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High Energy Costs Put UK Factory Jobs and Investment at Risk

Phil Black - PII Editor 18 minutes ago

26 4 minutes read

Make UK and Ecotricity report finds 90% of manufacturers have seen energy bills rise since 2022, with 13% warning further price shocks could be terminal — risking an estimated £85bn hit to the wider economy from lost production.
Nearly three quarters of manufacturers believe a renewable-led power system is the route to cheaper energy and say net zero is important to their operations.
Calls for the next Government to cut electricity bills, unlock green investment and accelerate reform towards a cheaper, cleaner energy system.

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High energy costs could spell trouble for UK factories, with a new report warning that without swift action from the incoming Government to lower industrial electricity prices, we might see closures and a staggering £85bn of economic activity at risk. This insight comes from a report by Make UK and Ecotricity.

Titled “From Crisis to Stability: A Future Energy System for Manufacturers,” the report dives into how energy prices are affecting UK manufacturers and proposes reforms aimed at fostering growth, boosting profitability, and supporting decarbonisation as the nation navigates another political shift.

The findings are concerning: 90% of manufacturers have faced at least moderate hikes in their energy bills since 2022, and over half see energy costs as their top challenge in the years ahead.

Energy Costs Put UK Manufacturers Under Pressure

Most alarmingly, 13% of those surveyed indicated that further increases in energy costs could threaten their very existence.

Make UK warns that a 13% drop in manufacturing activity could lead to an annual loss of £85bn for the broader economy, with around £50bn of that affecting supply chains.

The report also sheds light on the broader economic ramifications of soaring energy prices. Seven out of ten manufacturers are passing these increased costs onto consumers, while rising expenses continue to squeeze profit margins and stall investment.

Make UK points to structural issues within the UK’s electricity system as a key factor in the challenges manufacturers face. These include the ongoing influence of gas on setting wholesale electricity prices, policy levies on electricity bills, sluggish grid connections, outdated infrastructure, and inefficient energy trading arrangements post-Brexit.

Manufacturers Remain Committed to Net Zero

Despite these financial pressures, manufacturers are still dedicated to achieving net zero and increasingly see the shift to cleaner energy as a pathway to enhanced resilience and reduced costs.

Almost three-quarters of people believe that a power system driven by renewable energy could lead to cheaper electricity. Additionally, 71% consider achieving net zero to be crucial for their operations.

A significant number of manufacturers—nearly nine out of ten—have either started or are making progress on energy-efficiency initiatives, and 63% are taking steps toward electrification.

The desire for further investment is also quite strong, with 87% indicating they would be willing to invest more if the price difference between gas and electricity were narrowed.

Make UK Urges Immediate Energy Market Reform

Make UK is advocating for a mix of urgent and long-term strategies to lower industrial energy costs and encourage more investment in UK manufacturing.

Their recommendations include:

Launching the British Industrial Competitiveness Scheme in 2026 instead of 2027 and expanding it to cover all manufacturers.
Shifting electricity policy levies into general taxation to provide immediate financial relief.
Increasing business rates relief for green investments.
Creating a successor to the Industrial Energy Transformation Fund to back investments in electrification and low-carbon technologies.
Speeding up structural reforms in the electricity market, including effective measures to decouple gas and electricity prices.
Reforming the grid to prioritize current industrial demand, clarify delivery responsibilities, and enforce stricter penalties for poor connection performance.

Competitive Electricity Prices Are Vital for UK Industry

Stephen Phipson CBE, CEO of Make UK, stated: “High energy costs pose one of the greatest threats to the future of manufacturing in the UK. Companies are eager to invest, innovate, and decarbonize, but they can’t do that while electricity prices remain uncompetitive on the global stage.”

“The new Government needs to act swiftly to ensure that support reaches the entire manufacturing sector, especially since investment decisions are being made right now. This means rolling out the British Industrial Competitiveness Scheme this year, making it available to all manufacturers, and shifting policy costs away from electricity bills.

“Manufacturers aren’t looking for a permanent subsidy. What they want is an energy system that enables them to compete, invest, and grow in the UK, particularly as overall business costs have already surged since 2024. If we don’t take urgent action, we risk losing industrial capacity that would be incredibly hard to rebuild.”

Ecotricity Urges End to Gas-Electricity Price Link

Dale Vince OBE, the Founder of Ecotricity, stated that changing how electricity prices are determined could help translate Britain’s cheaper renewable energy into lower bills for both businesses and consumers.

“Ecotricity has been advocating for years to put an end to the ridiculous energy market setup that ties the price of all electricity to that of gas. This ‘link’ stops Britain’s more affordable green energy from lowering energy bills. It keeps British manufacturers vulnerable to the unpredictable global gas markets, which undermines their competitiveness for no valid reason.

“The economic argument for reform is compelling. During the 2023 energy crisis, breaking this link could have saved UK businesses around £30 billion. Inflation could have been 1.5 percentage points lower, Bank of England interest rates nearly one percentage point lower, economic growth 0.6 percentage points higher, and the UK economy could have been £36 billion larger in terms of GDP. This link not only weakens our economy but also forces us to pay inflated energy prices.

“British companies are still grappling with some of the highest energy costs in Europe. Our next Prime Minister must take this chance to relieve this burden from our entire economy and finally ‘break the link’.”

The report shines a light on manufacturers who are already stepping up to cut down on energy costs and emissions. Companies like David Nieper, Schneider Electric, and Numatic are leading the charge by investing in solar power, electrification, energy efficiency, and digital optimization.

Make UK points out that these examples showcase the ambition within the manufacturing sector. However, they caution that the efforts of individual businesses alone can’t make up for a national energy system that is still too costly, unpredictable, and sluggish to facilitate the necessary industrial transformation.

In conclusion, the report emphasizes that gaining access to more affordable, cleaner, and reliable energy is crucial for safeguarding UK manufacturing and paving the way for the next stage of industrial decarbonization.