UK manufacturers fear blackouts and job losses after cut in energy subsidies | manufacturing sector
Nearly two-thirds of manufacturers in Britain fear blackouts this winter amid the fallout from the energy crisis, according to an industry survey, as concerns grow over government plans to cut financial support for businesses.
As Chancellor Jeremy Hunt prepares to announce a sharp reduction in support for the industry, trade body Make UK said the impact of skyrocketing energy costs on manufacturers showed no sign of abating.
The industry group, which represents 20,000 UK manufacturers, said cutting financial support would exacerbate job losses and cut factory output, hurting the economy.
Hunt is expected to present a package of measures this week to help businesses with high energy costs, including extending a scheme beyond its March due date.
However, the chancellor told bosses at a crucial meeting last week that the current measures are “unsustainably expensive” and would be replaced at a “lower level.”
According to a survey of more than 200 senior executives in the manufacturing industry by MakeUK and accounting firm PwC, almost three-quarters of companies (70%) expect their energy costs to rise this year, with two-thirds saying expect to reduce production or jobs as a result.
In the latest business surveys by accounting and business advisory firm BDO, employers also signaled plans to pause recruiting amid concerns about a recession, with companies battling high inflation and supply chain pressures.
Make UK found that up to 60% of bosses had become increasingly concerned about blackouts affecting their business, while almost two-thirds (64%) said higher energy costs posed the biggest risk to their business . More than 13% have specifically considered going out of business or implementing closures, and more than one in 10 are considering moving production to another country where energy costs are cheaper.
Despite growing concern among industry leaders, wholesale energy prices have has fallen considerably in recent weeks after a period of relatively mild weather in the UK and Europe.
HSBC economists said falling prices could benefit businesses and help reduce inflation. Elizabeth Martins, a senior economist at the bank, said: “Assuming there is only minimal additional support from April, this drop in petrol prices will be critically important for many companies.
“Of course, many bills can still go up. But compared to some of the bills companies faced before [current government support was introduced]current levels look decidedly more manageable.”
Stephen Phipson, chief executive of Make UK, said existing levels of government support were an inadequate patch, as manufacturers were also battling continued supply chain disruption, labor shortages, political uncertainty and high transportation costs.
“Making it less generous will make things worse for many companies. In fact, there is a very strong and urgent case to match the more generous schemes that our competitors have.
“The government must also ensure that all major energy users are included in any extension, not just those traditionally considered ‘energy intensive.’ Otherwise, there are some very important companies that will be forgotten.”
Businesses’ low confidence in the economic outlook and productivity issues make them reluctant to hire new staff, according to the latest BDO business surveys.
Business hiring intentions fell to a two-year low, the weakest reading since the last quarter of 2020 when they faced new Covid restrictions, according to the company employment index. This was despite companies reporting slightly improved levels of production and business confidence to BDO in December.
“Supply chain and inflation pressures are clearly being felt across the board as employers pause hiring plans and consider layoffs to manage rising costs,” said Kaley Crossthwaite, a partner at BDO.