A quarter of British manufacturers have moved some operations overseas or are weighing it up, blaming energy costs that Make UK says have left the sector “uncompetitive” against foreign rivals.
A quarter of Britain’s manufacturers have either shifted part of their production abroad or are actively considering it, as punishing energy costs erode their ability to compete on the world stage.
One in ten firms has already begun outsourcing more of its production overseas, according to a survey by Make UK, the manufacturers’ lobby group, with a further 16 per cent weighing up whether to follow. Most of those heading for the exit are looking to Asia, China and South Korea chief among them, where industrial energy is markedly cheaper.
The findings will sharpen concern that Britain is quietly losing the very industrial base ministers have pledged to rebuild. As Make UK has warned, UK industrial electricity prices sit far above the global average, leaving even efficient, well-run factories struggling to win work against competitors operating on a fraction of the energy bill.
“We’ve got the highest energy costs in the world,” said Stephen Phipson, chief executive of Make UK. “A year ago, the big trend was onshoring and bringing back supply chains to the UK. Now companies can’t use UK suppliers because they’re too expensive, so they’re going overseas. We are seeing quite a flight from UK manufacturing because we’re uncompetitive. We need the government to step in now.”
It is a striking reversal. The drive to bring supply chains home, which gathered pace after the pandemic and a run of geopolitical shocks, has gone into retreat barely a year later, undone, manufacturers say, by the cost of keeping the lights and machines on.
Britain is home to roughly 130,000 manufacturers, together accounting for about 9 per cent of the economy. Make UK estimates the average British manufacturer pays around 27p per kilowatt-hour for electricity, against closer to 16p across other developed nations. In the United States, the figure is about 6p. As Business Matters has previously reported, the gap with key European rivals such as Germany is wide enough to tilt investment decisions away from the UK before a single order is placed.
The government has acknowledged that high energy costs are hurting industry and has promised help. On top of the wholesale price, UK manufacturers pay five separate levies, the largest being the climate change levy.
About 450 energy-intensive manufacturers already receive relief from four of those levies through the British Industry Supercharger. A broader British Industrial Competitiveness Scheme (Bics), which would strip out three of the levies for a further 10,000 businesses, is due to come in next April. Make UK wants the scheme brought forward immediately and extended to every manufacturer.
“We need to do something now; we can’t wait until next year for help,” Phipson said. “At this rate, we’re going to see a rapid decline in the ability to manufacture things in this country. Britain faces deindustrialisation unless manufacturers get relief from high energy prices.”
The warning chimes with a wider deterioration in sentiment across the sector. Business Matters has reported that rising business costs have pushed manufacturers towards an investment tipping point, with projects increasingly at risk of being cancelled or relocated.
Almost half of those surveyed said their energy bills had risen further since the war in Iran, yet stiff competition from foreign rivals has left them unable to pass the extra costs on to customers in full. The squeeze is severe: 98 per cent of respondents expect a “very significant or somewhat significant” hit to profitability, and one in ten believes it could be insolvent within twelve months.
A government spokesman said manufacturing was “vital to the UK’s success and economic growth” and that ministers were alive to the challenges facing the industry. “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,” he added.
For now, though, the message from the factory floor is that warm words are not enough. With the timetable for meaningful relief running into next year and beyond, a growing number of manufacturers appear unwilling to wait, and are voting with their feet.
