What Labour’s Slash on Net‑Zero Levies Means for Businesses

In June 2025, Labour announced it will exempt over 7,000 energy-intensive businesses, in sectors like steel, chemicals, aerospace, automotive, ceramics, and glass, from green levies, including the Renewables Obligation (RO), Feed-in Tariffs (FiTs), the Contracts for Difference (CfD), and Capacity Market charges. The exemptions will begin from April 2027, potentially cutting energy costs by up to 25% or £40/MWh.

This move forms part of the wider British Industrial Competitiveness Scheme, which also includes increased grid connection discounts (rising from 60% to 90%) for around 500 firms and a new Connections Accelerator to speed up access to the grid.

The reforms sit within a broader 10-year British Industrial Strategy, designed to drive growth in key sectors such as manufacturing, clean energy, and advanced industries. It also introduces new Industrial Strategy Zones, which combine Freeports, investment zones, and enterprise zones into regional hubs for development.

⚠️ Note: These reforms are part of Labour’s proposed industrial strategy and are subject to consultation and final policy design.

What This Means for Larger Energy-Intensive Businesses

For energy-intensive sectors, the proposed levy exemption is a significant development. Removing the cost of green levies could reduce energy bills by up to a quarter, providing a meaningful boost to operational margins. In high-consumption industries like steel or chemical manufacturing, this could translate to millions in annual savings.

The exemption is intended to strengthen international competitiveness and encourage reinvestment in efficiency measures, equipment upgrades, and sustainability. For many businesses, it also supports long-term decarbonisation, freeing up budget for technologies such as CHP (combined heat and power), solar, or smart energy systems.

The benefits don’t stop at levy reductions. Businesses qualifying under the new scheme may also receive enhanced DUoS (Distribution Use of System) discounts on network charges and faster access to grid infrastructure, helping to remove a common bottleneck in site expansion and electrification.

Firms operating in or considering expansion into Industrial Strategy Zones may benefit further from regionally delivered support—including rate relief, simplified regulation, and access to infrastructure investment.

To prepare, eligible businesses should:

• Confirm if they meet expected criteria (e.g. >20% electricity cost to GVA)
• Review current and future procurement timelines to align with 2026/27 implementation
• Engage in policy consultations to stay ahead of changes

The Impact on Smaller and Mid-Sized Businesses

While the policy aims to relieve pressure on energy-intensive sectors, there is growing concern about its knock-on effects for smaller and non-exempt businesses. The levies being waived still need to be funded, and without a completely new mechanism in place, those costs could shift onto other energy users.

Smaller firms not eligible for exemption may end up footing more of the bill, either through increased levy costs or changes to other elements of the energy pricing structure. This risk is especially relevant for businesses with moderate consumption levels that fall outside current EII classifications.

The government has indicated that the shortfall will be covered by energy system reform and closer alignment with EU carbon pricing. However, the full funding model remains unclear. Until confirmed, the possibility of indirect cost increases for SMEs and mid-tier companies remains very real.

To mitigate risk, smaller businesses should:

• Monitor consultation outcomes closely
• Work with energy partners to model potential cost exposure
• Explore efficiency measures or long-term contracts that offer protection against volatility
• Engage with trade associations to ensure their interests are considered during policy design

Understanding Eligibility

Eligibility is expected to follow similar rules to the existing Energy Intensive Industries (EII) Exemption Scheme, which includes:

• Operating in a qualifying sector (based on SIC codes)
• Electricity costs accounting for at least 20% of Gross Value Added (GVA)
• Providing sufficient supporting evidence (e.g. audited energy data and financial records)

The government will consult further on this in late 2025. You can review the current guidance here.

Planning for the Rollout

The rollout will take place in stages:

• Mid to late 2025: Consultation begins
• Q1 2026: Final policy and eligibility guidance published
• Mid 2026: DUoS and grid access reforms implemented
• April 2027: Full exemption from Net Zero levies begins

With the structure now in place, affected businesses should begin preparing. Early action will allow better alignment with procurement cycles, improved forecasting, and faster access to any regional incentives.

Grid Reform and Renewable Market Impacts

The shift away from industrial contributions to green levies will also affect the wider energy market. Those levies currently fund renewable schemes such as the RO, FiTs, and CfDs. Removing a major source of funding could put pressure on these mechanisms.

As a result, we may see higher CfD auction prices or reduced developer participation, potentially slowing renewable growth. For businesses that rely on green energy credentials or renewable PPAs (Power Purchase Agreements), this could influence procurement strategy.

On the grid side, reforms via the Connections Accelerator and DUoS discount expansion are expected to benefit large users, but smaller businesses may not see the same priority access or network cost relief.

Aligning with SECR, ESOS, and Net Zero Reporting

Even with the removal of levies, reporting remains vital. Compliance schemes such as SECR, ESOS Phase 4, and Scope 3 tracking still apply. Businesses aiming to claim exemptions or demonstrate good governance will need accurate, auditable data.

Investing in an Energy Monitoring System (EMS) not only supports compliance, but helps identify where to drive savings and model eligibility.

Sector Spotlights

Manufacturing: Across heavy industry and high-process manufacturing, the exemption may improve cost competitiveness against global rivals and free up capital for clean energy investment.

Cold Storage & Logistics: Eligible businesses will benefit significantly from both levy cuts and DUoS discounts, especially where electricity is the largest single operating cost.

Education, Hospitality, and Retail: These sectors are less likely to qualify for exemption and may face increased relative energy costs. Close monitoring of consultations and potential support schemes will be essential.

Final Thoughts

Labour’s planned exemption of Net Zero levies for energy-intensive industries is a decisive move to boost competitiveness and reindustrialise key sectors. But the effects won’t be felt equally.

Larger businesses stand to benefit significantly, while smaller firms must remain vigilant to ensure they aren’t disproportionately impacted. The full picture will become clearer through the upcoming consultation process, and proactive engagement will be essential.

Whether you’re preparing to benefit or protecting against downside risk, now is the time to take stock, review energy strategy, and plan ahead.

Useful Links

• UK to cut green levies on businesses – The Guardian
• Britain to cut companies’ energy bills – Reuters
• Energy prices to be cut for businesses – Financial Times
• EII Exemption Scheme – Gov.uk
• Ofgem Connections Reform