Ministers are preparing to invest at least £1billion in Britain’s computer chip industry to challenge Chinese dominance in the sector.

The government’s long-awaited semiconductor strategy is expected to include proposals to subsidize chip start-up companies and related research activities, sources said.

A Whitehall source said officials were considering at least £1bn as an initial investment in the program, likely over several years and potentially drawn from the UK’s expanded £20bn R&D budget. However, any investment would require final Treasury approval and no figures have been agreed.

The move to back the chip industry comes amid growing unease over Britain’s reliance on Chinese-made components.

A National Semiconductor Strategy was initially drawn up last summer under the supervision of then-technology minister Chris Philp, before being frozen for months amid the turbulent end of Boris Johnson’s premiership.

Although the document still needs final approval from ministers, it is expected to include plans for investment in two key UK assets. These will likely include compound semiconductors, a new 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.

The government’s plans include increased funding for computer chip startups, help for existing companies to grow, and new incentives for private venture capital to invest in the sector, Bloomberg reported.

The UK should set up a task force to deal with the industry. Funding could come from the British Business Bank or the £400m National Security Strategic Investment Fund.

Senior chip industry officials have been pushing for more government support. US President Joe Biden last year announced the $57bn (£50bn) CHIPS Act to boost his country’s domestic manufacturing capacity.

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

China dominates the global semiconductor market, but officials are increasingly concerned about the national security implications.

Business Secretary Grant Shapps ordered the cancellation of the sale of Newport Wafer Fab to a Chinese company late last year on national security grounds.

Michelle Donelan, the digital secretary, confirmed in December that work was underway to create a new national semiconductor institute to spur innovation.

Government officials have been pushing for almost a year to get at least part of Cambridge-based chip designer ARM’s multi-billion-pound float in London. New York is considered the tech giant’s preferred option to list the company.

Americo Lemos, managing director of London-listed chipmaker IQE, said: “It’s great to see that the government seems to be focusing on the compound semiconductor industry as a segment where the UK has already a leadership position that it can exploit effectively. .”

Mr Lemos has been a strong advocate for increased government support for the UK chipmaking industry.

Mark Lippett, managing director of Bristol’s semiconductor design business XMOS, said: “I expect the deployment of government funds to be balanced across the value chain – not just on manufacturing, where “single-digit billions” can be a drop in the bucket.

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

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