Draft Energy-Intensive Industry Electricity Support Payments and Levy (Amendment) Regulations 2026
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The Parliamentary Under-Secretary of State for Business and Trade (Chris McDonald)
I beg to move,
That the Committee has considered the draft Energy-Intensive Industry Electricity Support Payments and Levy (Amendment) Regulations 2026.
The draft regulations were laid before the House on 12 January 2026. I acknowledge the Joint Committee on Statutory Instruments, which provided a helpful review of the regulations but did not draw them to the special attention of this House or the other place, and the Secondary Legislation Scrutiny Committee, which has reported the regulations as an instrument of interest to Members.
The draft regulations aim to deliver one of the Government’s commitments in the modern industrial strategy: to increase electricity price support to energy-intensive industries through the British industry supercharger. Energy-intensive industries include foundational manufacturing sectors that are critical to the UK’s economic security and the delivery of the modern industrial strategy. They include steel, chemicals, cement, electrical components and gigafactories.
The British industry supercharger was introduced in 2024 to reduce the electricity price gap between Great Britain and comparable industrial countries in western Europe, such as France, Germany and the Netherlands. The supercharger is made up of three measures: the energy-intensive industries exemption scheme, which offers 100% exemption from contracts for difference, the feed-in tariff and the renewables obligation electricity policy levies; the capacity market exemption, which offers 100% exemption from the costs of funding the electricity capacity market; and the network charging compensation scheme, which provides 60% compensation on an energy-intensive industry’s electricity network costs.
While the supercharger package of measures has been successful, the Government recognise that there remains an electricity price gap between Great Britain and comparable industrial economies in Europe, which places British energy-intensive industries at a competitive disadvantage while increasing the risk of carbon leakage and the offshoring of vital manufacturing jobs and investment. That is why the Government’s modern industrial strategy included the commitment to increase from 60% to 90% the level of relief offered by the network charging compensation scheme. That will reduce electricity bills for currently supported energy-intensive industries by a further £7 to £10 per megawatt-hour, bringing the total reduction to £65 to £87 per megawatt-hour, and will deliver up to £420 million of electricity price support per annum.
The draft regulations aim to further close the electricity price gap, ensuring that British foundational manufacturing can thrive and grow. They will help to ensure that the 550 companies that currently benefit from the scheme will continue to attract new investment and preserve well-paid jobs and crucial supply chains across Britain’s manufacturing heartlands. The draft regulations will amend the Energy-Intensive Industry Electricity Support Payments and Levy Regulations 2024 to make provision for increasing the level of relief offered through the network charging compensation scheme.
In conclusion, the draft regulations will help to reduce electricity costs for the most energy and trade-intensive industries such as steel, chemicals, cement and battery manufacture. They will help to reduce the risk of carbon leakage by retaining critical manufacturing investment and jobs in Britain. I commend them to the Committee.
Greg Smith (Mid Buckinghamshire) (Con)
As ever, it is a pleasure to serve under your chairmanship, Ms Vaz.
Energy-intensive industries have long been the backbone of our industrial economy. From steel and chemicals to ceramics and refining, these sectors provide skilled jobs, anchor local communities and guarantee our economic security, yet they are operating in an increasingly hostile environment driven largely by the cost of energy.
The draft regulations will make limited but important amendments to the energy-intensive industry electricity support payments regime. Specifically, as the Minister says, they will increase the compensation available under the network charging compensation scheme from 60% to 90% from April 2026 and will extend the application window from one month to two. The changes are made using powers under the Energy Act 2023 and are intended to strengthen the British industry supercharger package. The stated aim is to lower electricity costs for the most energy-intensive sectors, reduce the risk of carbon leakage, and help retain manufacturing investment and jobs in the United Kingdom.
The Opposition will always welcome measures that provide greater clarity and modest additional support for industries under pressure. However, it is impossible to consider this instrument in isolation from the wider context. Britain’s industrial electricity prices are among the highest in the world. On a per-kilowatt-hour basis, our electricity costs are the most expensive in the G7 and the European Union—around 46% higher than the median. Industrial electricity prices here are around four times higher than in the United States, and roughly 50% more than in France and Germany.
