Britain can wave goodbye to the last of its heavy industry
Since early 2021, paper and petrochemical production has declined nearly 30 per cent, inorganic non-metallic production (think ceramics and cement) has dropped over 30 per cent, and basic metal and casting production has declined by almost 50 per cent. Overall, energy-intensive manufacturing production in late 2024 was just 66 per cent of what it was at the start of 2021.
Heavy manufacturing is not an irrelevant part of the economy. The energy-intensive industry, as defined by those sectors that can apply for energy levy exemptions, has a turnover of £170 billion and employs over 400,000 people, 60 per cent of whom are in the North and Midlands. In most cases, these are among the most well-paid jobs in their region. An average chemical industry worker earns three times the weekly wage of a hospitality worker, twice that of someone in retail, and 130 per cent that of someone in education.
British heavy industry is not suffering from a unique problem. European heavy industry is facing enormous stress from high energy prices and competition from China. However, Britain is likely the least competitive industrial base in the developed world. Our electricity prices are 44 per cent higher than those in France and 300 per cent higher than those of the United States.
The government takeover of British Steel's blast furnace plant at Scunthorpe, which this author predicted back in December, will likely lead to formal nationalisation. There is a good chance the same fate will befall Sanjeev Gupta's speciality steels furnace in Rotherham. These sites are facing an existential threat following failed negotiations for more handouts.
The only reason there is no talk of nationalisation at Tata Steel's Port Talbot furnace is that the government has provided a grant to pay nearly half the cost of installing electric furnaces – £500 million. Sheffield Forgemasters, a speciality maker of high-grade steels for the military and the nuclear industry, was quietly nationalised in 2021. Whether it is official or not, whether it is blast or electric arc furnaces, the British steel sector is dependent on the government.
There have been some voices cautioning against nationalisation, arguing that a steel stockpile might be preferable, or that the primary focus should be on rectifying the policy decisions that make Britain such a lousy place for heavy industry. Such observations are valid, and indeed, the government's thinking appears to be disjointed. But letting these plants go to the wall is not the answer.
This will likely lead to increased welfare dependency in the affected areas, and decommissioning costs will be high. Should the British steel sector collapse, it is unlikely to return. For an increasingly turbulent world, the government should favour redundancy over short-term efficiency. A side-benefit of nationalisation is that civil servants and policymakers will have to wrestle with the contradictions between economic growth and the prohibitive cost of onerous regulations and Net Zero.
In the short term, what can the government do to cauterise heavy industry's bleeding? It can extend exemptions for heavy industry. Current schemes exempt energy-intensive activities from renewable-related levies and capacity market costs while compensating them for network costs. The scheme intends to reduce electricity costs by £30 per megawatt hour. In 2023, such exemptions covered about 10 per cent of industrial electricity demand and cost somewhere around £400 million, paid for by consumers.
The problem is that when industrial electricity prices can be as high as £260 per MWh, such exemptions amount to little more than a sticking plaster. The government will be pressured to shift more levies away from producers and onto consumers, likely costing billions of pounds. Meanwhile, our energy strategy is tilting us toward higher electricity prices for the longterm.
There is a further complication. While cheap energy is essential to these industries' survival, it may not be sufficient. The US, despite enjoying very cheap energy inputs due to fracking, has seen its industrial production, including steel, decline or flatline since 2008. Such stagnation is due to overcapacity from East Asia, currency manipulation, the dominance of the US dollar, and a host of other issues.
For British industry to become self-sustaining, a saner energy strategy needs to be married to serious discussions about addressing our current account deficit. Such a task is a lot to put on the plate of a government that is already struggling for bandwidth.
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BBC News
11 minutes ago
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