill reduction of up to 25%. For a steel mill or glass plant running baseload, that is a material change to the cost stack. For a firm at 24% eligible use, it is worth precisely zero — a cliff edge that will generate its own compliance industry as firms restructure activity to cross the threshold.
Who pays. The £600m/year does not disappear when it leaves eligible firms' bills. DESNZ says households and non-eligible businesses will see "no increase in their energy bills," but provides no mechanism for how this is achieved. The funding sources — "changes within the energy system" and Exchequer funding — are placeholders. "Changes within the energy system" could mean reallocation of levy costs across a different base, absorption by suppliers, or accounting treatment of existing spending. Until the Impact Assessment lands in Autumn 2026, the distributional question is unanswered.
The structure is the exemption-regime pattern described by Stigler and Tullock: the underlying levies (RO, FiT, CM) remain in place, but a new compliance apparatus determines which firms are relieved of them. Firms must evidence both SIC and HS codes, demonstrate eligible electricity share at each site, and presumably re-certify periodically. The scheme review is set for 2030. This is not simplification of the cost stack — it is selective relief from its effects, with the compliance cost falling on every applicant and the administrative cost falling on whoever runs the certification process.
What it does not do. BICS does not reduce the total levy burden on the electricity system. It does not reform the mechanisms that created the cost differential with continental competitors. It does not address the Carbon Price Support, network charges (beyond the separate Supercharger), or the structural reasons why GB industrial electricity is 40-50% more expensive than France or Germany. It is a redistribution within a broken cost structure, not a fix to it. The CBI's own response — calling it "an opportunity to rethink how we fund our energy infrastructure" — implicitly acknowledges this.
What happens next
14 May 2026: Second consultation closes on the regulatory changes needed to implement the scheme. This covers the mechanics of how exemptions flow through to bills, supplier obligations, and evidence requirements.
Autumn 2026: Legislation expected. Impact Assessment published alongside it, which will finally disclose the funding mechanism and distributional effects.
Budget 2026: Full detail on the Exchequer funding component.
April 2027: RO and FiT exemptions take effect. Backdated payment covering April 2026–March 2027 issued to newly eligible firms.
October 2027: Capacity Market exemption takes effect.
2030: Scheme review.
The consultation closing 14 May is the immediate action point for any firm near the eligibility boundary or any supplier affected by the cost reallocation. The Impact Assessment in Autumn 2026 is the document that matters — it will reveal who actually absorbs the £600m/year that BICS lifts off manufacturers' bills.
Source text
Chancellor announces bold action on businesses’ electricity bills during IMF meetings in Washington, as Government strengthens Britain’s economic security - helping deliver stability, keeping costs down, and boosting competitiveness. Bills cut by up to 25% for over 10,000 manufacturers from April 2027, with no increase to household and business energy bills. British Industrial Competitiveness Scheme (BICS) to be expanded by 40%, with one-off additional payment in 2027 rolled out to an extra 3,000 businesses and cover support firms would have received from April 2026. The Chancellor Rachel Reeves today [16 April] confirmed electricity bill cuts for over 10,000 manufacturers as the next phase of the Government’s plan to boost Britain’s competitiveness. The final design of the British Industrial Competitiveness Scheme (BICS), first announced in last year’s Modern Industrial Strategy, means the scheme will be expanded to cover an extra 3,000 businesses. The announcement comes as the Chancellor is in Washington to set out Britain’s plan for economic security through the Middle East crisis — prioritising stability, keeping costs down for families and businesses, taking back control of our energy costs, and going further and faster on our plan for a stronger, more resilient economy. Chancellor of the Exchequer Rachel Reeves said: This Government has the right plan for the economy: backing British industry, cutting electricity costs, and building a stronger, more resilient future. Today’s announcement will cut energy bills for over 10,000 manufacturers, helping businesses to compete, win and create good jobs across the country, and to deliver our modern Industrial Strategy. Business Secretary Peter Kyle said: We are a government of action, and when global instability puts businesses under pressure we’ll always do what’s needed to support them and ensure Britain’s resilience. By extending the reach of BICS by 40 percent, we’re acting decisively to tackle the number