As my hon. Friend the Member for West Aberdeenshire and Kincardine (Andrew Bowie) has rightly said in other debates, Government policy risks accelerating the deindustrialisation of this country, from Stoke in the Potteries to the Prax Lindsey oil refinery in Lincolnshire.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
I never miss an opportunity to talk about ceramics. When the hon. Gentleman listed the sectors that the scheme helps, he mentioned ceramics. Given that the supercharger scheme was set up by his Government, he will surely know that it does not cover the ceramics sector: the product standard industrial classification codes that were specifically listed when the scheme was set up excluded ceramics. Can the hon. Gentleman tell me why his Government decided that ceramics were not entitled to the level of support that they put in place for other energy-intensive industries?
Greg Smith
The hon. Gentleman is right to raise that point; I have always been impressed, on a cross-party basis, by the passion with which he speaks for industry in his constituency. My point is that we need to talk to those industries that do not currently have the support. I noticed that the hon. Gentleman bobbed to try and catch your eye, Ms Vaz, so perhaps he will have some helpful comments for the Minister on that front when he is called.
I am making a point about the wider context in which we have to see the statutory instrument. The most glaring omission is the oil and gas industry in the North sea. Energy-intensive industries are not just struggling; they are being driven overseas by costs that they simply cannot absorb. The very thing that the Minister said he was trying to prevent is happening. Since Labour came into government, more than 15,000 manufacturing and industrial jobs have already been lost, largely because of astronomical energy costs combined with unnecessary green levies and carbon taxes. When manufacturing moves abroad, we do not eliminate emissions; we simply offshore them, often to countries like China with weaker environmental standards and far greater geopolitical risk.
We have also heard clear warnings from industry leaders. Sir Jim Ratcliffe has been explicit that high taxes and energy costs have left sites such as Grangemouth unable to compete with overseas rivals. These are not abstract concerns, but real decisions affecting real jobs. Against that backdrop, while the draft regulations make proportionate and technical changes, they do not address the fundamental problem. Increasing compensation within a flawed system is not the same as fixing the system itself. The best way to reduce electricity prices for energy-intensive businesses is to tackle costs at source by scrapping the energy profits levy and removing punitive carbon taxes that undermine competitiveness.
I would be grateful if the Minister could clarify how this statutory instrument fits into a broader long-term strategy for energy-intensive industries. Does he accept that compensation schemes, while welcome, cannot substitute for the structural reform of energy pricing? Can he assure the Committee that the Government are developing a plan that genuinely restores Britain’s industrial competitiveness? Ultimately, energy-intensive industries know that their future depends on predictable affordable energy. If we are serious about growth, resilience and security, the Government must ensure that the policies of this country enable those industries to survive and thrive at home, not drive them abroad.
Gareth Snell
I thank the Minister for his engagement on the issue, particularly with the sector in Stoke-on-Trent and around the country. I talk about ceramics quite a lot, because the increasing cost of energy is a real impediment to us. I welcome the scheme, and I welcome the changes that will give greater relief to energy-intensive industries, but we face a perverse situation in which it is funded not by taxpayers’ money, in the traditional sense of the Government handing out a grant, but by a levy on licensed electrical suppliers that is used to compensate other sectors of energy-intensive industry.
This is about consumers in one sector paying higher bills to subsidise the cost for others. From a redistributive perspective I can see why that would work, but the wording of the regulations means that the product SIC codes under which a sector or industry can access the supercharger scheme are incredibly narrow: they are restricted to steel, cement and other things that are foundational to successful manufacturing in this country.
The perverse thing is that those who are not in the supercharger scheme are paying a slightly higher bill to help those who are in the scheme. Every month, those in energy-intensive industries such as ceramics have bills that are slightly higher than they would otherwise be, to allow other energy-intensive industries to have lower bills. That is an anomaly in the system that I do not think was intentional, but it means that places like Stoke-on-Trent are, essentially, subsidising steel mills in Scunthorpe and cement and brick manufacturers elsewhere.
I hope that the Minister will take away the point that extending access to the scheme and lowering the threshold of deductions that can be made would be an incredibly useful and powerful way to demonstrate support for foundational manufacturing sectors such as ceramics, which are key to our national defence, our house building programme and our gift and tableware exports, which provide a balance of trade in favour of the UK because of what we produce and where we send it. That would also support producers of advanced ceramics that are used in telecommunications and bioindustry, the refractories that are needed for glassmaking and ceramic making, and the emerging ceramic technologies that will be used in small modular reactors and for plating turbine blades at Rolls-Royce. There is a whole sector of industry that is not getting enough support. Will the Minister share any thoughts that he may have about extending the scheme?
