Draft Renewables Obligation and Electricity Capacity (Amendment) (British Industrial Competitiveness Scheme Excluded Electricity) Regulations 2026
(1 day, 23 hours ago)
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The Parliamentary Under-Secretary of State for Business, Innovation, Science and Trade (Blair McDougall)
I beg to move,
That the Committee has considered the draft Renewables Obligation and Electricity Capacity (Amendment) (British Industrial Competitiveness Scheme Excluded Electricity) Regulations 2026.
It is a pleasure to serve under your chairmanship, Mr Dowd. The draft regulations were laid before the House on 7 September 2026. I acknowledge the Joint Committee on Statutory Instruments, which provided helpful scrutiny of the regulations and did not draw them to the special attention of the House. I also acknowledge that the Secondary Legislation Scrutiny Committee reported on the regulations and did not draw them to the special attention of the House.
These regulations deliver the British industrial competitiveness scheme, which is a flagship commitment of the modern industrial strategy. BICS is a central part of our drive to engineer the reindustrialisation of the UK. Reindustrialisation means building on the strengths of every part of our country, creating good jobs and connecting communities to the industries and opportunities of the future.
BICS will address the persistent competitiveness challenges facing British manufacturers by reducing electricity costs for eligible businesses. It will drive investment and economic growth in strategically important sectors across Great Britain. BICS will support frontier manufacturing industries within the IS-8 sectors and the foundational manufacturing industries that provide key inputs to their supply chains. This includes eligible businesses in automotive, aerospace, clean energy, life sciences, chemicals and steel, and many more.
The Government are committed to maintaining a competitive and resilient industrial base, but persistently high energy prices, especially electricity prices, have increasingly undermined investment, productivity and employment, particularly in manufacturing. For too long, British industries have faced some of the highest industrial electricity prices in Europe due to a combination of structural factors and policy costs. There is a need to address the immediate cost pressures that are facing the British manufacturing industry and stifling growth, which is precisely why BICS has been introduced.
BICS will exempt eligible manufacturing businesses from paying the indirect costs of the renewables obligation and feed-in tariffs from April 2027 and capacity market costs from October 2027. These costs are levied on electricity suppliers, which pass them on to domestic and non-domestic consumers through their electricity bills. BICS is expected to cut electricity costs by up to 25%, or £40 per megawatt-hour, and over 10,000 manufacturing businesses will be eligible.
The scheme is designed to support manufacturing businesses in high-growth and strategic sectors to be more internationally competitive, and to drive investment and economic growth across all regions of Great Britain. It will spread the benefits of growth across the country, supporting businesses rooted in communities across our regions, with the vast majority being small and medium-sized businesses.
The regulations are an important part of delivering that objective. They implement the renewables obligation and capacity market exemptions, and they enable the renewables obligation level for the 2027-28 obligation period to be revised in the light of BICS. They also provide for the BICS eligibility criteria and how the level of discount will be calculated. An instrument to exempt eligible businesses from the indirect costs of the feed-in tariff will also be made.
We recognise the tremendous challenges that British manufacturers are facing, and we have heard the call to go further. That is why eligible businesses will also receive an additional payment in 2027 related to the amount they would have received had the scheme gone live this year.
BICS will support British manufacturing businesses to thrive and become more competitive on the international market. It will allow them the freedom to invest further in their business and help drive economic growth across Great Britain. I commend these regulations to the Committee.
Dr Luke Evans (Hinckley and Bosworth) (Con)
It is a pleasure to serve under your chairmanship, Mr Dowd. It is also a pleasure to be opposite the Minister. We last met at MIRA in my constituency to talk about some of these issues that affect the automotive industry. He will be pleased to hear that I will not be dividing the Committee, as it is welcome news that the Government are looking at ways to reduce costs on businesses.
That being said, there are some fundamental questions about the regulations that need to be raised. The Government have correctly identified high energy costs as a major obstacle to British manufacturing, but their response seems to be to create a complicated system of exemptions that help selected businesses while leaving the majority facing uncompetitive costs. In essence, we need cheaper electricity for British industry in its entirety, so why are we effectively creating winners and losers, leaving the underlying problem unresolved?
The question is: who ultimately pays? There is legitimate concern that households or businesses that are excluded from the scheme may face higher costs. Also, why are so many businesses excluded? The eligibility rules favour selected manufacturing sectors, leaving other businesses to face higher energy bills. Why is the scheme unnecessarily complicated, with several tiers setting out the percentage a business can claim back? And fundamentally, does it address the real underlying problem?
The Minister has again pointed out that we have high industrial costs, some of the highest in the world. If BICS carves selected manufacturing out of existing electricity policy costs, that is welcome for them, and the Minister spoke repeatedly about those who are eligible. What about those who are not eligible? The Conservatives would get rid of the renewables obligation for every business, which would help every business.
That brings me to a couple of questions I have for the Minister. What we have to think about is the wider economy, so I am glad he is double-hatted and can look at businesses, too. What about pubs, restaurants, corner shops and the manufacturers that are not in the selected 10,000 given special treatment? What guarantee is there that those outside BICS will see no temporary or permanent rise in their energy bills?
The Government have accepted that carbon price support is no longer fit for purpose, and we agree. They accept that abolishing it will reduce electricity costs, and they intend to use the savings to offset the costs created by BICS. If removing carbon price support reduces electricity costs and helps finance industrial relief, why wait until April 2028? Why retain these wider carbon costs and continue to feed them into electricity prices? The question really is: why is CPS being retained through 2027-28 when BICS starts in 2027?
