Energy-Intensive Industry Electricity Support Payments and Levy (Amendment) Regulations 2026
(1 day, 5 hours ago)
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Lord Leong
That the Grand Committee do consider the Energy-Intensive Industry Electricity Support Payments and Levy (Amendment) Regulations 2026.
Relevant document: 49th Report from the Secondary Legislation Scrutiny Committee
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, this instrument was laid on 12 January 2026. I acknowledge that the Joint Committee on Statutory Instruments has provided a helpful review of these regulations and not drawn any special attention of this House and the other place to the instrument. I acknowledge that the Secondary Legislation Scrutiny Committee has reported this instrument as of interest to Members.
This instrument delivers one of the Government’s industrial strategy commitments to increase electricity price support to energy-intensive industries—or EIIs—through uplifting the level of relief offered by one of the measures in the British industry supercharger. EIIs include foundational manufacturing sectors, such as steel, chemicals, cement, glass, electrical components and gigafactories. These sectors are critical to the UK’s long-term economic security and for the delivery of the modern industrial strategy.
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 comprises three measures: the EII exemption scheme, which offers a 100% exemption from contracts for difference, feed-in tariff and renewables obligation electricity policy levies; the capacity market exemption, which offers a 100% exemption from the costs of funding the electricity capacity market; and the network charging compensation scheme, which provides 60% compensation for the EIIs’ electricity network costs.
Despite the success of these measures in delivering critical relief to industry, the Government recognised in our industrial strategy that there remains an electricity price gap between Great Britain and comparable industrial economies in Europe. This places British EIIs at a competitive disadvantage, while increasing the risk of carbon leakage and the offshoring of vital manufacturing jobs and investment.
That is why we committed in the industrial strategy to increase the level of relief offered by the network charging compensation scheme from 60% to 90%. This will reduce electricity bills for the currently supported EIIs by a further £7 to £10 per megawatt-hour, bringing the total reduction offered by the British industry supercharger to between £65 to £87 per megawatt-hour. This uplift will ensure that the network charging compensation scheme will deliver up to £420 million of electricity price support per annum.
These regulations aim to further close the electricity price gap and ensure that foundational manufacturing is able to thrive and grow in Britain. They will help to ensure that the 550 companies that currently benefit from the supercharger will continue to retain well-paid jobs, investment and crucial supply chains across Britain’s manufacturing heartlands.
These regulations will amend the 2024 electricity support payments and levy regulations to make provision for increasing the level of relief offered through the network charging compensation scheme.
In conclusion, the regulations will help to reduce electricity costs for the most energy-intensive and trade-intensive industries, while helping to retain critical manufacturing investment and jobs in Britain. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful for the opportunity to put a couple of questions on these regulations. Having represented a high energy user, a York brick company, for a number of years in the other place, I am well aware of the disproportionate energy costs for high energy-use industry. There is a theme here and it is put very well on page 8 of the impact assessment attached to the regulations, where at paragraph 6 it states:
“Electricity network costs paid by GB based EIIs are higher than in many other EU countries largely due to the discounts offered in some jurisdictions to EIIs that meet certain eligibility criteria regarding electricity consumption and off-peak grid utilisation”.
That explains the background neatly. Does the Minister agree that we have per se, across the board, higher energy costs in this country for both energy users and domestic users? What then concerns me is that it seems to be smoke and mirrors. If I have understood the purport and thrust of the regulations as best I can, the Government’s intention is to pass on to domestic consumers and non-domestic customers the differential between what the original costs would have been and now the reduction proposals under the EIIs and the supercharger scheme.
I am grateful to the Secondary Legislation Scrutiny Committee, which looked at this briefly. It states in paragraph 2 of the 49th report:
“The Impact Assessment estimates that some 320 EII businesses will save a total of £131 million per year because of the uplift to 90%, while average household electricity bills are expected to rise by not more than £1.50 per year.”
I pause there because that is £1.50 a year extra to what we are already paying. I understand that, at Prime Minister’s Questions today, the Prime Minister applauded the fact that the energy pricing cap will be reduced on average by £17, which all of us in the Committee would welcome. But NESTA, a government body set up to look at energy use, states, if you key in the question, “what is the cost per household of green energy projects?”:
“These levies make up 16% of the final price of electricity and 5.5% of the final price of gas. For a typical household, they add about £140 to the annual electricity bill and £50 to the gas bill”.
