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Britain’s industrial sector is at risk of collapse as thousands of companies warn that they could face bankruptcy within the next year because of high energy prices, according to an industry survey.
The manufacturers’ body Make UK said the latest feedback from its members found that many would not be able to cope for much longer with energy costs that were twice the average in continental Europe and four times higher than in the US.
A survey revealed that a quarter of manufacturing companies either planned to move their production overseas or had already done so, while one in 10 companies believed it was likely or very likely they would be insolvent within the next 12 months.
Stephen Phipson, the trade body’s chief executive, said that although factory output had remained robust over the previous quarter, businesses were gloomy about the outlook, largely in response to the Iran war and rising oil and gas prices, and confidence had dived to a four-year low.
“The time for talking is over. The time for action is now,” he said. “Britain faces deindustrialisation unless manufacturers get relief from high energy prices. Electricity and gas in the UK are far too expensive and it’s costing our country steeply. We cannot afford to be delayed by political upheaval, or by further consultations.”
Almost half (46%) of industrial companies have been hit by a further increase in their energy bills since the start of the conflict in the Middle East, with six in 10 passing this rise on to customers, according to the survey. However, despite raising prices, almost all companies (98%) told Make UK that they expected to experience a significant squeeze on their profitability over the next quarter.
In response to falling profit margins, almost four in 10 (38%) companies have delayed investment and more than a fifth (21%) have reduced their headcount, according to the survey.
About 800 of the UK’s 130,000 manufacturing companies are large and mostly foreign-owned. Phipson said larger businesses were moving production overseas to countries in mainland Europe and Asia where they could benefit from cheaper energy costs, while mostly smaller domestic firms were forced to cut investment and jobs to stay afloat.
Make UK is calling on the Treasury to cover the cost of taxes and levies paid by industrial businesses, using funds from general taxation as in France and Germany, so Britain’s industrial base can begin to recover.
About 50% of the bills paid by industrial businesses – amounting to £3bn – are made up of government carbon taxes and levies used to cover the extra costs of upgrading the national electricity grid, according to Phipson.
In April the government extended a subsidy scheme that reduces bills by up to 25% for 10,000 companies that qualify as heavy users of energy. However, the British industrial competitiveness scheme (Bics) only takes effect in April 2027, and even though the subsidy is backdated to this year, Phipson said it would come too late for many firms.
He said many of the companies that would stand to benefit from the government’s scramble to raise defence spending might already be bankrupt or have moved abroad unless energy bills were quickly reduced.
Paul Nowak, the TUC general secretary, joined Make UK’s call for action, saying thousands of well-paid jobs, many in some of the poorest areas of the UK, were at risk. He called for the Bics scheme to be expanded further “to protect jobs and keep factories and plants running”.
Britain’s gas and electricity prices are intertwined because of a system of marginal pricing that means gas used in electricity generation, which mostly comes from renewables and nuclear, dictates the final price of electricity. The government recently indicated that it planned to review the policy but has yet to outline how and when marginal pricing could be abolished or reformed.
The UK is more reliant on gas than other countries. A report by the House of Commons library earlier this month showed that in 2024, gas accounted for 30% of the UK’s electricity generation compared with 16% in Germany and 3% in France.
Phipson said the survey found that more than half of respondents had yet to see any benefits from the government’s industrial strategy set out last summer.
A government spokesperson said: “Our manufacturing industries are vital to the UK’s success and economic growth, but we recognise the challenges they are facing, including on the cost of energy.
“We are tackling this through our modern industrial strategy, cutting electricity costs for industries across Great Britain, and announcing new support for the chemicals and ceramics industries. We will continue to work closely with manufacturing businesses across the UK to ensure we’re doing what we can to help them through tough times.”
