Net zero levy cuts are just tinkering at the edges
The Industrial Strategy contains bold ambitions for cutting energy prices. Yet, for all the glossy presentation, the underlying thinking remains the same: a conviction that Whitehall can shape markets more effectively than the market itself, says Emmanuel Igwe
We have learned through history that real progress emerges not from the bureaucratic designs of government but from the unpredictable, bottom-up ingenuity of individuals and businesses left to pursue their ambitions. This lesson, often ignored by policymakers, feels pertinent as Britain’s new Industrial Strategy was unfurled by Keir Starmer’s government this week, with the promise of a “modern” ten-year plan to transform the nation’s economic fortunes. Yet, a closer look at both the document and the broader context of recent government decisions suggests a familiar pattern: an overbearing state, a patchwork of interventions, and a persistent reluctance to let markets do the heavy lifting.
Looking at the latest data on the state of British Industry leaves little to hope for. Current ONS figures show production output declining by 0.6 per cent; with manufacturing output falling by 0.9 per cent. Between March and April this year, eight of 13 manufacturing subsectors experienced decreased output, of which machinery and transport equipment suffered the largest hit to production. This is a result of a stagnating manufacturing sector over the past three months, showing no growth compared to the same period last year. For eight months in a row, the manufacturing industry’s Purchasing Managers’ Index (PMI) (which gauges economic health by surveying purchasing managers at businesses) has remained below 50, a clear signal of contraction. Of further concern to economic growth, is the fall in retail sales volumes by 2.7 per cent in May, the largest in the sector since 2021. Employers continue to stall recruitment and delay investment in response to rising National Insurance Contributions (NICs) and associated costs. All this leaves business confidence in a fragile state – constrained by policy uncertainty, high costs and weak consumer demand.
Industrial strategy kills industry
Against this backdrop, the government’s Industrial Strategy arrives with grand ambitions: to unlock billions in investment, support the creation of 1.1m new jobs, and make Britain “the best place to do business” by slashing electricity prices and accelerating grid connections. These plans affecting advanced manufacturing, clean energy, digital technologies and other sectors are draped with promises of easing regulatory burdens, targeted funding and skills investment. Yet, for all the glossy presentation, the underlying thinking remains the same: a conviction that Whitehall can shape markets more effectively than the market itself.
This approach is not merely redundant; it is actively harmful. Sam Bidwell’s 2024 essay for the Adam Smith Institute, How Industrial Strategy Killed British Industry, captures the historical irony: Britain’s industrial decline has not been the result of neglect, but of persistent, government interference. British firms have become less nimble and more dependent on the state due to decades of various forms of intervention under the guise of industrial strategy. For every new plan or allocation of funds, government investment has crowded out private initiative and entrenched inefficiency. This latest strategy risks repeating these mistakes on an even grander scale.
Marginal reductions leave the interventionist framework intact, doing nothing to restore genuine price competition or incentivise efficiency
Take, for example, the much heralded cuts to net zero levies. These levies are an additional charge added to energy bills in order to fund green energy initiatives and back up supplies. While British manufacturers do indeed pay some of the highest electricity prices in the developed world, the government’s plan to supposedly cut bills by up to 25 per cent for over 7,000 businesses by 2027 by introducing levy exemptions is little more than a palliative. This is a classic case of tinkering at the margins. The levies themselves, by design, distort energy markets and inflate costs for both producers and consumers. These selective levy reductions will inevitably be paid for through increased Emission Trading Scheme (ETS) charges on all gas-using companies to match EU ETS charges, a direct consequence of the broader EU reset of carbon pricing mechanisms. Marginal reductions leave the interventionist framework intact, doing nothing to restore genuine price competition or incentivise efficiency. Worse, by presenting these cuts as a government “gift”, ministers reinforce the idea that business success depends on political favour rather than entrepreneurial skill.
Recent government decisions deepen the sense of anti-business drift. A theme across both the autumn and spring statements, as well as the latest spending review, isa tendency toward excessive spending. Businesses on the other hand are left to foot a large portion of the bill with increases in business taxes, a freeze on investment allowances, and a raft of new compliance costs. Latest annual corporation tax receipts were at a historic high of £93.3bn while employer NICs increased squeezing businesses at the margins. In general, these measures have left businesses facing a higher tax and regulatory burden than at any point in the past decade, eroding confidence and deterring investment at precisely the moment when bold, market-driven reform is needed.
What emerges from all this is a strategy that mistakes activity for achievement. The proliferation of plans, funds, and targets gives the appearance of progress leaving the core obstacles to growth, such as high taxes, complex regulations, and distorted energy markets unaddressed. British industry does not lack ambition or potential; it lacks the freedom to compete on a level playing field, free from government overreach.
Real renewal will not come from another decade of industrial strategy, but from a return to the principles that once made Britain an industrial powerhouse: low taxes, light regulation, and a willingness to let markets and not government ministers, decide where and how growth should occur. Until policymakers rediscover this humility, British industry will continue to wade through treacle, resilient but hobbled, waiting for the day when it is finally trusted to stand on its own.
Emmanuel Igwe is an economist at the Prosperity Institute