UK to subsidise domestic chip manufacturing, report

Direct funding will be provided to local chipmakers as part of a new strategy

The British government plans to support the nation's semiconductor firms with public money as part of a strategy to cut its reliance on foreign chipmakers.

Citing officials with knowledge of the matter, Bloomberg reports that the support would include seed money for start-ups, assistance for existing businesses to grow up and new incentives for private venture capital.

The officials said that ministers will establish a semiconductor task group to coordinate public and private support for increasing UK compound semiconductor production over the next three years.

Although an overall figure has not been decided upon with the Treasury, it is anticipated to be single figure billions of pounds.

The National Security Strategic Investment Fund, British Business Bank and Innovate UK would all receive public support as part of the new UK plan.

Semiconductors are utilised in a wide variety of products, ranging from cell phones to automobiles, and their shortage can disrupt supply chains throughout the economy, as was witnessed during the pandemic.

Companies that have already been impacted by the pandemic are currently evaluating their investments in the UK due to frustrations over government's delay in finalising a semiconductor strategy.

According to a BBC report, the number of new cars manufactured in the UK decreased dramatically last year, reaching its lowest level since 1956. The Society of Motor Manufacturers and Traders said a worldwide shortage of chips has impacted production lines.

Car makers are worried that the UK lacks a plan for making the country attractive as a destination for manufacturing investment.

Americo Lemos, CEO of IQE Plc, a British-based compound semiconductor producer, recently urged Rishi Sunak to improve financial support for the industry in what he calls a "global chips arms race."

In an open letter [pdf] to Rishi Sunak this week, leaders in the UK tech community wrote: "Semiconductors are the vital components that power our lives every day. Britain has traditionally been a world leader in the field — home to world-leading chip design companies and leaders in the compound semiconductor segment.

"However, the industry needs a coordinated and comprehensive semiconductor strategy. The technology and manufacturing sectors have been waiting more than two years for the promised strategy, and confidence in the government's ability to address this industry's vital importance is steadily declining with each month of inaction."

The letter, signed by Tech London Advocates, techUK, Birmingham Tech and the Raspberry Pi Foundation, warns that China, the United States and the EU have already begun work on achieving microchip independence by investing heavily in silicon and chip facilities.

The government said last month that it was looking at national initiatives to increase the domestic chip sector, including the possibility of establishing a new institution as part of its infrastructure-building goals.

Bloomberg reported last week that a draft semiconductor plan developed in 2022 urged the Prime Minister to make efforts to reduce the UK's dependency on Taiwanese chips due to the danger presented by China.

More than 90% of the world's production capacity for all cutting-edge chips is based in Taiwan, including Taiwan Semiconductor Manufacturing Company (TSMC), the world's top silicon foundry.

The draft strategy advises Britain to diversify its microchips supply by acquiring chips from other friendly and secure countries, while increasing its investment in R&D by billions of pounds.

Michelle Donelan, the culture secretary, is said to have examined the plan and is close to finalising a new version for publication in the coming weeks.

The opposition Labour Party's shadow foreign secretary, David Lammy, told Bloomberg Radio that the UK must work with the EU to ensure its supply of semiconductors.

"It's not the case that the UK can do this on its own," he said.