I know that all this started under a previous Government, but that does not make the situation any happier. It might be that those of us in this Room feel that we have broad shoulders and can carry this, but that is a staggering cost, especially when then adding another £1.50 to that. I also realise that 82% of the revenue raised from domestic levies comes from electricity bills and only 18% from gas bills, despite households consuming around three times as much gas each year, presumably, as electricity. My point is that this is an unacceptable additional cost.
Lord Fox (LD)
My Lords, it is always a pleasure to follow the noble Baroness, Lady McIntosh of Pickering, who is forensic in her detail. I should say that she has somewhat mixed her drinks with this measure and other things, but this measure and her comments indicate that the energy market in this country, which this Government inherited from their predecessor, is broken, in essence, and is not working properly.
While we are talking about this particular statutory instrument, it would be useful to have an indication from the Minister that the Government understand the malfunctioning way that energy works for both and consumers, and for him to undertake a process whereby the whole thing is properly reviewed. It is quite clear that there are many pushes and pulls, puts and takes, within our energy market: some are to do with green energy and some of them not; and some are to do with the way that the overall energy cost is assessed based on a floating gas price, rather than the actual cost of the energy being generated. It would help for the Minister to indicate, on behalf of the Government, that he understands that a proper root and branch review of the way in which the energy market is structured is long overdue. I do not blame the Government for what it is now, but I would blame them if they just sat on their hands without doing something about it.
Measures to bring down some of the highest industrial energy prices in the world—if not the highest—obviously come as welcome news to those businesses that have received them. Energy-intensive industries, as the Minister said, such as steel, chemicals, glass, ceramics and brickmaking, as the noble Baroness mentioned, face much higher energy costs than competitors overseas. They really are competing with not just one arm tied behind their backs but most of their limbs. They cannot pass on these prices because of the international market in which they operate. It is welcome that these EII businesses have been recognised, but we are concerned about the lack of support for other businesses across our manufacturing and energy use sector, which includes consumer businesses and the high street.
It is not just EII businesses that are facing an energy cost crisis; it is right across business. If we look in particular at small businesses, energy can be a high proportion of their total costs. They are the backbone of our economy and the heart of local communities. They create many of the jobs on which those communities rely, but they are struggling with uncertainties and changes around the cost of energy on top of the other costs that the Government have decided to put on those businesses, such as NIC costs and the change in the business rates system.
This is all part of a huge burden that all businesses are suffering, but SMEs are proportionately suffering more. They are exposed to the energy market with little support after the previous Government’s decision to slash energy bill support for businesses by an average of 85% when they replaced their energy bill relief scheme with the energy bills discount scheme, which itself ended in 2024. We estimate that 3.1 million SMEs saw a total bill increase of £7.6 billion when the initial energy bill relief scheme ended. That is a huge burden that the sector had to take during the previous Government’s oversight.
We welcome Ofgem’s announcement in December 2024 on enabling SMEs with up to 50 employees to use the Energy Ombudsman to challenge unfair energy rises and charges.
The Deputy Chairman of Committees (Lord Geddes) (Con)
I hate to interrupt the noble Lord but a Division has been called—
Lord Fox (LD)
I have literally three words and then I will sit down. What about the ones with more than 50 employees? That is just the start of the problems that we have in our energy market.
The Deputy Chairman of Committees (Lord Geddes) (Con)
That is most considerate of the noble Lord. A Division has been called in the Chamber; the Grand Committee stands adjourned until 5.02 pm.
Lord Sharpe of Epsom (Con)
My Lords, I am very grateful to the Minister for his detailed explanation, but it is difficult to consider this statutory instrument without reflecting on the circumstances that have made it necessary. The Government have presented these regulations as a modest and technical adjustment—an increase in the network charge compensation from 60% to 90%—but the scale of that increase speaks volumes. We are not dealing with marginal fine-tuning; we are witnessing the expansion of an emergency support mechanism designed to shield our most electricity-intensive industries from energy costs that have become structurally uncompetitive. If our electricity market were delivering affordable power to the productive economy, such levels of compensation should not be required.
The Government’s own impact assessment, and my noble friend Lady McIntosh of Pickering, have acknowledged that, even after the British industry supercharger package, UK electricity-intensive industries will still face costs of around £93 per megawatt hour, compared with roughly £60 per megawatt hour in France and Germany. I go back to the impact assessment, because the first sentence is also extremely instructive:
“Great Britain’s energy-intensive industries … continue to face some of the highest electricity prices in Europe, even after existing relief measures, due to higher network charges and policy costs compared to competitor countries”.