one issue that businesses face head-on. This is what our Modern Industrial Strategy is all about: giving businesses certainty and stability in an unstable time, and backing Britain’s fastest growing sectors with the support they need to prosper and deliver good jobs right across our communities. Automotive and aerospace, steel, and pharmaceuticals are among the sectors where eligible businesses are to benefit from a one-off additional payment in 2027. This will cover the support firms would have received if BICS had been in place from April 2026. Eligibility has also been expanded by 40%, from 7,000 to over 10,000 businesses. This targets support at energy-intensive firms on the number one issue they face – high electricity costs. From April 2027, eligible firms will see electricity bills cut by up to 25 percent. Households will see no increase in their bills as a result. BICS will exempt eligible businesses from the indirect costs of three electricity schemes: the Renewables Obligation, Feed-in Tariffs, and the Capacity Market. This is worth around £35–£40 per MWh. It is expected to be worth up to £600 million per year from April 2027. Households and other businesses not benefitting will see no increase in their energy bills. The scheme will be funded through a combination of changes within the energy system and Exchequer funding, with full detail to be set out in Budget 2026. Rain Newton-Smith, CBI Chief Executive, said: This move marks a significant step towards addressing the high energy costs that are placing growing financial pressure on UK businesses and undermining their international competitiveness. By expanding eligibility and introducing backdated payments to the British Industrial Competitiveness Scheme, the government has shown it is listening to firms grappling with volatility in global energy markets. As the UK looks to reshape and modernise its industrial base, this decision provides an opportunity to rethink how we fund our energy infrastructure. Extending this competitiveness-first approach across the wider economy could help support growth. Mike Hawes, SMMT Chief Executive said: The final design of the British Industry Competitiveness Scheme (BICS) is a major win for Britain’s automotive manufacturers, promising to drive down industrial energy costs and boost competitiveness. This decisive first step answers our longstanding calls for energy support that reaches the whole of the automotive manufacturing supply chain and recognises the sector’s critical contribution to the UK economy. It sends 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 said: Expanding BICS is the right move to help some firms struggling across the UK. It shows the government has listened to our calls for more energy intensive manufacturing businesses to receive help with the cost of energy. This welcome first step will help make more of these firms remain globally competitive. Companies will also be pleased that support will be backdated to April 2026, as we called for, further acknowledging the impact of recent energy cost volatility. Sectors that could benefit include automotive and aerospace, steel producers, metal fabricators, pharmaceutical and medical supplies companies, recycling businesses, plastic producers, nuclear fuel processors, and cooling and ventilation equipment manufacturers. A second consultation on the regulatory changes needed to deliver the scheme closes on 14 May 2026 . Legislation is expected to be in place by Autumn 2026. Please see the Government response to the British Industrial Competitiveness Scheme: consultation on scheme eligibility and approach . The announcement follows a £420 million boost for around 500 of the UK’s most energy-intensive businesses through the Supercharger, which took effect on 1 April and increased the discount on electricity network charges from 60% to 90% for sectors including steel, cement, glass and chemicals. Background Exemptions on Renewables Obligation and Feed-in Tariff levies will apply from April 2027; Capacity Market exemptions from October 2027. Both large businesses and SMEs will be eligible, with support not prioritised by size. Businesses will receive exemptions on their bills applied site by site based on the share of electricity used to manufacture eligible products at that site. Sites using less than 25% eligible electricity will receive no exemption, 25% to less than 50% will receive a 50% exemption, and 50% or more will receive a 100% exemption. The full list of eligible SIC and HS codes will be available online on gov.uk on 16 April; businesses will need to be able to evidence both. The backdated payment will reflect the support businesses would have received had BICS been in operation from April 2026. Further details will be published separately. Full details of funding arrangements and bill impacts will be published in an Impact Assessment alongside the legislation in Autumn 2026. A scheme review will take place in 2030. Further information and the second consultation is available on gov.uk .