Listen to manufacturers and unions: high electricity prices are killing industry | Nils Pratley
UK manufacturers and unions are urgently calling for government intervention to address the detrimental impact of high electricity prices on the nation's industrial competitiveness, warning of deindustrialization.
Intelligence analysis by Gemini 2.5 Flash
A joint appeal from Make UK and the TUC highlights that the UK's high electricity prices, the highest in the G7, are forcing manufacturers to move production overseas, delay investments, and cut jobs, undermining the government's industrial revival ambitions.
Imagine a toy factory that needs a lot of electricity to make cool toys. In the UK, the electricity is super expensive, much more than in other countries. This makes it hard for the factory to sell toys at a good price and still make enough money to pay its workers and buy new machines. So, some factories are moving to other countries, or not buying new machines, or even letting some workers go. Grown-ups who make toys and the people who work there are asking the government to help make electricity cheaper so their factories can stay in the UK and keep making things.
Analysis
Manufacturers and unions in the UK are sounding the alarm over the severe impact of high electricity prices on the nation's industrial sector. Make UK, a manufacturing lobby group, and the Trades Union Congress (TUC) have jointly called for immediate relief, arguing that the current energy costs are a significant impediment to business competitiveness.
Economic Impact
The UK currently faces the highest electricity prices among G7 nations, with costs reportedly four times higher than those in the US. This disparity is leading to a concerning trend: nearly one in ten manufacturers have already relocated some production overseas, and an additional 16% are considering similar moves. The squeeze on profit margins, due to energy bills rising faster than product prices, is also causing almost four in ten companies to delay investments.
Employment Concerns
The TUC's primary concern revolves around the threat of job losses, affecting the 2.5 million workers in the manufacturing sector. The survey indicates that over a fifth of companies have already reduced their headcount as a direct consequence of rising energy costs.
Policy Recommendations
Make UK and the TUC are advocating for an expansion of the British Industrial Competitiveness Scheme (BICS), which currently offers up to a 25% reduction in electricity bills for approximately 10,000 qualifying manufacturers. They propose extending this scheme to cover all 130,000 manufacturers, an initiative estimated to cost £3 billion. This broader coverage, they argue, is essential for a comprehensive solution to support UK industry.
Government Response and Challenges
The government's current industrial strategy emphasizes narrowly targeted support due to affordability concerns. The existing BICS, costing £600 million, is funded by "changes within the energy system and Exchequer funding." However, the proposed £3 billion expansion presents a significant challenge for the Treasury. The article highlights that countries like France and Germany absorb a larger portion of equivalent energy levies into general taxation to maintain industrial competitiveness.
Broader Debate
This debate aligns with a parallel discussion in the household sector regarding the allocation of energy levies, which led to a £150 reduction in average household bills. However, for businesses, the government has maintained its targeted approach, which Make UK describes as insufficient for bringing down energy costs. The issue is often seen as a "slow-burner" crisis, which may explain why it has not reached the top of the political agenda despite high-profile closures like the Grangemouth refinery and the harder-to-measure cost of multinationals expanding overseas instead of in the UK. The trade body's downgraded growth forecasts for the manufacturing sector, projecting 0.4% growth this year and 0.1% next, underscore the urgency of a comprehensive strategy.
Key points
- UK electricity prices are the highest in the G7, significantly impacting manufacturing competitiveness.
- Almost 10% of UK manufacturers have moved some production overseas, with 16% considering it.
- High energy costs are leading to delayed investments and job reductions in the manufacturing sector.
- Make UK and TUC advocate for expanding the British Industrial Competitiveness Scheme (BICS) to cover all 130,000 manufacturers, costing an estimated £3 billion.
- The current government approach is narrowly targeted, which critics argue is insufficient to address the crisis comprehensively.
- The issue is a 'slow-burner' crisis, with hidden costs like multinationals expanding abroad rather than in the UK.
If the government adopts a comprehensive strategy to reduce electricity prices for manufacturers, it could revitalize the UK's industrial sector, prevent job losses, and encourage investment. This would enhance the nation's global competitiveness and support broader economic growth, including key initiatives like energy transition and domestic defense production.
Without significant government intervention, the UK faces a risk of deindustrialization as manufacturers continue to relocate production overseas and delay investments due to high electricity costs. This could lead to substantial job losses, diminished economic growth, and a weakened manufacturing base, making the UK less competitive internationally.