Those two words, “policy costs”, are extremely instructive. These charges are the result of policy choices.
A recent study by the Adam Smith Institute underlined the scale of the challenge. It showed that British businesses are paying nearly double the price of power paid by their French counterparts. The report identified as the most important factor in that disparity the United Kingdom’s reliance on what it described as
“a combination of expensive renewables and a gas backstop”.
The chief executive of the trade body Ceramics UK has said:
“The relentless drive towards net zero is moving far faster than either kiln or fuel technology. Despite massive investment by the industry, achieving decarbonisation is extremely challenging and will lead to further deindustrialisation”.
Of course, the impact assessment also refers to the decarbonisation issue.
The Confederation of British Industry has warned that high energy prices threaten the United Kingdom’s standing as a manufacturing nation. Pointing to the competitive disadvantage faced by British firms—
Lord Sharpe of Epsom (Con)
I do not imagine there is much clamour for me to start my speech again, so I will go back to where I got to; I made a note.
The Confederation of British Industry has warned that high energy prices threaten the United Kingdom’s standing as a manufacturing nation. It points to the competitive disadvantage faced by British firms relative to their continental counterparts. These are not the words of ideological opponents of decarbonisation; they are the considered assessments of employers who are attempting to maintain operations, jobs and investment in this country.
We have already seen troubling signals across energy-intensive sectors, including investment decisions delayed, production lines scaled back and uncertainty weighing heavily on the industries that form the backbone of our industrial base: chemicals, glass, ceramics and, most importantly, steel. Steel is vital for our construction, transport, defence and infrastructure, yet our steel producers have faced a combination of high electricity prices and carbon costs and political and policy uncertainty, which has left them at a clear disadvantage compared with their European competitors.
It is in that context that the continuing absence of a comprehensive steel strategy is so concerning. We were told that such a strategy would be forthcoming last year and then to expect it in spring this year. Spring has nearly run out, so where is it? We are still waiting. Businesses making multi-million-pound investment decisions cannot operate on the basis of repeated assurances and shifting timetables. I know that the Minister will not be able to answer the question of where the steel strategy is but perhaps he could write to us and let us know what is causing the hold-up.
The Government will say that the additional £100 million or so in relief and the estimated £131 million in annual savings for around 320 businesses demonstrate their commitment to protecting our industry. They will note that, as my noble friend Lady McIntosh of Pickering pointed out, the cost to households is forecast at no more than £1.50 per year. Yet the broader point remains: we are redistributing costs in order to compensate for a system that has produced persistently high electricity prices. Relief mechanisms may alleviate the immediate pressure but they do not address the underlying drivers of those costs or close the gap in competitiveness with Europe and our other competitors, particularly the USA.
As it stands, we will of course not oppose this instrument; the country and our strategic industries need this relief. However, we oppose the policy choices that have led to this most regrettable state of affairs.
Lord Leong (Lab)
My Lords, I thank all noble Lords for their valuable contributions to this debate. As I said in my opening speech, the increased relief offered through the network charging compensation scheme will provide critical support for foundation sectors across Great Britain, including steel, chemicals, cement, battery and semiconductor manufacturing, helping ensure delivery of the Government’s modern industrial strategy. These EIIs are located right across the country and provide thousands of well-paid jobs, both directly and in the wider supply chain. The Government intend to carry out a review of the data underpinning the British industry supercharger this year in order to assess how the scheme continues to meet the needs of EIIs and to ensure that support continues to be directed at those sectors most in need of the aid.
I will address some of the questions posed by noble Lords but, before I start, I pay tribute to the noble Baroness, Lady McIntosh, for all the work that she has done in National Energy Action, especially the action for warm homes. I acknowledge her expertise in this area. To address the point made by the noble Lord, Lord Sharpe, historic reliance on fossil fuels has left the UK exposed to volatile global energy markets, a vulnerability obviously highlighted by Putin’s invasion of Ukraine.
Lord Sharpe of Epsom (Con)
Yes, but of course we could have exploited our own reserves in the North Sea, and that was another policy choice. So that is not strictly a fair argument.
Lord Leong (Lab)
Well, it is one of the arguments, I will accept that. At the same time, I accept the point that this is a policy decision that was taken. But the mission is to make Britain a clean energy superpower, whereby we will reduce this dependency by transitioning to a diverse energy system based on renewables and nuclear.
