UK manufacturers issue warning over cuts to energy support

Manufacturers have warned that high energy costs will force them to cut jobs and production this year, with some bosses saying political chaos is damaging UK competitiveness and making the country less attractive to foreign investors.

The warning from trade body Make UK comes as ministers finalise details of a revised scheme to be unveiled as early as this week, that will replace existing energy cost support for businesses that ends in April.

It is expected to offer businesses significantly less financial support at a time when many are struggling with higher costs.

The successor scheme represents a U-turn by chancellor Jeremy Hunt, who said in the autumn that state help with energy bills would end in the spring for the vast majority of companies.

Even so, the estimated cost of £5bn over a year is barely a seventh — on a per-month basis — of the £18bn the government has spent capping business energy bills during the current six-month scheme.

The government is also set to provide extra help for energy-intensive companies but this is likely to be limited to a handful of sectors.

Make UK said that a less generous energy relief scheme was likely to exacerbate planned reductions in headcount and production.

In a survey of top executives in the manufacturing industry conducted with PwC, Make UK said that almost three-quarters of companies expected their energy costs would increase this year.

Two-thirds of these said that they expected to take actions such as reducing production or headcount, with similar numbers saying that energy costs were both the biggest risk to their company as well as to business confidence.

Almost half of companies supported extending the support scheme in its current form.

Stephen Phipson, chief executive at Make UK, said: “While an extension of the energy relief scheme will be welcome, to date it has just been a sticking plaster and making it less generous will make the situation worse for many companies.”

The survey covers the views of more than 200 senior executives across manufacturing on their outlook for the year ahead.

It also showed evidence that last year’s political chaos had harmed the competitiveness of the UK as a place to manufacture and made it less attractive for foreign investment.

The number of companies that said that the UK was a competitive location halved from last year, down to 31 per cent from 63 per cent, while more than four in 10 companies regarded the UK as less attractive to foreign investors.

Business leaders warn scaling back the energy support would leave many companies facing unsustainably high bills, which have added to the extra costs from the impact of inflation on the supply chain.

However, some energy sector executives and traders raised hopes that the unseasonably warm weather across Europe in the closing weeks of December and early January could mean lower than expected energy bills later in 2023.

Martin Young of Investec Bank said he anticipated that the price cap, which dictates energy bills for the majority of British households, would fall to about £3,460 a year in April, based on typical usage, dropping to £2,640 a year in July and hitting just over £2,700 in October.

The threat of blackouts also appears to have abated.

Lower-than-expected gas usage across the continent meant storage sites ended 2022 at strong levels. They were more than 83 per cent full at the end of December — some 30 per cent higher than at the same point in 2021 and more than 10 per cent higher than the average of the past five years, which has bolstered confidence that the continent will have sufficient gas supplies to see it through the winter.

The UK, which has lower gas storage capabilities than many other European countries, relies on imports from the continent during very cold snaps, particularly during peak hours.