Starmer's grand plan to save industry is too little too late

Telegraph

4 hours ago

Sir Keir Starmer and his Cabinet have rightly identified high energy costs as one of the biggest challenges to British industry, but their proposed solutions fall woefully short.
The Government's deluded conviction that 'clean energy' will equate to cheap energy is all over its new Industrial Strategy, published on Monday. It promises to 'tackle high industrial electricity costs' and there's lots of hubristic talk of a 'clean energy superpower mission'.
The report notes that Britain's energy-intensive businesses paid twice the European average in electricity costs last year despite having comparable gas prices – an unexpected admission that gas is not to blame for expensive energy.
Costs are higher despite the fact that the UK's energy-intensive industries are exempt from the green levies that are added onto bills for the rest of us.
However, these factories are not exempt from many of the other costs of the energy transition that are recovered through bills. Not only do renewables need subsidies – the most recent subsidies for offshore wind were 13pc higher than the supposedly expensive cost of generating electricity using gas – they also have a significant impact on the cost of running the network.
Renewables have low energy density, meaning many more cables are required to connect an equivalent amount of generating capacity. They are intermittent, meaning the real-time costs of balancing the grid – that is, ensuring supply and demand match at all times in order to maintain system stability – are significantly higher. These additional, hidden costs are added to both industrial and domestic bills.
To address all of these challenges and bring energy costs down, the Government does not intend to revolutionise the way costs are recovered, or to require those responsible for creating these costs to pay for them. No, from 2027, some 7,000 British businesses will simply receive a £35-40 per megawatt hour (/MWh) reduction in their bills.
Ministers insist that the policy won't be funded through higher bills or taxes, and instead will come from carbon taxes on polluting businesses. But this is yet another stealth tax imposed, with minimal scrutiny, on businesses that generate emissions.
This makes no sense: if reducing energy costs worked as intended, it would increase the international competitiveness of British industry, and so the Treasury would reap the benefits in terms of higher corporation and sales taxes. So the more equitable way to fund these discounts would be through taxation, not by increasing the energy cost burden on everyone else.
It's also highly unlikely that this paltry reduction, worth around 15-18pc of last year's industrial electricity bills, will be anywhere near enough. For one thing, it will only be granted two years from now. Meanwhile, in Europe some industries receive huge rebates of up to 90pc on their network costs – something the UK Government is now proposing to extend to the largest industrial users in Britain – and are still not competitive as a result of subsidies elsewhere.
Steel makers in the US, Japan, South Korea and China benefit from both cheaper energy, fewer carbon taxes and direct subsidies that make their pricing difficult to beat. Europeans are largely prevented from even trying to compete by EU rules barring similar support.
On the subject of carbon taxes, what the Government is trying to give with one hand (lower bills in two years' time) it is taking away with another (as we speak). Back in January when Sir Keir announced his intention to harmonise the UK and EU carbon trading schemes, UK carbon prices jumped by £10 per tonne. Full harmonisation is expected to lead to even higher prices, eroding some of the promised benefit.
Elsewhere, the Strategy raises the prospect of wider electricity market reforms though a possible move to zonal pricing. This would see wholesale electricity prices varying around the country based on local supply and demand.
Unfortunately it's unlikely to result in any changes to the competitiveness of British industry. Some regions of Great Britain would see higher electricity prices in a zonal model and few businesses have the flexibility to move locations. And if they were to move, they are far more likely to move to a cheaper country, rather than a cheaper region of the UK. Senior industry figures have also warned that any changes to the structure of the power market would also see investment stall while the new market rules were hammered out.
Even under its unrealistically optimistic projections, the Climate Change Committee does not expect to see savings from net zero before 2037 at the earliest. And despite all of the evidence that net zero is making energy more expensive, the Industrial Strategy clings to the fantasy that 'accelerating to net zero' will magically lower bills. It won't.
Industry supply chains are lengthening and finance costs are increasing. Trying to build more renewables and more grid infrastructure when materials and skilled labour are in short supply is not a recipe for lowering costs.
Of course no UK Industrial Strategy would be complete without reference to new technologies. There are high hopes for carbon capture and storage – a technology that other countries have thrown huge sums at with little in the way of results. Apparently the UK will succeed where everyone else has failed.
Nuclear fusion also gets an honourable mention, despite it still being decades away from being commercialised. The reactions need to produce 10 times more energy than they do now just to offset the amount of energy consumed by the plant, so they probably need to be 100 times better to be commercially viable.
One of the biggest problems with the Industrial Strategy is its focus on Europe. All the talk is of levelling the playing field with European peers. This ignores the fact that European industries also lack international competitiveness. Germany industries have been shutting at a fast rate, with some upping sticks to China.
Like most things produced by this Government, there are a lot of words but little of substance. Energy intensive industries are likely to be disappointed. And the rest of us are likely to pick up the tab.