Is the UK headed for deindustrialization?
What's the story
UK's industrial sector is on the brink of collapse, with thousands of companies warning they could go bankrupt in the next year due to high energy prices. A survey by manufacturers' body Make UK has revealed that many businesses are struggling to cope with energy costs that are twice as high as those in continental Europe and four times higher than those in the US.
Industry shift
One in 10 firms likely to go insolvent
The survey also found that one in four manufacturing companies is considering or has already moved production overseas. Further, one in 10 firms thinks it is likely or very likely they will go insolvent within the next year. Stephen Phipson, CEO of Make UK, said while factory output remained strong over the last quarter, businesses are pessimistic about future prospects due to rising oil and gas prices.
Urgent action needed
Britain could face deindustrialization, warns Phipson
Phipson stressed the need for immediate action, warning that Britain could face deindustrialization if manufacturers don't get relief from high energy prices. He said, "Electricity and gas in the UK are far too expensive and it's costing our country steeply." The survey also revealed that nearly half (46%) of industrial companies have seen a further rise in their energy bills since the start of the Middle East conflict.
Financial impact
Energy costs forcing larger businesses to move production overseas
Despite passing on the increased energy costs to customers, nearly all companies (98%) told Make UK they expect a major squeeze on their profitability in the next quarter. In response to falling profit margins, nearly four in 10 (38%) firms have delayed investment and over a fifth (21%) have cut jobs. Phipson said larger businesses are moving production overseas for cheaper energy costs while smaller domestic firms are cutting investment and jobs to survive.
Policy change
Make UK urges Treasury for tax relief
Make UK has urged the Treasury to cover taxes and levies paid by industrial businesses from general taxation, as is done in France and Germany. Phipson said nearly half (50%) of bills paid by industrial businesses are made up of government carbon taxes and levies to upgrade the national electricity grid. The British Industrial Competitiveness Scheme (BICS), which reduces bills by up to 25% for heavy energy users, will only come into effect in April 2027.