Starmer under pressure to save factories crushed by energy prices

Telegraph

2 days ago

Sir Keir Starmer has been urged to dramatically cut factory energy costs amid warnings huge bills are pushing Britain towards 'de-industrialisation'.
Make UK, which represents Britain's biggest manufacturers, said domestic companies faced some of the highest electricity prices in Europe – and that half now viewed this as their biggest future challenge.
It called on the Prime Minister to scrap a series of 'regressive' net zero levies on bills, arguing this is 'the most direct and impactful way to improve industrial competitiveness'.
Make UK is also calling for the Government to provide manufacturers with wind-farm style electricity deals, known as contracts for difference (CfDs), which would fix their electricity price at a set level.
The announcement comes as ministers are preparing to unveil their industrial strategy for Britain, with Sir Keir and Rachel Reeves under pressure to help firms with their energy bills.
Stephen Phipson, chief executive of Make UK, said: 'If we do not address the issue of high industrial energy costs in the UK as a priority, we risk the security of our country.
'We will fail to attract investment in the manufacturing sector and will rapidly enter a phase of renewed de-industrialisation.'
The proposal to remove net zero levies would not be cheap, however. It would cost the Treasury £3.8bn, while giving manufacturers CfDs would cost a further £1.1bn.
Without other immediate cuts to government expenditure, this would probably have to be shifted on to general taxation or the bills of domestic consumers.
Make UK suggested the schemes could be 'phased in' gradually to reduce the financial impact and argued that both measures would be revenue-neutral in the long-run because they would stimulate industrial growth.
Scrapping net zero levies would slash prices
Removing net zero levies would instantly slash the electricity price paid by manufacturers by about one quarter, according to the lobby group's analysis.
The report said this should include scrapping the so-called renewables obligation, feed-in tariffs levy, capacity market levy, climate change levy and CfD costs.
They currently account for about 6.4 pence per kilowatt hour of the 27.1 pence per kilowatt hours paid by industrial firms for electricity, Make UK said.
A single levy, the renewables obligation, accounts for £2bn of the £3.8bn in levies paid per year by manufacturers alone.
The legacy scheme was set up to support early wind and solar farms with 20-year subsidy deals, topping up the electricity price they are paid. It closed to new entrants in 2017, having been replaced with newer CfDs.
CfDs guarantee renewable generators a price at which they can sell electricity, with the Government paying the difference if market prices are lower than this and generators repaying the state when market prices go higher.
Manufacturers want a similar arrangement, but in reverse.
This would mean they are guaranteed a fixed price for buying, rather than selling, electricity – with the Government once again covering any difference.
Ministers have previously suggested they intend to provide further support on energy costs for manufacturers in the industrial strategy, but this has previously only been extended to the most energy-intensive firms such as steel makers, glass blowers and ceramic factories.
A policy known as the 'British industrial supercharger', which exempts these companies from many policy costs as well as network charges, benefits around 400 businesses.
But Make UK warned that the supercharger 'does not eliminate the need' for greater action on energy bills, as it only benefitted a relatively small number of firms.
'Not only is most of the manufacturing sector still exposed to these high costs, [but] as the costs of the supercharger are met by other electricity bill payers, ineligible manufacturers are facing an even greater share of costs, to subsidise eligible energy-intensive industries, further exacerbating the problem,' its report added.
On Friday, a spokesman for the Government said: 'Through our clean power mission, we will get off the rollercoaster of fossil fuel markets – protecting business and household finances with clean, home-grown energy that we control.
'We are already bringing energy costs for UK industries closer in line with other major economies through the British Industry Supercharger – saving businesses £5bn over the next ten years.'
Inflation to rise
Separately on Monday, the Confederation of British Industry (CBI) warned households must brace for more inflation as businesses face rising costs.
Private sector output is set to plunge at the fastest pace since Liz Truss's mini-budget in 2022, according to its survey of businesses across the economy.
Alpesh Paleja, economist at the CBI, said the £25bn raid on employers' National Insurance Contributions and recent minimum wage rise were the primary concerns among businesses.
Rising prices raise the threat of sustained high interest rates as the Bank of England balances the risk of low growth against stubborn inflation.
Mr Paleja said: 'There is a very strong concern among the Monetary Policy Committee, at least a majority, of inflation persistence, particularly domestic price pressures being quite sticky.
'You've got price pressures in the services sector firming further but output remaining weak, so that trade off is quite prominent for the MPC. Rates will probably be cut at still quite a gradual pace going forward.'