High energy prices could wipe £85 billion from the UK economy if factory closures and falling production are allowed to spread, manufacturers have warned.
A joint report from Make UK and Ecotricity says industrial electricity costs are now threatening investment, competitiveness and in some cases the survival of British factories, with 13% of manufacturers warning further price shocks could be terminal for their operations.
The report, From Crisis to Stability: A Future Energy System for Manufacturers, found 90% of companies surveyed had seen energy bills rise since 2022, while more than half named energy costs as their biggest challenge over the coming years.
Make UK estimates that if manufacturing activity fell by 13%, the impact could reach £85 billion a year across the wider economy. That includes around £35 billion in lost manufacturing output and a further £50 billion across supply chains and related activity.
The estimate is based on manufacturing’s wider contribution to the economy rather than a prediction that all firms facing serious pressure will close, but the report says the risk to industrial capacity is now severe.
Seven in ten manufacturers said they were passing higher energy costs onto customers, while others were absorbing the increases through lower margins, delayed investment and reduced spending on new equipment.
Make UK argues the electricity system is structurally working against industry because gas still sets the wholesale power price too often, policy levies are loaded onto electricity bills and grid connections remain slow and uncertain.
It also points to ageing infrastructure and inefficient post-Brexit electricity trading arrangements as further costs for UK companies competing against manufacturers overseas.
Despite the pressure, the report found manufacturers remain strongly supportive of cleaner energy.
Nearly three quarters said a renewable-led electricity system offered the best route to cheaper power, while 71% said net zero was important to their operations.
Almost nine in ten had started energy efficiency measures, 63% had taken steps towards electrification and 87% said they would invest more if the price gap between gas and electricity was reduced.
Make UK is calling on the next Government to launch the British Industrial Competitiveness Scheme this year rather than waiting until 2027 and extend it to all manufacturers.
It also wants electricity policy levies moved into general taxation, greater business rates relief for green investment and a successor to the Industrial Energy Transformation Fund.
Stephen Phipson CBE, CEO of Make UK, said: “High energy costs are one of the biggest threats to the future of manufacturing in the UK. Companies want to invest, innovate and decarbonise, but they cannot do so while electricity prices remain internationally uncompetitive.”
He added: “Manufacturers are not asking for permanent subsidy. They are asking for an energy system that allows them to compete, invest and grow in the UK.”
Ecotricity founder Dale Vince said the link between gas and electricity prices was keeping bills artificially high and exposing British manufacturers to volatile global gas markets.
He said: “The economic case for reform is clear. During the 2023 energy crisis, breaking this link would have saved UK businesses an estimated £30 billion.”
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