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Yahoo
3 days ago
- Business
- Yahoo
British factories suffer worst slump in Europe as energy costs bite
British factories have suffered the worst slump in Europe as energy costs weigh heavily on industry. S&P Global's closely-watched purchasing managers' index (PMI) for the manufacturing sector stood at 46.4 in May. Any score below 50 indicates a contraction in activity, with the latest figures marking an eight month downturn. Factories have been struggling to navigate the global trade war kicked off by Donald Trump. However, British manufacturers face additional problems, ranging from recent increases in tax to high energy prices. The PMI reading was the worst in Europe. Germany, which reported the lowest level of factory activity in the eurozone, had a manufacturing PMI of 48.3 by comparison. British bosses blamed higher energy prices for the poor performance. Companies pay the highest electricity prices of anywhere in the developed world, according to government figures. The cost of power for industrial businesses is now about 50pc more expensive than in Germany and France, and four times as expensive as in the US. Sir Keir Starmer has been urged to dramatically cut factory energy costs amid warnings that huge bills are pushing Britain towards 'de-industrialisation'. Removing net zero levies would instantly slash the electricity price paid by manufacturers by about one quarter, according to the lobby group's analysis. Fhaheen Khan, at Make UK said: 'Unfortunately, when tomorrow is a constant unknown, it becomes nigh on impossible to secure opportunities, which is leading to persistent declines in the sector. 'As a result of these material challenges, the manufacturing sector can only expect to continue its path of shrinking unless the Government's upcoming unveiling of the industrial strategy can reignite investment in growth.' Manufacturers' continued to cut jobs in May as labour costs climbed, following the increase in the minimum wage and employers' National Insurance contributions in April. Rob Dobson, the director at S&P Global Market Intelligence, said: 'May PMI data indicate that UK manufacturing faces major challenges, including turbulent market conditions, trade uncertainties, low client confidence and rising tax-related wage costs.' It came as Andy Haldane, the former chief economist at the Bank of England, said that Ms Reeves's time so far as Chancellor had been 'disappointing'. 'On too many measures ... it's felt like the fiscal cart has been put in front of the growth horse,' Mr Haldane told LBC. He warned that the Government was 'not even close to doing enough' on growth. 'To be honest it's felt penny-pinching, it's felt small, it's not been the sort of thing we need to get the animal spirits in the country going and therefore the country growing.' Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Sign in to access your portfolio
Telegraph
3 days ago
- Business
- Telegraph
British factories suffer worst slump in Europe as energy costs bite
British factories have suffered the worst slump in Europe as energy costs weigh heavily on industry. S&P Global's closely-watched purchasing managers' index (PMI) for the manufacturing sector stood at 46.4 in May. Any score below 50 indicates a contraction in activity, with the latest figures marking an eight month downturn. Factories have been struggling to navigate the global trade war kicked off by Donald Trump. However, British manufacturers face additional problems, ranging from recent increases in tax to high energy prices. The PMI reading was the worst in Europe. Germany, which reported the lowest level of factory activity in the eurozone, had a manufacturing PMI of 48.3 by comparison. British bosses blamed higher energy prices for the poor performance. Companies pay the highest electricity prices of anywhere in the developed world, according to government figures. The cost of power for industrial businesses is now about 50pc more expensive than in Germany and France, and four times as expensive as in the US. Sir Keir Starmer has been urged to dramatically cut factory energy costs amid warnings that huge bills are pushing Britain towards 'de-industrialisation'. Removing net zero levies would instantly slash the electricity price paid by manufacturers by about one quarter, according to the lobby group's analysis. Fhaheen Khan, at Make UK said: 'Unfortunately, when tomorrow is a constant unknown, it becomes nigh on impossible to secure opportunities, which is leading to persistent declines in the sector. 'As a result of these material challenges, the manufacturing sector can only expect to continue its path of shrinking unless the Government's upcoming unveiling of the industrial strategy can reignite investment in growth.' Manufacturers' continued to cut jobs in May as labour costs climbed, following the increase in the minimum wage and employers' National Insurance contributions in April. Rob Dobson, the director at S&P Global Market Intelligence, said: 'May PMI data indicate that UK manufacturing faces major challenges, including turbulent market conditions, trade uncertainties, low client confidence and rising tax-related wage costs.' It came as Andy Haldane, the former chief economist at the Bank of England, said that Ms Reeves's time so far as Chancellor had been 'disappointing'. 'On too many measures ... it's felt like the fiscal cart has been put in front of the growth horse,' Mr Haldane told LBC. He warned that the Government was 'not even close to doing enough' on growth. 'To be honest it's felt penny-pinching, it's felt small, it's not been the sort of thing we need to get the animal spirits in the country going and therefore the country growing.'
