It will take more than £600m a year to boost UK industrial competitiveness | Nils Pratley

The Battle for Industrial Energy Parity

For years, UK manufacturers have grappled with some of the highest industrial electricity costs in the developed world. This structural disadvantage has acted as a brake on growth and investment, making it increasingly difficult for domestic firms to compete with European counterparts.

The emergence of the British Industrial Competitiveness Scheme (BICS) marks a pivotal shift in government thinking. By targeting a subset of firms, the government is acknowledging that “nose-bleed” energy prices are a systemic barrier to competitiveness.

The ambition is clear: bring electricity prices for strategic sectors in line with European averages. However, the path to parity is complex, as the UK has traditionally shifted the cost of the energy transition directly onto business bills rather than through general taxation.

Frontier vs. Foundation: The Eligibility Divide

A recurring theme in the UK’s industrial strategy is the distinction between “frontier” industries—the high-growth sectors known as the IS-8—and “foundational” industries that provide the essential inputs those frontier sectors require to survive.

While BICS provides relief to both, the strict criteria regarding electrical intensity and specific product lines create a high barrier to entry. This “laser-like targeting” ensures that limited funds—approximately £600 million per year—are directed where the government believes they will have the most impact.

However, this approach leaves significant gaps. Gas-intensive industries, such as brickmakers and ceramics-makers, often find themselves excluded from these “modern” industrial frameworks, leading to concerns that vital parts of the supply chain are being ignored.

For sectors like chemicals, the stakes are even higher. As a critical contributor to life sciences and clean energy supply chains, the chemical sector (spanning SIC codes 20.11 to 21.10) views this support as essential to mitigate carbon leakage and encourage the transition to electrification.

Beyond Levies: The Future of Energy Funding

One of the most significant trends emerging from the BICS rollout is the questioning of how green levies are funded. In the UK, the habit has been to load policy costs onto energy bills, whereas countries like Germany often move a greater portion of these costs into general taxation to retain industry viable.

The abolition of the carbon price support mechanism—a charge on generators passed to bill payers—suggests a move toward removing these “hidden” costs from the electricity bill. This shift indicates a growing realization that the cost of the energy transition cannot be borne solely by the end-user if the UK wishes to remain a global manufacturing hub.

Looking ahead, the debate will likely center on whether a narrow, targeted scheme is sufficient or if a wider rebalancing of energy costs is required to prevent further industrial decline.

The Electrification Hurdle and Carbon Leakage

For hard-to-abate sectors, the business case for electrification is often undermined by unpredictable and high energy prices. When electricity is too expensive, firms may delay investing in the highly technology needed to reach net zero.

This creates a risk of “carbon leakage,” where production moves to countries with lower energy costs and potentially lower environmental standards. By exempting over 7,000 electricity-intensive manufacturers from renewables-related levies, the government is attempting to create a financial cushion that makes the switch to electric power more viable.

The long-term success of this strategy depends on whether the relief provided is a “drop in the ocean” or a genuine catalyst for industrial modernization.

Frequently Asked Questions

What is the British Industrial Competitiveness Scheme (BICS)?
BICS is a government intervention designed to reduce electricity costs for manufacturing frontier industries (IS-8) and foundational industries that meet specific electricity intensity thresholds.

Which levies are eligible businesses exempt from?
Eligible firms are exempt from the indirect costs of the Renewables Obligation (RO), Feed-in Tariffs (FIT), and the Capacity Market (CM).

How much can businesses save under BICS?
The government expects the exemption to reduce costs by between £35 and £40 per MWh, potentially cutting electricity bills for some manufacturers by up to 25%.

Who is excluded from the scheme?
Currently, gas-intensive industries that do not meet the electrical intensity criteria or fall outside the designated frontier and foundational sectors are not included.