Industry welcomes UK government’s industrial strategy with cautious optimism

INDUSTRY leaders have cautiously welcomed the UK government’s new industrial strategy, which outlines a long-term vision to boost manufacturing, reduce energy costs, and close critical skills gaps.

Published today by the Department for Business and Trade, the strategy sets out a decade-long plan focused on eight key sectors – from clean energy and advanced manufacturing to digital technology and life sciences – with an emphasis on cutting industrial electricity prices and strengthening the engineering workforce.

The government has also identified chemicals, steel, critical minerals, composites and materials as “foundational industries” that are “vital” to each of the eight priority sectors, along with ports, construction and electricity networks.  

A central element of the strategy is the government’s plan to cut industrial electricity costs – among the highest in the developed world – by £35–£40 (US$47–US$53) per MWh from 2027, representing a reduction of around 25%. The government aims to achieve the savings by widening exemptions to emissions levies for energy-intensive businesses such as chemicals and steel manufacturing. The government estimates that 7,000 businesses, employing a total of 300,000 people, could be eligible.

The energy cost reduction plan, known as the “British Industrial Competitiveness Scheme”, will run until 2030, at which point it will be reviewed.

In addition, the government has increased the compensation that energy-intensive businesses can claim for electricity grid charges from 60% to 90%, bringing the UK in line with equivalent schemes in France and Germany. Due to be implemented from 2026, trade association UK Steel calculates it will cut electricity costs by £6.50 per MWh.

Eligibility criteria for grid charge compensation and exemptions to emissions levies are yet to be finalised and will be determined through a consultation which is now open.

Industry leaders have long warned about the impact of high electricity costs, particularly in the chemicals and steel sectors. UK Steel calculated that electricity costs in 2024/25 for British steel producers were on average £66 per MWh, compared to £43 in France and £50 in Germany.

In a statement, the Chemical Industries Association (CIA) said: “The reappearence of an industrial strategy after a six-year absence is a welcome and long-overdue step”. The CIA added it was “pleased to see that chemicals have been recognised in the industrial strategy”.

Gareth Stace, director general of UK Steel, said: “This is an important milestone, but we are not out of the trenches yet. The industrial strategy must be the first of many changes if we are to fully unlock the potential of the UK steel industry to back the growth and stability of our economy.”

The emissions levies covered by the extended exemptions are the renewables obligation, feed-in tariffs and the capacity market, which are all paid by electricity generators to incentivise providers to source more energy from renewable sources. The increased compensation for grid charges, meanwhile, will be funded through “reforms to the energy system”, which includes aligning UK and EU carbon markets.

The government has also said it will cut the administrative costs of regulation by 25% while reducing the number of regulators. As part of the regulatory overhaul, the government plans to increase the threshold above which state subsidies must be referred to the Competition and Markets Authority from £10m to £25m.  

While the strategy on industrial electricity costs has largely been welcomed by industry groups, some remain sceptical. Caroline Bragg, CEO of heat network lobby group Association for Decentralised Energy, described the details on funding as “vague” and criticised the strategy for prioritising a “small number of select businesses”.

Bragg added: “Ministers need to wake up. We cannot build a secure, affordable, low-carbon energy system while actively discouraging all the businesses that use it from investing in their future.”

Skills gap

Another key focus of the industrial strategy is addressing skills shortages in engineering and manufacturing, allocating £100m over three years to support engineering skills in England.

The government says this will create an additional 65,000 places for 16- to 19-year-olds on vocational courses by 2028/29. The government will also oversee the rollout of shorter courses and foundation apprenticeships from April 2026.

In addition, the government has announced a temporary exemption to the threshold for skilled worker visas for occupations “crucial to the delivery of the industrial strategy”, including engineering technicians.

Sir John Lazar, president of the Royal Academy of Engineering, said: “Today’s announcement is a big step in the right direction.

“Engineering underpins each of the growth sectors identified by the government, and it is essential that we equip our nation with the skilled workforce needed to meet the future challenges of sustainability and technological advancement.”

The government also plans to launch a “clean energy workforce strategy”, which will include details on developing a carbon capture, utilisation and storage (CCUS) and hydrogen curriculum.

Ann Watson, CEO of engineering skills charity Enginuity, described the industrial strategy as a “sea-change moment”. She added they were pleased to see the strategy included “support to specifically meet SME training needs” and that it addressed “the need for more agile courses, shorter in length and more closely tied to industry needs”.

Future strategies

The industrial strategy namechecked chemicals, steel, cement and critical minerals as “foundational” manufacturing industries to each of the eight target sectors, although details on how the government plans to support them will come in separate strategies published later this year.

The steel strategy was originally scheduled for publication in the second quarter of the year following the launch of a public consultation in February, the delay likely caused by the near crisis at British Steel in April and ongoing turmoil in global steel markets created by US tariffs. However, the industrial strategy does emphasise the need to better utilise “domestic supply of scrap metal”, hinting that electric arc furnaces will be a focus, while “identifying opportunities to stimulate domestic demand”, which the government has previously said will be created by increased defence spending.

The government also plans a separate critical minerals strategy later this year. As for support for chemicals, cement and glass, the industrial strategy says the government will provide “continued relief on electricity prices”.

Other strategies and consultations the government plans for later this year are for non-pipeline CO2 transport in CCUS networks, hydrogen blending in existing gas networks, onshore wind, and development and deployment of nuclear fusion.

David Whitehouse, CEO of the Offshore Energy UK lobby group, said the “government is right to recognise the role of secure and affordable energy at the heart of industrial strategy – it must also be clear in its backing for the sectors that currently deliver it, including oil and gas alongside renewables.

“To build lasting success, it’s critical this new strategy and its supporting funds are inclusive of firms across the whole spectrum of offshore energy.”