That leads us on to the fundamental final question, and it is interesting with the Budget coming tomorrow: how much additional Exchequer funding is required for 2027-28 specifically because carbon price support will not be abolished until April 2028? These are clearly fundamental differences between the Opposition and the Government. We favour a plan that would reduce costs for all businesses, not the lucky selected few.
Edward Morello (West Dorset) (LD)
The Liberal Democrats also support this statutory instrument. It is exactly the kind of relief for energy-intensive industries that we have been calling for, as these industries face some of the highest industrial electricity costs in the world. We must support manufacturing businesses to be more internationally competitive and to drive investment and economic growth across the UK.
However, the Liberal Democrats believe this support must not stop with large manufacturers. Hospitality businesses and other SMEs like those in West Dorset face the same high electricity costs but receive no equivalent relief, despite making up 99% of businesses in the UK. The Government must extend meaningful support to those outside the BICS-eligible sectors.
We also need faster action to reduce the link between electricity and gas prices. New solar power is 11% cheaper than the cheapest fossil fuel and onshore wind is 39% cheaper, yet our electricity pricing system still leaves British consumers facing the fourth highest energy prices globally. The Government have promised to look at decoupling electricity prices from gas, but the work needs to move faster so that households and businesses, not just energy-intensive industries, can benefit from cheaper renewable energy. The British industrial competitiveness scheme is a positive step, but we ask the Government to go further.
Sarah Edwards (Tamworth) (Lab)
I also lend my support to these regulations and the British industrial competitiveness scheme. As the Minister knows, I have long campaigned on business energy costs, about which we have talked at length, so I am really pleased to support this initiative. One of the businesses in my constituency, Alcon, is an advanced automotive manufacturer that will be applying to the scheme, which it is pleased to welcome. I am a member of the Business, Innovation, Science and Trade Committee, which similarly welcomes this initiative and particularly the payment to include 2026, as the Minister said.
I ask the Minister to speak to his good friend, the Chancellor, about further initiatives to help those businesses that do not currently qualify for the scheme. If we want growth in every postcode, we have to make sure that, as much as possible, we deal with the energy costs that we know are stifling all businesses, not just those in advanced manufacturing and other eligible sectors. I lend my support, but I ask the Minister to join me in petitioning to make sure that we support all businesses across the country, not just in Tamworth.
Sadik Al-Hassan (North Somerset) (Lab)
It is a pleasure to serve under your chairship, Mr Dowd. These regulations put the British industrial competitiveness scheme into effect. Eligible manufacturers will be exempt from the indirect costs of the renewables obligation and the capacity market, with the Government saying that other consumers will not pay more.
In my North Somerset constituency, we sit on the edge of the West of England aerospace and advanced manufacturing cluster. These firms and their supply chains compete globally against rivals with far lower energy costs. Cutting those costs protects skilled jobs here, so I support the regulations.
Blair McDougall
I thank Members for taking part in this debate. I am grateful for the constructive tone, particularly from the Opposition. As the hon. Member for Hinckley and Bosworth said, we sat around the table with some superb advanced manufacturers from the automotive sector in his constituency. They deserve not just our praise but our action, which is exactly what we are attempting to achieve with these regulations.
Peter Fortune (Bromley and Biggin Hill) (Con)
It has just occurred to me that the cut-off date is 1 December. If firms miss that, will they have to wait a whole year to reapply, or is there some sort of mechanism to support them?
Blair McDougall
The hon. Gentleman is getting slightly ahead of what I was about to say, which is that we are racing to make sure that as many companies as possible make that deadline. Of course, we will keep things under review as we want the maximum number of companies to be eligible.
The scheme has been described as complex, and certainly its design is complex. Although it is complex for my civil service team, we are hopeful that, through the work we have done with the online eligibility checker, it will not be complex for businesses as they apply. I urge Members across the House to reach out to their local manufacturers to make sure they apply for this support.
There is an understandable consensus urging us to go further, which is completely fair. Energy prices are one of the country’s key competitive disadvantages. When BICS was first announced, we envisaged that around 6,000 businesses would be eligible, and that has now been extended to 10,000 businesses. With its design, we have already tried to go further. Both the Secretary of State for Business, Innovation, Science and Trade and the Secretary of State for Energy Security and Net Zero have made it clear that they have wider ambitions.
It is perhaps a little late—I do not know whether the Budget has been sent to the printers—but I can assure my hon. Friend the Member for Tamworth that both my Departments will continue to make that case to the Treasury, but I would say that drawing a greater amount on the Exchequer obviously has an opportunity cost for other industrial support we can give. We have to be careful to strike a balance.
Obviously, this is not the only intervention to assist with energy costs. We have the supercharger for energy-intensive industries, and the ceramics fund is specifically aimed at helping that sector, which is under stress with energy prices, to decarbonise, to electrify and to innovate. Ultimately, the long-term future for competitive energy prices in this country, after the experience of two fossil fuel shocks in five years, is to move towards cleaner, cheaper, more reliable power that we control.
I am grateful to Members for their contributions to this debate and for their support for these regulations. BICS is intended to challenge the long-term competitiveness disadvantages, and it will benefit over 10,000 manufacturing businesses in high-growth and strategic sectors across the country. We will review the scheme in 2030 to assess its continued effectiveness in supporting the competitiveness of manufacturing businesses. I commend the regulations to the Committee.
Question put and agreed to.