No new money to help cut UK business’s energy costs in spending review

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Ministers failed to agree a plan to cut Britain’s high energy costs ahead of Chancellor Rachel Reeves’ spending review, leaving a question mark over the final shape of a policy that is top of the priority list for business groups.

Jonathan Reynolds, business secretary, is still planning to cut energy costs for the eight priority “growth” sectors identified in the government’s new industrial policy, which is to be set out later this month.

But the structure of such a scheme has not been agreed, while Reeves’ spending review crucially did not allocate any funding to pay for it, meaning money may have to be carved out of other budgets.

“We didn’t get as far as we would have liked,” admitted one person briefed on the discussions. “Things are still very live. There’s not a lot of money and everything has to tilt towards the eight priority growth sectors.”

The industrial strategy will be focused on advanced manufacturing, clean energy industries, creative industries, defence, digital and technologies, financial services, life sciences, and professional and business services.

Reynolds has welcomed Reeves’ confirmation of £86bn in government investment in research and development over four years, most or all of which will be targeted on the eight growth sectors.

Reynolds is also said by allies to have been pleased with many aspects of Reeves’ spending review, including its £2bn to support an artificial intelligence action plan and a £1.2bn annual increase in the skills budget.

His department’s budget will increase by an annual average of 5.8 per cent in real terms until the end of the parliament, one of the most generous settlements in Whitehall.

But when it comes to cutting Britain’s very high energy costs — seen by businesses as the biggest single drag on their competitiveness — the Treasury has not signed off a scheme to cut bills.

Make UK, the manufacturing lobby group, said industrial energy costs in Britain were four times as high as those in the US and 46 per cent above the global average. “The upcoming industrial strategy will be fatally flawed unless sky-high energy costs are tackled,” it said.

Ministers are considering various options, but Reynolds is said by people close to the negotiation to want to focus help on the eight “growth sectors”, which do not include big energy users such as steel and ceramics.

Those two sectors already receive support from the British Industry Supercharger scheme, which was set up by the last Conservative government. Reynolds also wants to help other sectors including the car industry, said people briefed on the discussions.

Reynolds is a close ally of Reeves, and sidestepped some of the cabinet battles for cash in the spending review. His department was one of the first to settle its budget, albeit with the industrial energy cost issue unresolved.

Treasury documents show the business department’s settlement includes £3bn for the advanced manufacturing sector to help with the supply chain of zero emission vehicle batteries and ultra low carbon emission aircraft.

It also includes £2.9bn for the British Business Bank, boosting its funding capacity for smaller companies to £25.6bn.