At the end of the day, we also need to address—as the noble Baroness, Lady McIntosh, asked—the cost to consumers. The Government will continue to fund the NCC scheme through the EII support levy, which is charged on all licensed electricity suppliers to Great Britain, as the noble Baroness mentioned. To offset this, the Government will bear down costs across the energy system to ensure that domestic and non-domestic energy consumers do not see a net increase in their electricity bills as a result of the uplift of the NCC scheme. We are also taking action to reduce costs across the energy system, helping to ensure that the British industry supercharger and the British industrial competitiveness scheme are delivered in line with our wider priority of providing affordable power for businesses and households. The Government’s clean energy superpower mission sets out a long-term plan to strengthen energy security and reduce electricity prices by expanding clean energy and improving interconnections with EU markets.
The noble Lord, Lord Fox, asked about the broken energy market. This is precisely why the Government have the clean energy superpower mission, which is, as I have just said, to strengthen energy security and reduce electricity bills by expanding clean energy and improving the interconnection with EU markets. The noble Lord, Lord Fox, also made a point about other businesses. The supercharger is currently targeted at the EIIs most prone to carbon leakage. However, the Government will undertake a review of the eligibility criteria for the supercharger this year—we are undergoing a review of the various sectors.
Lord Fox (LD)
I thank the noble Lord for his response. The supercharger is in itself a good thing, but unless it is combined with a real understanding of the financial mechanisms by which the market is organised, it will not deliver energy at a price that will be less than our competitors around the world. So there is a second part; it is not just the generation and the distribution but the financial engineering behind that which will make it work.
On the second point on other businesses, I am very glad that the Government are having a review, but could they hurry up? If you sit down with any manufacturing business, anywhere in the country—not the ones that are benefiting from this scheme but those that are not—it will list energy costs as its number one or number two major concern. If this review does not get on with it, some of those businesses—hopefully not too many—will not be there to benefit from whatever the review comes up with.
Lord Sharpe of Epsom (Con)
Before the Minister comes back in, can I add to the noble Lord’s question? Of course, it is not just the manufacturing businesses that we are interested in; we need to attract data centres, which have enormous power requirements. That is partly for sovereign security reasons, as regards how we maintain our own data and the integrity of that data. What is being done to attract those businesses here? What sort of financial mechanisms are in place? Are there any plans to expand this sort of scheme to businesses that are not yet located here but that we so urgently need?
Lord Leong (Lab)
I acknowledge all the points made by the noble Lords, Lord Fox and Lord Sharpe. I am aware of the increased energy costs. I congratulate the previous Government on actually setting up the supercharger scheme and building it up. Yes, we need to look at the financial scheme and everything else, but we have what we have now, and we are increasing the relief from 60% to 90% as a stopgap—if I can use that word—to help businesses now. We are going to undertake the review to look at what we need to do, as a whole—especially on the SME point mentioned by the noble Lord, Lord Fox.
The supercharger is open to SMEs as well as larger businesses, provided they produce an eligible product. Currently, of the 550 businesses eligible for the scheme, 60% of them are SMEs, so SMEs are not being disadvantaged and can access the scheme. The key criterion is that the business, regardless of its size, is in an eligible sector—one that is highly traded and electricity intensive—and meets the business test for the relevant scheme.
I turn to the point that the noble Lord, Lord Sharpe, made about net zero. As I said earlier, this is a policy decision. Our clean energy superpower mission is a long-term plan to increase our energy security and reduce electricity bills. This includes investing in clean energy and strengthening our connections to the EU energy market, capitalising on the economic opportunities of the net-zero transition.
The other point to make is that these changes support our mission to bring down bills down for good, with homegrown clean energy or clean power that we control, ensuring that industry reaps the rewards of lower energy costs. We are developing further policies to narrow the electricity price gaps for non-domestic users. We intend to consult on options to reduce electricity costs and make low-carbon heat the economically natural choice. This will give stakeholders a clear opportunity to shape the next phase of electrification policy.
The noble Lord, Lord Fox, mentioned data centres. I must admit that I am kicking myself, because I know the answer to this: we are aware that data centres use massive energy and water, and we have a plan. I will write to the noble Lord setting out what we are doing as far as data centres are concerned. He also asked about our steel strategy. I had a quick check on BBC Online and, according to the BBC, spring is in March, April and May, so we are still getting into it. I hope to share our strategy with the noble Lord then.
As I said earlier, we are building on what the previous Government have done as far as the supercharger is concerned. We are supporting energy-intensive industries by uplifting the relief, and these regulations go some way to supporting that. I commend them to the Committee.