Key facts
- Thousands of UK companies face bankruptcy within a year due to high energy prices.
- Energy costs in the UK are double the European average and four times higher than in the US.
- A quarter of manufacturers are moving or plan to move production overseas.
- Nearly all companies (98%) expect profitability to be squeezed in the next quarter.
- Make UK urges the government to cover taxes and levies on industrial energy bills.
Britain's industrial sector faces a severe risk of deindustrialisation, with thousands of companies warning of potential bankruptcy within the next year due to persistently high energy prices. According to a survey by the manufacturers' body Make UK, energy costs in the UK are double the average in continental Europe and four times higher than in the US, making it difficult for businesses to remain competitive.
The survey revealed that a quarter of manufacturing companies are planning to move their production overseas or have already done so, while one in 10 anticipate insolvency within the next 12 months. Despite factory output remaining robust in the previous quarter, business confidence has plummeted to a four-year low, largely attributed to rising oil and gas prices and geopolitical instability.
Stephen Phipson, chief executive of Make UK, stated that immediate action is required to provide relief from high energy prices, warning that the country cannot afford further delays from political upheaval or consultations. Almost half of industrial companies have experienced increased energy bills since the start of the Middle East conflict, with six in 10 passing these costs on to customers. Despite these measures, 98% of companies expect a significant squeeze on their profitability in the coming quarter.
In response to declining profit margins, 38% of companies have postponed investments, and 21% have reduced their workforce. Larger, often foreign-owned, businesses are relocating production to mainland Europe and Asia for cheaper energy, while smaller domestic firms are cutting jobs and investment to survive.
Make UK is urging the Treasury to cover taxes and levies paid by industrial businesses, similar to practices in France and Germany, to support the recovery of the UK's industrial base. These taxes and levies, which amount to £3 billion annually, constitute about 50% of the bills for industrial businesses and fund upgrades to the national electricity grid. While the government has extended a subsidy scheme to reduce bills for energy-intensive companies, it will not take effect until April 2027, which Phipson believes is too late for many firms.
Paul Nowak, the TUC general secretary, echoed Make UK's concerns, highlighting the risk to thousands of well-paid jobs, particularly in economically disadvantaged areas. He called for an expansion of the British industrial competitiveness scheme (Bics) to safeguard employment and keep factories operational.
The UK's high electricity prices are partly due to a marginal pricing system where gas prices dictate the final cost of electricity, even when generated from renewables or nuclear power. The government has indicated plans to review this policy, but details on reform remain scarce. The UK's greater reliance on gas for electricity generation, accounting for 30% in 2024 compared to 16% in Germany and 3% in France, exacerbates this issue.
More than half of the survey respondents reported seeing no benefits from the government's industrial strategy. A government spokesperson acknowledged the challenges faced by manufacturing industries, including energy costs, and affirmed their commitment to supporting businesses through their modern industrial strategy and new support measures for specific sectors.