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UK manufacturers see energy prices as threat to existence

05 September, 2022

Nearly six out of ten UK manufacturers (58%) now fear that soaring energy prices are threatening their businesses – up from 8% just four months ago – according to a survey by Make UK, the manufacturers’ organisation. Already, 13% have cut their operating hours or are avoiding production during peak periods, and 7% are stopping production for longer periods, while 12% report that they have already made job cuts as a direct result of higher energy bills. They warn that if expected price hikes of more than 50% occur over the coming 12 months, they will need to take more drastic action such as full shutdowns and wider redundancies.

Make UK says that the Government should scrap the Carbon Price Support – a levy that only UK businesses pay – immediately and consider introducing an price cap to freeze industrial energy bills.

Nearly half of UK manufacturers (42%) report that their electricity bills have more than doubled in the past 12 months, with 32% reporting that the same has happened to their gas prices.

More than half (52%) expect their electricity costs to at least double again in the coming 12 months and 42% fear the same will happen to gas prices. If help does not come soon, they warn, they will be faced with a stark choice – cut production or shut up shop altogether.

High energy prices are no longer an issue for energy-intensive industries only. The impact is being felt by manufacturers of all sizes in all sectors. Some 58% say they have already adjusted their business practices to cut energy consumption, for example by installing better performing heat systems and insulating buildings. More than half (56%) have already raised their product prices.

Some manufacturers (13%) are cutting production for short periods or avoiding production altogether during peak energy price periods, with 7% reducing production for longer periods. More than a third are actively searching for new energy providers and two fifths have renegotiated a fixed tariff for the coming year.

Some manufacturers see securing their own energy supply as a priority, with more than a quarter (27%) of the firms surveyed already having moved to on-site generation. One in 10 have redistributed capital from other parts of their business to cover energy costs, while 7% have taken on new or further finance to cover their rising energy bills.

More than 70% of UK manufacturers report that their margins or profits have dropped as they struggle to pay the bills. Almost every manufacturer surveyed believes that the Government is not doing enough to support industry.

Make UK reports that the UK is currently lagging behind EU counterparts who are offering far more emergency help for industry. The Italian Government, for example, has cut levies on gas and electricity bills, reduced VAT and introduced tax credits for energy-intensive industries.

Make UK says that the new Government urgently needs to take short, medium and long-term action.

Short term
• Remove the carbon price support to cut electricity costs. This would save mid-sized electricity users almost £90,000 a year
• Explore introducing an industry price cap to freeze prices – funded either directly by Government or by working with banks to finance a cap

Phipson: increasing numbers of manufacturers are now in survival mode

Medium term
• Maximise incentives to make businesses less reliant on the National Grid. Make UK wants the 100% rates exemption for plant and machinery used in onsite renewable energy generation and storage, to be extended from 12 months to at least three years.
• Extend business rate relief on commercial building improvements such as insulation from 12 months to at least three years

Long term
• Reform the wholesale market to decouple electricity prices from gas prices.

“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,” says Make UK CEO, Stephen Phipson. “Government must step in to help struggling businesses 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,” he adds, “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,” Phipson warns, “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.”

Make UK:  Twitter  LinkedIn

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