Soaring energy costs 'putting one in ten factories at risk' as UK faces £85 BILLION hit to economy

More than one in ten factories could face closure if Britain’s sky-high electricity costs rise any further, manufacturers have warned.

This would cause an £85billion hit to the economy, the report from trade body Make UK finds.

The study revealed 90 per cent of the 124 companies questioned said energy bills had increased at least moderately since 2022, with 46 per cent seeing a “significant” rise.

More than half said energy costs would be their biggest challenge over the coming years.

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More than one in ten, 13 per cent, said further projected price hikes “could be life-threatening to their operations”.

Such a decline in manufacturing would cost the country £85billion a year, with £50billion of this coming across supply chains. UK industrial energy is the most expensive in the developed world.

The report, From Crisis to Stability: A Future Energy System for Manufacturers, was carried out in conjunction with green energy company Ecotricity.

“Businesses can only deliver growth if the Government takes a serious and holistic approach to tackling high electricity prices for manufacturers,” it warns.

It revealed that seven in ten firms were passing higher bills onto customers, meaning high street costs were going up.

Nearly four in ten have delayed investment, while one in five has laid off staff.

If found that although companies wanted to reach Net Zero decarbonisation goals, energy prices were holding them back. It called for policy costs, which include the green levies used to subsidise clean power generation, to be moved from bills and into general taxation.

More manufacturers should be included on the British Industrial Competitiveness Scheme (BICS), it says.

This exempts firms from paying a number of green charges on electricity bills. It also demanded action to ‘decouple’ the price of electricity from the price of gas.

Although more renewables are coming online, because they cannot provide 24/7 power, the more flexible gas power plants frequently dictate the wholesale cost of power.

Breaking this link would mean that renewable power would be cheaper, it says.

Ageing infrastructure and slow grid connections also needed to be addressed, with grid priority given to industrial users.

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Stephen Phipson, Chief Executive of Make UK, said: “High energy costs are one of the biggest threats to the future of manufacturing in the UK. Companies want to invest, innovate and decarbonise, but they cannot do so while electricity prices remain internationally uncompetitive.

“The incoming Government must act quickly, ensuring support reaches the whole manufacturing base while investment decisions are being made now.

“That means delivering the British Industrial Competitiveness Scheme this year, extending it to all manufacturers, and moving policy costs off electricity bills.

“Manufacturers are not asking for permanent subsidy. They are asking for an energy system that allows them to compete, invest and grow in the UK, at a time when wider business cost burdens have already increased significantly since 2024.

“Without urgent action, we risk losing industrial capacity that will be extremely difficult to rebuild.”

The study found that manufacturers “remain committed” to Net Zero, with almost three-quarters saying renewables were the route to cheaper power.

Seven in ten said Net Zero was “important to their operations”.

Nine in ten have already started energy efficiency measures and 63 per cent have taken steps towards electrification.

Almost nine in ten said they would invest more, if the gap between electricity and gas prices were reduced.

Green tycoon Dale Vince, founder of Ecotricity, has long campaigned for “breaking the link” between gas and electricity.

He backed the calls for “structural reform” of the electricity market and for “credible action” to decouple gas from electricity.

He believes that such a change could have saved businesses £30billion during the energy spike caused by the invasion of Ukraine.

He said: "Ecotricity has been campaigning for years now - to end the energy market absurdity that sets the price of all electricity to be the same as that from gas.

“This ‘link’ prevents Britain’s lower-cost green energy from bringing down energy bills. It ensures that British manufacturers remain exposed to volatile global gas markets, undermining competitiveness - for no good reason at all.

“The economic case for reform is clear. During the 2023 energy crisis, breaking this link would have saved UK businesses an estimated £30billion.

Inflation could have been 1.5 percentage points lower, Bank of England interest rates almost one percentage point lower, economic growth 0.6 percentage points higher, and the UK economy £36billion bigger in GDP terms.

“The link fundamentally undermines our economy, as well as forcing overpriced energy on us.

“British companies continue to face some of the highest energy costs in Europe - our next Prime Minister must seize the opportunity to lift this burden from our whole economy and finally 'break the link’.”

The report makes a number of additional recommendations, including expanding business rates relief for green investment.

It also asked for a successor to the Industrial Energy Transformation Fund, a grant scheme that helped high-energy businesses invest in low-carbon technologies. The scheme was closed to new funding in July last year.

A Government spokesman said: “We are in close contact with businesses and trade unions about the challenges they face and are ensuring we’re doing what we can to help them through tough times.

“Our new British Industrial Competitiveness Scheme will help to reduce electricity bills by up to 25 per cent for over 10,000 manufacturing businesses while our Supercharger scheme will cut electricity costs for hundreds of our most electricity-intensive businesses.

“We have also announced £470million of support for the chemicals and ceramics industries and are working to get off the fossil fuel rollercoaster and onto clean homegrown power we control to bring energy security and lower bills for good.”

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