A further point is that to access the support, businesses have to demonstrate through the business level test that 20% of their gross value added is taken up by electricity. Some energy-intensive industries will never reach that, because gas is a component of their energy costs. The ceramics sector, for example, is massively energy-intensive but predominantly gas-based. I suggest to the Minister that he needs to change how he applies the energy cost calculation for GVA to access the scheme so that it includes both gas and electricity, even if the discount comes only on electricity.
There are producers in the ceramics sector who would dearly love to move towards the electrification of kilns and other products that are currently gas-powered, but the disproportionately high cost of electricity makes that uneconomical. Even if they did so, they would still fall foul of the business level test, because so much gas would still be needed. They face a double whammy, with a higher electricity bill while they still have to pay for gas.
As costs increase in a variety of other areas, not least the raw materials, I know that for some companies in the supercharger scheme the 20% threshold is getting closer and closer to 19%, because it is a proportion of the overall costs. In future amendments, will the Minister consider the 20% threshold to make sure that we do not inadvertently see companies falling out of the supercharger scheme as energy becomes a smaller proportion of their overall cost, not because their electricity costs have come down but because their other costs have grown?
I understand that the Government will be using genuine public money to make up the difference between the 60% and the 90% threshold. If it transpires that the demand for the scheme is such that the money available does not cover the additional costs for companies with the new 90% reduction, is there any mechanism to stop electricity suppliers putting up their tariffs on other energy-intensive users to make up the difference between what they are receiving from the Government to compensate their loss and what they are passing on to their customers? We could end up with a perverse system in which a greater discount is being given to some energy-intensive suppliers, while ceramics companies in Stoke-on-Trent are paying an even larger electricity bill.
Overall, the intention behind the draft regulations is good, but there are some nuances that we can work on. If the Minister is willing to extend the scheme to include the ceramics sector, there will be a lot of happy potters in Stoke-on-Trent.
Pippa Heylings (South Cambridgeshire) (LD)
It is a pleasure to serve under your chairship, Ms Vaz. As we have heard, British manufacturers face some of the highest industrial electricity prices in the world, so it is right that the Government recognise the pressure on sectors such as steel, chemicals and glass. I hope we will hear from the Minister that he is considering the plea from the hon. Member for Stoke-on-Trent Central for the inclusion of an exemption for ceramics.
Energy-intensive industries often operate in highly competitive international markets. They cannot simply pass on costs. As the Minister says, without support we risk carbon leakage, the loss of investment and the erosion of the UK’s foundational manufacturing base. Measures that help to keep production and jobs in Great Britain are therefore welcome.
Although the support will be a relief for large energy users, it highlights a persistent imbalance in how energy costs are treated across the wider economy. We must remember that businesses of all sizes are struggling with high and volatile energy prices, but it is small and medium-sized enterprises that feel them most acutely. Small businesses are at the heart of our economy and the heart of our local communities, yet many of them remain exposed to volatile energy costs as a result of our overdependence on volatile fossil fuel prices and the delay in electricity market reforms to stop energy bills being treated like a credit card for the whole transition.
SMEs have been afforded limited protection. When the previous energy bill relief scheme ended in 2023, Liberal Democrats estimated that over 3 million SMEs saw their energy bills rise by a combined £7.6 billion. That pressure has not gone away, so we welcomed Ofgem’s move to extend access to the energy ombudsman to smaller SMEs, but many businesses remain without meaningful routes to challenging unfair or incorrect bills, especially if they have more than 50 employees.
The energy transition is the right way forward. This morning, I visited the headquarters of the National Energy System Operator, where they literally keep the lights on. I have seen in real time the shift that has already happened in renewables and clean energy, which is critical for energy security in order to stop us being dependent on either Putin’s Russia or Trump’s America and ensure that we keep the lights on.
