UK manufacturers face some of the highest energy costs in the developed world – often paying 2× what their European counterparts pay, and up to 4× more than those in the US. These soaring costs are threatening competitiveness, jobs, and investment across the sector.
Now, Chancellor Rachel Reeves is considering a £1.1 billion-a-year UK energy subsidy for manufacturers to help stabilise electricity bills and protect the UK’s industrial backbone.
📰 Sources: The Times | Energy Live News
Why The UK Energy Subsidy For Manufacturers Matters
UK manufacturers are facing significant pressure from high and volatile energy prices—often far exceeding those paid in other countries. For many SMEs, this can impact profitability, investment confidence, and long-term sustainability.
The UK government is considering a new subsidy scheme that would operate on a contract-for-difference model. Under this approach:
- When energy prices exceed a certain level, businesses could receive government support to help offset those higher costs.
- When energy prices fall below that level, the government would recover some of that support, creating a balancing effect.
This model is already used in countries such as France, Denmark, and Greece to help protect domestic industries from energy market volatility. If introduced in the UK, it could offer small businesses greater certainty when budgeting and planning for future growth.
However, the proposal is still under consideration and details have not been finalised, so any potential impact will depend on the design of the scheme and eligibility criteria. Denmark – allowing manufacturers to plan with more financial certainty and avoid energy-driven disruption.
What Kind of Businesses Could Benefit From The UK Energy Subsidy For Manufacturers?
While the proposed subsidy is expected to focus on energy-intensive sectors, the exact scope has not yet been confirmed. Sectors likely to be prioritised include:
- Manufacturing (such as engineering, fabrication, or automotive)
- Food and beverage production
- Steel, ceramics, and glass
- Chemical processing and materials
- Data centres and related infrastructure
These sectors typically face higher energy usage due to 24/7 operations or reliance on high-powered machinery.
Other small businesses that use significant energy—such as those operating cold storage, advanced equipment, or continuous processes—may also experience indirect benefits, depending on how the scheme is implemented.
Trade organisations such as Make UK have estimated that this kind of support could contribute significantly to the UK economy, although such figures are indicative and will depend on policy outcomes and business uptake.
What You Can Do Now
Although the proposed UK energy subsidy for manufacturers is still under review, there are practical steps small businesses can take to prepare:
- Stay informed: Watch for updates from HM Treasury or official government channels to understand whether your business might be eligible.
- Evaluate your energy costs: Consider whether energy consumption is affecting your margins and whether efficiency improvements could help.
- Plan carefully: If you are exploring upgrades or operational changes that involve upfront costs, you may wish to consider financing options.
At Funding Pool, we support UK SMEs by providing access to a range of business funding solutions. If you’re thinking about investing in your business – whether to improve energy efficiency or support broader growth – our team is available to discuss your options in a clear, responsible way.
Any finance application is subject to status, affordability checks, and lender approval. Funding Pool is a credit broker, not a lender.
