The Budget 2026: cheaper power, tighter allowances: What it means for manufacturers.

The Chancellor billed Budget 2026 as “breathing space”, but for manufacturers the real story is energy. The Treasury concedes UK industrial energy prices are “consistently amongst the highest in the EU” and aims to “unleash cheap electricity, cutting bills to reindustrialise the country”. With inflation at 3.5% and the OBR forecasting a 3.8% peak in Q1 2027, the package is targeted rather than sweeping, so the detail matters.

The Budget 2026: cheaper power, tighter allowances: What it means for manufacturers

Energy: where the support is concentrated

For manufacturers, the centrepiece remains the British Industrial Competitiveness Scheme (BICS), first announced in the 2025 Industrial Strategy and now fully funded by the Budget. From April 2027, over 10,000 eligible energy-intensive manufacturers in Great Britain will see electricity bills cut by up to 25%, with a back payment for 2026/27. The application window has already opened and is currently scheduled to close on 30 November 2026.

Around it sit supportive but slower-burn reforms. The planned Gas Shipper Obligation is scrapped, and in general no new policy costs will be added to bills until a Cost Control Framework arrives at the 2027 spending review. Carbon Price Support will be removed and the electricity Climate Change Levy frozen from April 2028. A consultation on wholesale Contracts for Difference also begins the process of weakening gas’s grip on power prices.

Eligibility for BICS is everything. For manufacturers outside it, the practical question is how far the wider reforms feed through to their own bills. Timing matters too: wholesale gas prices are up nearly 200% since the conflict in the Middle East began, while 42% of businesses had at least half their electricity fixed or hedged in March 2026. Many will meet the full shock when those contracts roll off, before BICS support begins.

Capital allowances: a sting in the tail

The Budget preserves the 25% headline corporation tax rate, the £1 million annual investment allowance, and full expensing. It cuts the main rate writing-down allowance to 12% from April 2027, while lifting the main rate first-year allowance from 40% to 50% from January 2027. Full expensing and first-year allowances exclude second-hand plant and cars, and particular care is needed with leasing arrangements, especially within groups. The Treasury scores this as a revenue raiser: £765 million in 2027/28, rising above £1 billion a year from 2028/29.

Heavy investors should be broadly protected, but the outcome will depend on their asset mix and how much spend sits outside full expensing. That matters because the OBR expects business investment to stall – 0.0% growth in 2026 and -0.5% in 2027 – after rising 7.5% so far this Parliament.

Targeted sector support and trade

Several measures target industrial supply chains: a £2.5 billion, ten-year Rolls-Royce programme for next-generation gas turbines (expected to support 3,300 jobs by 2029, though not yet contracted), £350 million for critical chemicals, £120 million for ceramics, and a tougher steel regime, with the tariff-free quota cut by 51% and out-of-quota tariffs at 50%.

Importers should note that tariff suspensions on over 250 goods have been extended. A new window to request further suspensions opens on 11 November 2026 and closes on 3 February 2027.

Procurement, finance and people

The government intends to publish a new definition of a “UK supplier” by January 2027, and to require at least 3% apprentices on large government infrastructure and construction projects. Funding routes expand too: £20.4 billion of fresh capital for the National Wealth Fund and British Business Bank, a UK Export Finance pilot offering up to £5 billion of guarantees, and up to £5 billion into defence and dual-use sectors over four years.

On costs, the National Living Wage rises 3.9% to £13.21 on 1 April 2027, although headline rates of income tax, National Insurance and VAT are unchanged.

Planning an exit? Timing now matters

For owner-managed businesses considering a sale, the Budget raises the stakes. The Business Asset Disposal Relief (BADR) rate stays at 18%, but the lifetime limit halves from £1 million to £500,000 for disposals on or after 6 April 2027. This represents a significant erosion of BADR, whose lifetime limit and rate were, only a few years ago, the same as those now proposed for the new Founders’ Relief. By contrast, the new Founders’ Relief, a 10% rate on up to £10 million of gains, will help only a very narrow group of high-growth businesses and remains under consultation. Owners already in sale discussions should model completing either side of April 2027 and take advice early.

What manufacturers should do now

The Budget confirms the support, but manufacturers will only benefit if they act on it. Businesses that may qualify for BICS should confirm eligibility and gather the information needed to apply now. Beyond that, manufacturers should review when energy hedges expire, reassess planned 2027 capital spend against the new allowance rates, consider tariff suspension requests before February 2027 and, if a sale is on the horizon, check the timing against the new BADR limit.

If you would like advise for your manufacturing please do get in touch. Our team of experts will be happy to hear from you.

Budget 2026: FAQs for Manufacturers

The most significant measure is the full funding of the British Industrial Competitiveness Scheme (BICS), which is expected to reduce electricity bills by up to 25% for eligible energy-intensive manufacturers from April 2027, with a backdated benefit covering 2026/27.

BICS is aimed at energy-intensive manufacturers and industrial businesses in Great Britain. Eligibility depends on factors including industry sector and energy usage. Businesses that believe they may qualify should review the government’s criteria and begin preparing their application as soon as possible.

The current application window is open and is scheduled to close on 30 November 2026. Given the potential value of the relief, manufacturers should confirm their eligibility and gather supporting information well before the deadline.

Many manufacturers have fixed-price electricity or gas contracts in place. Businesses may not feel the full effect of current wholesale energy price movements until those contracts expire. Companies should review when their existing hedges or fixed-price arrangements come to an end and assess the likely impact on future cash flow.

Potentially. The surcharge applies to residential properties valued at £2 million or more and may affect a number of property owners in Cambridge and South Cambridgeshire.

The Budget maintains:

• Full expensing
• The £1 million Annual Investment Allowance (AIA)
• The 25% corporation tax rate

However, from April 2027 the main writing-down allowance will reduce from 18% to 12%, while the main rate first-year allowance will increase from 40% to 50% from January 2027.

Many manufacturers will continue to benefit from full expensing, but not all assets qualify. In particular, second-hand plant and machinery and most cars remain excluded. Businesses using leasing structures should also review arrangements carefully, especially where assets are leased within a group.

The Budget expands access to finance through:

• Additional funding for the National Wealth Fund and British Business Bank
• A UK Export Finance pilot offering up to £5 billion in guarantees
• Up to £5 billion of support for defence and dual-use sectors over four years

Manufacturers seeking expansion funding, export support or growth capital should review whether these schemes could support their plans.

The Budget includes targeted support for several industrial sectors, including:

• £2.5 billion for the Rolls-Royce next-generation gas turbine programme
• £350 million for the chemicals sector
• £120 million for ceramics
• Additional support and protection for the UK steel industry

Businesses operating within these supply chains may wish to monitor future funding and procurement opportunities.