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Out of control energy costs threatening businesses

07 September 2022

BRITAIN'S MANUFACTURERS are warning that their energy costs have already spiralled out of control, with nearly half reporting that their electricity bills have shot up by over 100% in the past 12 months and 53% expect the same fate in the coming year.

The current crisis is leaving businesses facing a stark choice – cut production or shut up shop altogether if help does not come soon. A worrying 12% of manufacturers have already made job cuts as a direct result of increased energy bills, but admit that more drastic action such as full shutdowns and wider redundancies will be needed if the expected price hikes of over 50% materialise in the next 12 months.

High energy prices are no longer an issue for energy intensive industries only, the impact is being felt across manufacturers of all sectors and sizes. Companies have attempted to mitigate against this with 58% already adjusting business practices to reduce energy consumption by insulating buildings and installing better performing heat systems. And over half have already priced in the increases into their final product. Some 13% are now reducing production for short periods or avoiding production altogether during peak energy price periods, with 7% reducing production already for longer periods in the day. Over a third of firms are actively searching for a new energy provider and two fifths have renegotiated a fixed tariff for the next year.

Securing their own energy supply has become a priority for many manufacturers, with over a quarter (27%) of firms surveyed saying they have managed to find the funds and have already moved to onsite generation. One in 10 have redistributed capital from other parts of the business to cover energy costs while 7% have taken on new or further finance to cover rising energy bills. Over seven in ten have seen reduced margins or profits as they struggle to pay the bills, with almost every manufacturer we surveyed saying Government is not doing enough to support industry.

The UK is currently lagging way behind other EU counterparts who are offering far more emergency help for industry – the Italian Government for example has reduced levies placed on gas and electricity bills, reduced VAT and introduced tax credits for energy intensive industries.
To bring the critical help to UK businesses, the new Government urgently needs to take short term, medium term, and long-term action.

Short term

  • Remove Carbon Price Support to reduce electricity costs. For medium electricity users this would save companies almost £90,000 a year
  • Explore Industry Price Cap to freeze prices at an agreed rate – funded either directly by Government or explore way of working with banks to fund an arrangement to finance a cap

Medium term

  • Maximise incentives to enable businesses to be less reliant on the National Grid. Extend 100% rates exemption for plant and machinery use in onsite renewable energy generation and electricity storage from 12 months to at least 3 years, more reflective of the payback period of the investment.
  • Extend business rate relief on commercial building improvements (eg insulation) from 12 months to at least 3 years

Long term

  • Rapidly reform wholesale market to decouple electricity prices from the gas price

Stephen Phipson, CEO of Make UK, the manufacturers organisation said: “As energy bills spiral out of control, manufacturers are working tirelessly to find ways to reduce consumption, putting in place as much as they can afford in terms of building improvements and installing renewable sources of energy. Government must step in to help struggling businesses, cashflow is already stretched to the limit, to pay what are now exorbitant energy bills by supporting sustainable factories and move further away from National Grid reliance.

“With an increasing number of manufacturers now in survival mode and taking drastic action such as cutting jobs, emergency action is needed by the new Government as soon as they are inside Number 10. This must see the immediate removal of Carbon Price Support which would at once bring down electricity prices for businesses and the introduction of an Industry Price Cap which could be funded in a variety of ways. We are already lagging behind our global competitors, and the prolonged lack of action by the UK Government making this worse. UK Manufacturing needs help now if it is to thrive and maintain the millions of well-paid jobs around the whole of the UK and to keep its place as one of the world’s great manufacturing nations."