UK government reveals long-awaited £1bn semiconductor strategy

The UK government will offer chip companies up to £1bn over the next decade aimed at boosting Britain’s resilience in a sector that has suffered from severe supply chain disruptions and faces the spectre of worsening geopolitical tensions.

British chip firms will be offered £200mn between 2023 and 2025, with the remaining £800mn to be parsed out by the end of 2033, according to the government’s National Semiconductor Strategy, which was released on Friday after a two year wait.

The amount pledged by the government is dwarfed by Washington’s Chips Act, which involves $52bn of subsidies and incentives to encourage semiconductor companies to build fabrication plants in the US. The EU has also launched its own “European Chips Act” with €43bn of state aid.

UK officials say the sums involved were proportionate because the British government does not believe the investment required to build fabs in the UK — which can cost as much as $10bn — was justified by the returns.

Instead, the UK plans to focus its resources on areas in which British companies have a “strategic advantage”, such as compound semiconductors that are made of multiple novel materials, while also striking alliances with centres of manufacturing such as Japan.

Amelia Armour, partner at Amadeus Capital Partners, a UK venture capital firm that invests in chip startups, said the government’s ambitions were “lacking”. 

“The level of investment announced for the next two-year period is disappointing, especially considering the UK needs to try to keep pace with the investment levels announced as part of the EU and US Chip Acts,” she said. “£200m spread over many initiatives won’t achieve much and will need to be allocated in a very targeted way to have impact.” 

The strategy marks the first time the UK government has launched a major support programme for the semiconductor sector since the 1980s — both a signal of chips’ growing significance to the global economy and an admission that British industry has struggled to keep pace with the rise of high-tech manufacturing in Asia over the past four decades.

“Our new strategy focuses our efforts on where our strengths lie, in areas like research and design, so we can build our competitive edge on the global stage,” said Prime Minister Rishi Sunak.

The launch comes as the UK’s leading chip design company, Cambridge-headquartered Arm, is planning to go public in the US later this year after its parent company SoftBank ruled out a London listing.

Rene Haas, Arm’s chief executive, said: “The UK is a significant hub of innovation and talent both for Arm and the wider industry and we look forward to working with the government and other partners to help make this [strategy] a reality.”

Nigel Toon, chief executive of Graphcore, the AI chip designer that is one of the UK’s most valuable start-ups, welcomed the “recognition of the very valuable contribution that the sector makes to our national economy”.

However, he added: “Obviously the overall level of investment, and the timescales over which this investment will be deployed, is at a modest level when compared to the much larger investments that are happening in other countries, including direct competitors such as Germany, South Korea and Japan.”

The government said it has already provided £539mn in grants for research and £214mn directly to small and medium sized businesses in the semiconductor industry over the past decade. It also plans to help ensure “critical” industries are better prepared for potential supply chain disruptions similar to those that occurred during the Covid-19 pandemic.

The threat of worsening relations between China and Taiwan, which produces more than 60 per cent of the world’s chips, has added impetus for Western governments to bolster their domestic industries and strengthen partnerships with allied nations.

On Thursday, Sunak announced a “semiconductors partnership” with the Japanese government that would include “ambitious R&D co-operation and skills exchange”, the strengthening of each country’s domestic sectors and the bolstering of supply chain resilience.

It was part of a broader Hiroshima Accord between the UK and Japan — involving closer economic, security, energy and technological co-operation between the two nations.

Other chip companies including California-based Qualcomm welcomed the UK’s semiconductor strategy. Americo Lemos, chief executive of the compound semiconductor wafer manufacturer IQE, said the plan “rightly focuses on the areas where the UK is a global leader”.