Britain to challenge China with £1bn subsidies for computer chip makers

Ministers are preparing to invest at least £1bn in Britain’s computer chip industry in a challenge China’s dominance of the sector.

The Government’s long-awaited semiconductor strategy is expected to include proposals to subsidise early-stage electronic chip businesses and linked research activity, sources said.

A Whitehall source said officials were eyeing at least £1bn as an initial investment in the programme, likely over several years and potentially drawn from the UK's enlarged £20bn R&D budget. However, any investment would require final Treasury sign off and no figure has been agreed.

The decision to support the chip industry comes amid a growing unease over Britain’s reliance on Chinese made components.

A national semiconductor strategy was initially drawn up last summer with oversight from Chris Philp, the then technology minister, before being put on ice for months amid the turbulent end to Boris Johnson's premiership.

While the document still needs final sign-off from ministers, it is expected to include plans to invest in two key UK strengths. These are likely to include compound semiconductors, a novel type of computer chip that uses new, more efficient materials instead of traditional silicon. Britain has particular expertise in these chips within the so-called South Wales Cluster.

Within the Government’s plans are increased funding for computer chip startups, help for existing companies to scale up, and new incentives for private venture capital to invest in the sector, Bloomberg reported.

The UK is expected to set up a task force to address the industry. Funding could come via the British Business Bank or the £400m National Security Strategic Investment Fund.

Senior figures in the chip industry have been pushing for increased government support. US president Joe Biden last year announced the $57bn (£50bn) CHIPS Act to boost his nation’s domestic production capabilities.

Industry leaders had been briefed on elements of the government’s semiconductor strategy but the collapse of both Boris Johnson and Liz Truss’s governments delayed its publication, sources told The Telegraph.

China dominates the global semiconductor market but officials have been increasingly concerned about the national security implications of this.

Business minister Grant Shapps ordered the sale of Newport Wafer Fab to a Chinese-owned business to be reversed late last year on national security grounds.

Michelle Donelan, the Digital Secretary, confirmed in December that work is under way to set up a new national institute for semiconductors to boost innovation.

Government officials have been lobbying for nearly a year to secure at least a portion of the multibillion pound float of Cambridge-based chip designer ARM in London. New York is understood to be the tech giant’s preferred option to list the business.

Americo Lemos, chief executive of London-listed chip maker IQE, said: “It's great to see that the government appears to be zeroing in on the compound semiconductor industry as a segment in which the UK already has a leadership position that it can effectively leverage.”

Mr Lemos has been an outspoken advocate of greater government support for the UK chip manufacturing sector.

Mark Lippett, chief executive of Bristol semiconductor design business XMOS, said: “I hope that deployment of government funds will be balanced throughout the value chain - not just on manufacture, where ‘single digit billions’ may be a drop in the ocean.”

A government spokesman declined to comment and said: “Our semiconductor strategy will be published in due course.”