High energy prices threaten UK’s status as manufacturing power, business groups say | Energy industry
Britain is at risk of losing its status as a major manufacturing hub after a sharp rise in energy prices forced nearly 40 per cent of businesses to cut investment, according to a report by the CBI and Energy UK.
In a grim message to ministers, the report said British businesses, from chemical manufacturers to pubs and restaurants, were being harmed by a failure to cap prices and improve the UK’s aging gas and electricity networks.
A comprehensive review of outdated regulations governing the sale and supply of energy is also needed to encourage investment and boost economic growth, the report said.
Energy UK, which represents more than 100 electricity producers and retailers, said businesses’ electricity costs were 70 percent higher than before Russia’s invasion of Ukraine, while gas prices were 60 percent higher.
A survey supporting the report found that almost 90% of firms have seen an increase in their energy bills over the past five years, with four in 10 firms reducing their investments as a result.
The report stated that if there is no reduction in energy bills, “the risk of job losses, production interruptions, facility closures and offshoring will increase.”
The CBI and Energy UK said ministers should join forces with industry to carry out a comprehensive review of the UK’s energy needs and determine how they can be met during the transition to net zero energy.
A working group of researchers from both organizations and industry groups will consider how reforms could reduce prices and increase the efficiency of gas and electricity networks.
The aim is to convince ministers that attempts to improve the UK’s energy system do not go far enough and leave the UK at risk of widespread deindustrialisation.
The UK has some of the most expensive industrial energy prices in the developed world. These rates are almost two-thirds above the average value for International Energy Agency (IEA) countries and are the highest among G7 members.
As an indication of the impact, figures covering 2025 show the UK’s goods trade falling to its worst performance in history. The UK reported a goods deficit of £248.3bn, £30.5bn more than the previous year.
The Office for National Statistics said the widening gap was only partly filled by a £192bn surplus in services, up £16.4bn on the previous year.
Last year manufacturers’ lobby group Make UK said the government should provide millions of pounds in extra subsidies to prevent the sector from shrinking.
Louise Hellem, chief economist at the CBI, said industrial sectors were already suffering severe financial distress due to the dramatic rise in energy prices.
“You can see this in the chemical industry, which has already closed several times,” he said.
Hellem described this year as a “pivotal moment” for the UK’s industrial strategy.
Among medium-sized businesses, electricity prices in the UK are around twice the EU average. The report stated that non-domestic gas prices are compatible with the EU, but are significantly higher than in countries such as the USA and Canada.
“This puts the brakes on economic growth ambitions. Additionally, businesses are unable to invest in the transition to clean energy despite knowing its long-term benefits – again undermining one of the government’s key policies,” the report said.
Energy secretary Ed Miliband has sought to protect some of the UK’s biggest energy users. Last year the government announced it would cut electricity prices by up to £40 per megawatt hour for 7,000 “heavy users” in a bid to “move the UK from being an outlier to right in the middle of the pack”.
Energy UK chief executive Dhara Vyas said he was concerned that thousands of businesses outside the ring fence continued to be hampered by high energy bills.
He said the government had made significant progress in reducing domestic energy costs. But the aid offered to some industrial users was not just a “sticking plaster” but was also funded by other ratepayers.
He added: “Lowering prices for all businesses underpins the UK’s growth story.”
He said the first report showed “how high energy costs are holding the UK economy back and the limits of available support”.
“But our goal won’t just be about how to reduce bills. This will be the first of its kind to take a fundamental look at the energy market and regulations to see how it can become more efficient,” he said.
