Budget 2026 series

Budget 2026 29 October 2026

Markets · Overlooked winners

The Budget’s Overlooked Winners: Why British Manufacturing Could Benefit More Than Retail

Electricity discounts, investment finance and industrial support may provide a substantial boost to parts of British manufacturing. The benefits could extend to aerospace, chemicals and advanced engineering, although investors must distinguish firm contracts from government ambitions.

Mickey Perry29 October 2026Equity & Markets Insight

Overlooked winners

There has been a lot of attention since the Budget on who has been affected, as the government focuses on increasing taxes in general, on household support and on higher taxes on the banks. But let me now focus a little more on the likely winners of this Budget, because some of the most consequential measures for UK businesses sit in the government’s industrial and energy policies rather than in the headlines.

British manufacturing has long struggled with relatively high electricity prices, which puts it at a disadvantage against international competitors. For energy-intensive businesses operating on narrow margins, reducing electricity costs can have a disproportionately large effect on profitability, and that is why the industrial electricity support in this Budget could prove more meaningful to selected companies than the measures attracting the most public attention.

Electricity discounts of up to 25%

The government has provided the British Industrial Competitiveness Scheme, which will give eligible manufacturers reductions of up to 25% in their electricity bills from April 2027. It does this by exempting them from the indirect costs of the Renewables Obligation, the Feed-in Tariffs and the Capacity Market that currently sit on their bills.

More than 10,000 manufacturing businesses are expected to qualify, and the government is also going to make payments in 2027 reflecting the support that would have been available had the scheme applied in 2026–27. That is quite a boon.

The scheme is forecast to require approximately £1.24 billion of public expenditure in 2027–28, including the backdated support. For a business that has high energy costs, this will be significant.

Consider a hypothetical manufacturer spending £100 million a year on electricity. If its entire electricity expenditure qualified for a 20% reduction, the annual saving would be £20 million. For a business generating operating profits of £80 million before the saving, that is a considerable improvement in profitability, assuming no offsetting costs or adjustments. Not every manufacturer will qualify, and not every company’s bill will receive the maximum reduction, but the example illustrates why energy costs matter considerably more for selected industrial companies than for the average retailer.

Who might be affected?

Vesuvius, Morgan Advanced Materials and Synthomer are among the UK-listed industrial companies whose energy exposure, manufacturing locations and potential scheme eligibility may see some impact. These companies have considerable operations and hold considerable energy costs.

How much energy the three groups use, and how little of it is in the UK

Total energy consumption (fuel and electricity), GWh, financial year to 31 December 2025

Company	Energy cost 2025	Group energy	UK energy	UK share of energy / revenue
Vesuvius	£45.1m (c. 2.5% of revenue)	941 GWh	0.8 GWh	0.08% / 1.4%
Morgan Advanced Materials	not disclosed	897 GWh	43.5 GWh	4.8% / 4.3%
Synthomer	not disclosed	1,512 GWh	66.9 GWh	4.4% / 5.5%

Group energy consumption 2025

Only Vesuvius puts a pound figure on its energy bill: £45.1 million in 2025, around 2.5% of revenue, down from £45.6 million in 2024. Morgan Advanced Materials and Synthomer report what they consume but not what it costs. What all three do report, under the Streamlined Energy and Carbon Reporting rules, is how much of that energy is used in the UK, and the answer is not much: 0.08% of Vesuvius’s group energy, 4.8% of Morgan’s and 4.4% of Synthomer’s, with UK revenue at 1.4%, 4.3% and 5.5% of the group totals respectively. Since the scheme covers only eligible sites in Great Britain, that is the slice of each bill it can touch.

Their operations involve different production processes and geographical footprints, so it would be inappropriate to assume an identical benefit. What matters is the proportion of electricity costs associated with eligible UK manufacturing facilities, the level of support available and whether competitive pressures force part of the benefit to be passed on to customers. A manufacturer with energy costs representing 15% of revenue could see a much more significant improvement than a business where electricity accounts for only 2%, so the benefit should be calculated at the individual company and facility level rather than applied as a standard sector-wide adjustment.

More capital for investment

The government has also announced an additional £20.4 billion of financing capacity for the National Wealth Fund and the British Business Bank. £15.4 billion will go to the National Wealth Fund, including £2 billion for a new Energy Wealth Fund, and another £5 billion will increase the British Business Bank’s capacity.

However, these figures represent funding and financing capacity, not simply £20.4 billion of immediate grants to listed companies. There is a strong distinction between loans, equity investments and guarantees on the one hand and grants of money on the other, and it matters because each has different financial implications for the company receiving it.

These figures represent funding and financing capacity, not £20.4 billion of immediate grants to listed companies.