The scheme is funded through a levy on suppliers, as the hon. Member for Stoke-on-Trent Central mentioned, but we have some concerns. Although the Government state that households and small businesses will not see higher bills, the Government must stop the delay and bring forward the electricity market reforms so that we have assurances that higher prices will not fall on consumers. That would be giving with one hand while taking with the other. We recognise the case for supporting energy-intensive industries, but we remain concerned about the absence of comparable support for SMEs and about the potential cost to consumers.
Edward Argar (Melton and Syston) (Con)
I will be very brief. I will not reiterate what has been set out so eloquently by my hon. Friend the Member for Mid Buckinghamshire, the shadow Minister, nor will I reiterate what the hon. Member for Stoke-on-Trent Central set out. They both illustrated, as did the hon. Member for South Cambridgeshire, why the intention behind the draft regulations is to be welcomed. It is the right thing to do, but there is a considerable amount of complexity involved in how it will play out over time.
The one point that I make to the Minister is about paragraph 47 of the impact assessment. The third bullet point refers to the need for the policy to be
“reviewed at an appropriate juncture”.
That is sensible, but can he set out what an appropriate juncture would look like?
Chris McDonald
It is very pleasing to see a reasonable level of support across the Committee, not only for the draft regulations but for our energy-intensive industries. Perhaps I can answer the question from the right hon. Member for Melton and Syston while talking at length about ceramics, which my hon. Friend the Member for Stoke-on-Trent Central and I both enjoy.
A general review of eligibility for the supercharger is planned for this coming year, which would certainly be an opportunity to look at eligibility of other sectors. I have already said, and am happy to repeat to my hon. Friend, that I have tasked my officials with looking carefully at the case for the inclusion of the ceramics industry. Qualification for the supercharger system currently relates both to energy intensity and to the risk of export leakage. As my hon. Friend said, the ceramics industry is gas-intensive, which is possibly why it has previously fallen below the threshold, but of course we want the ceramics industry to electrify. The difference between gas and electricity costs is a concern for the industry.
My hon. Friend also asked about the funding of the scheme. To be clear, we do not expect any increase in non-domestic or domestic bills as a consequence of the change. This is partially a result of the change in the renewables obligation and feed-in tariff schemes, from the retail prices index to the consumer prices index. Essentially, we propose to pay for the change by bearing down on costs in the system.
The hon. Member for South Cambridgeshire talked very well about the challenges for small businesses. Over the past few months, as she will understand, I have laid out improvements in energy costs for energy-intensive industries, through the supercharger, and for manufacturing more generally, through the British industrial competitiveness scheme. Some of those manufacturing businesses will be small businesses, but I appreciate that she was talking about the small business sector more widely. I, too, am concerned about that, but I am leaving no stone unturned in looking at how we can help all businesses across the country with their energy costs. That takes me back to the general point that the shadow Minister made about the level of uncompetitive energy in the UK. Fundamentally, this policy is designed to provide a measure of support as a consequence.
I am grateful that the shadow Minister welcomes the draft regulations. He described energy-intensive industries as the backbone of our economy. I could not agree more. Having worked in the steel industry for a long time, it is so nice to hear such warm words, even though the Opposition are perhaps late converts. The former Prime Minister scrapped industrial strategy; he was not keen on it, although a previous Conservative Prime Minister was, which is nice. Maybe we have consensus on industrial policy now; that would be very pleasing to see.
The shadow Minister described the environment around energy as hostile. I thank him for laying out so clearly the failure of his Government’s energy policy. Ultimately, this is a result of our reliance on gas in the system. The Opposition might not be keen to acknowledge it, but not only are solar, onshore wind and offshore wind the cheapest forms of energy available to us, but they create demand for foundational industries and offer great jobs. We have outlined an increase of 400,000 jobs in clean energy industries—good jobs for people across the whole of the country. Of course, that home-grown energy offers energy security too.
Many Members across the House—not only those on the Government side, but Liberal Democrats—are content to bask in the warm glow of solar power, onshore wind and offshore wind. I appreciate that the Opposition are feeling a chill breeze up their right flank and are tacking across to the climate-denying policies of Reform, but that cannot be the basis on which the country’s energy policy is determined. We must focus instead on low-cost energy for consumers and industry, on energy security and on good jobs, and that is what renewable energy delivers. Through this mechanism, we will ensure that our energy-intensive industries continue to be competitive in Europe.
Question put and agreed to.