Yahoo
3 days ago
- Business
- Yahoo
Starmer under pressure to save factories crushed by energy prices
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. 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.' Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
Telegraph
3 days ago
- Business
- Telegraph
Starmer under pressure to save factories crushed by energy prices
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.'
The Guardian
3 days ago
- Business
- The Guardian
High electricity bill taxes holding us back, say industry groups
The UK government is being pressed to wipe billions from the energy costs facing households and heavy industry by reforming the high taxes levied on electricity bills. These policy levies mean the UK pays some of the highest energy bills in the world, and are simultaneously disadvantaging British industry and stifling the efforts of households to transition to lower-carbon heating systems, according to industry trade groups. Make UK has warned that the government's long-awaited industrial policy is at risk of being derailed by the high energy prices charged to UK manufacturers, which the lobby group states make the sector's energy bills 46% higher than the global average. The trade organisation has called on the government to cut industrial energy costs as part of Labour's long-awaited industrial strategy, which is due later this month, by reforming 'the complex and unfair policy levies that make low-carbon energy more expensive than fossil fuels'. Its plan includes the state underwriting a fixed energy price for manufacturers. Under the scheme, manufacturing firms would receive top-up payments from the government if energy wholesale costs rise beyond the set price – but they would repay the difference to the exchequer if the wholesale price falls below the agreed price. Stephen Phipson, Make UK's chief executive, 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.' 'UK manufacturers have faced energy prices far above those of European competitors for many years, undermining their ability to invest, grow, and compete globally,' Phipson said. Another trade organisation, Energy UK, blamed the government's levies, which predominantly fall on electricity bills, for making cleaner alternatives such heat pumps artificially expensive in comparison with gas. The energy sector trade body, which represents energy suppliers, has proposed 'rebalancing' the charges currently levied on electricity bills on to gas bills, saving homes using electric heating £400 a year. State subsidies should then be used to ease the burden on low- and middle- income gas-using households that would face an extra annual cost of £40 under its proposal, it said. Overall the scheme would make the government's move from gas heating to electric heating about £40bn cheaper by 2040 compared with a situation in which policy costs are not removed from bills. A government spokesperson said: 'Through our clean power mission, we will get off the rollercoaster of fossil fuel markets – protecting business and household finances with clean, homegrown energy that we control.' The spokesperson said that it was bringing energy costs for UK industries closer in line with other major economies through its British Industry Supercharger, a government energy cost-cutting programme for firms in sectors such as steel, metals and chemicals, which is expected to save businesses £5bn over the next 10 years. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion 'We are also looking at a range of options for longer-term energy market reform, including the rebalancing of gas and electricity prices, with the impact on consumers at the heart of our approach,' the spokesperson added. The comments about the government's imminent industrial strategy proposals come as British business faces a string of challenges over the coming months. The business and trade secretary, Jonathan Reynolds, is expected to urge Donald Trump's administration to cut a deal to reduce taxes on UK steel exports to zero this week, after the US president vowed to double his global steel tariff to 50%. Elsewhere, private sector companies expect activity to fall in the three months to August to their weakest level for three years, according to the CBI's latest growth survey. A separate poll of the UK hospitality industry also stated that recent increases to employer national insurance contributions and the changes to business rates mean that a third of the sector is operating at a loss.