When the National Wealth Fund money actually arrives

Cash impact of the £15.4 billion recapitalisation (including the £2 billion Energy Wealth Fund), £ billion by fiscal year, 2026–27 to 2031–32

Treasury forecast of cash provided

Nor is it quick money. The Treasury’s own cash profile shows nothing going into the National Wealth Fund in 2026–27 or 2027–28, with the new capital arriving from 2028–29 and building to £3.9 billion a year by 2031–32. The Fund can commit the full £15.4 billion over the forecast period, but the businesses and projects behind those commitments will draw the money down over a longer timeframe still.

The government is also directing up to £5 billion of investment and lending towards defence, dual-use technologies and national security over four years, using these institutions. That is not a totally insignificant level of funding increase, and it could help industrial businesses invest in manufacturing capacity, infrastructure and strategically important technologies.

Rolls-Royce and aerospace investment

The government outlined a proposed 10-year, £2.5 billion joint programme with Rolls-Royce for next-generation gas turbine technology, with expectations of application in civil and defence aerospace.

This is significant for Rolls-Royce as it works towards future aircraft engines, including its ambition to return to the narrowbody aircraft market. The Treasury expects the programme to support 3,300 jobs at Rolls-Royce and its partners by the end of 2029, in Derby, the wider Midlands and Bristol.

However, the programme is not yet a contracted source of revenue. The cooperation agreement establishes a framework, with future funding subject to award, negotiations and the relevant legal processes. Investors should distinguish the long-term commercial opportunity from the earnings already secured through existing contracts.

But it is again a good indication for Rolls-Royce, and maybe also for BAE Systems, Babcock, QinetiQ and Chemring, as to the availability of additional contracts. The broader defence investment programme provides a favourable demand environment for those contractors; actual contract awards, delivery schedules and operating margins will determine the financial benefits.

Capital allowances: the changes

The Budget also changes the tax treatment of qualifying capital expenditure. The main-rate first-year allowance will increase from 40% to 50% for expenditure incurred from 1 January 2027.

At the same time, the main writing-down allowance will decrease to 12% from April 2027, where it used to be 14%. The higher first-year allowance provides a stronger immediate deduction, but the lower writing-down rate on everything else, including the existing pool of unrelieved expenditure, generates additional tax revenue for the Treasury.

This adjustment is going to be significant for the Treasury. It expects to raise approximately £765 million in 2027–28 and more than £1 billion in 2028–29, rising to £1.1 billion a year by the end of the forecast.

What the capital allowance changes raise

Exchequer impact of cutting the main writing-down allowance to 12% and raising the main first-year allowance to 50%, £ million by fiscal year

Treasury costing (forecast)

Businesses already benefiting from full expensing will not necessarily see the same effect as those relying on the general allowances, and the overall consequences depend on investment patterns, asset eligibility and the timing of tax deductions.

Electricity generators: a downside

This Budget incorporated the previously announced increase in the Electricity Generator Levy, which moved from 45% to 55% and runs until March 2028, with the levy itself extended past 2028 and future arrangements subject to consultation. For companies with generation assets exposed to the levy, this could offset some of the benefits associated with wider energy investment.

Companies that may be exposed to this levy could be Drax and SSE. Both warrant a separate assessment of their eligible generation, contractual arrangements and tax exposure, because the levy applies only to revenue above a benchmark price from in-scope generation, and gas-fired plant, pumped storage and output under a Contract for Difference sit outside it.

Drax: where the output comes from

Electricity generation output by technology, TWh, year to 31 December 2025 (total 16.07 TWh)

Output 2025

SSE: where the output comes from

Electricity generation output by technology, TWh, year to 31 March 2026 (total 29.5 TWh)

Output 2025/26

On those numbers the exposure is narrower than the headline rate suggests. At Drax, the levy applies to the three biomass units under the Renewables Obligation and the run-of-river hydro, not to the Contract for Difference unit or to Cruachan, and the company’s levy charge for 2025 was nil, against £161 million in 2024, because achieved power prices fell below the benchmark. At SSE, roughly half of the 29.5 terawatt hours generated in the year to March 2026 came from gas-fired plant that the levy does not cover at all, and the levy only bites on receipts above a benchmark price of £82.61 per megawatt hour in the current year. The higher rate matters when wholesale prices are high; the Treasury itself scores the increase at just £60 million in 2026–27 and £35 million in 2027–28 across the whole sector.

National Grid is a different proposition because much of its business is regulated network infrastructure rather than electricity generation.

The investment conclusion

Overall, I think this was quite positive for the middle term for some British manufacturing operations. Assisting them with these energy bills will have a reasonable impact on their ability to continue and maybe pursue growth, or at least not reduce their operations too much, in a period when energy prices are elevated.

A manufacturer that receives a material reduction in a major production expense could see a real improvement in margins, investment capacity and international competitiveness. The additional financing initiatives and the proposed aerospace programme are longer-term opportunities, not immediate improvements to earnings.

The greatest investment value may come from identifying businesses where confirmed energy savings or additional contracts are material relative to existing profits. That requires more detailed company-level research than simply identifying which industries the government wishes to support.