Manufacturers are urging the Chancellor to use the autumn Budget to cut industrial energy costs and restore the UK’s investment appeal. With the UK facing the highest industrial electricity prices in Europe, 56% of manufacturers believe the country has become less attractive for investment over the past three to five years.
Make UK is therefore calling on the Chancellor to move electricity policy levies into general taxation, alongside expanding the British Industrial Competitiveness Scheme (BICS) to all manufacturers and bring forward its implementation.
- 56% say the UK has become less attractive for investment as manufacturers face the highest industrial electricity prices in Europe
- 62% of manufacturers considering a major expansion want to prioritise growing in the UK
- Alongside lower energy costs, 35% say a supportive tax environment would influence them to invest more, up from 24% last year
- AI is now on a par with plant and machinery and labour and skills as an investment priority
The prize for improving conditions is clear: research from Make UK show that of those considering a major increase in capacity over the next 12 to 24 months, 62% still want to prioritise expanding in the UK. Lower energy costs would help turn that ambition into new capacity, jobs and investment.
This Budget is the first real test of whether the government can turn its reindustrialisation ambitions into action. Manufacturers want to invest and grow here, but the highest industrial electricity prices in Europe are draining the confidence and headroom they need to do so.
Stephen Phipson CBE, Chief Executive, Make UK
Energy is not the only barrier, however: more than a third (35%) say a supportive tax environment would encourage them to invest more, up sharply from 24% last year.
The need for action is underlined by manufacturers committing less of their turnover to long-term investment as cost pressures bite. Average spending on plant and machinery has slipped from 6.8% to 6.4% of turnover, while R&D investment has fallen more sharply, from 6.2% to 5.1%.
This squeeze comes as manufacturers face growing pressure to invest in the technologies needed to remain competitive. Two in five (41%) now identify artificial intelligence (AI) as an investment priority, up from 27% last year and placing it alongside plant and machinery and labour and skills for the first time.
The Budget must therefore ease immediate cost pressures while enabling the investment needed for future growth.
Alongside energy cost-cutting measures, Make UK is urging the Chancellor to reverse the cut to the employer National Insurance threshold and extend NIC reliefs to all under-25s, reducing the cost of hiring and giving firms greater confidence to recruit. It is also calling for the Made Smarter scheme to be expanded to support AI adoption and energy efficiency.
Stephen Phipson CBE, Chief Executive of Make UK, said: “This Budget is the first real test of whether the government can turn its reindustrialisation ambitions into action. Manufacturers want to invest and grow here, but the highest industrial electricity prices in Europe are draining the confidence and headroom they need to do so.
“As I made clear to the Chancellor this week, these costs are shaping decisions on recruitment, production and investment every day. If the government wants firms to choose Britain for their next factory, production line or AI investment, it must act now.
“That means shifting electricity policy levies into general taxation, expanding BICS to all manufacturers and bringing forward its implementation, while backing firms to adopt the AI, technology and skills that will drive growth across the country.”
For Paul McFadyen, Chairman of metals4U, there are four key points that need to be addressed.
1. Construction stimulus
There’s no doubt that the construction sector as a whole is struggling in the current economic climate. Recent data shows that many areas of the industry, particularly new private investment such as housebuilding, are declining due to rising costs and a subdued buyer market, which are making fresh investment in construction projects less attractive for developers.
The government can inject targeted stimulus to support the sector while the wider economic landscape stabilises and improves. This can be achieved by continuing to invest in public infrastructure projects, which can also carry wider economic benefits at regional and national levels, as well as supporting construction jobs and output.
Beyond this, government initiatives such as ‘Your First Home’ can help to kickstart the buyer market for new-build housing, as well as tackling the chronic national housing shortage. Housing developers must also play their part to see the benefits of this scheme, matching government initiatives with increased investment to deliver the required projects. They must also resist the urge to take advantage of the scheme by increasing property prices, a move which would undermine the initiative by putting first-time buyers off due to high prices.
2. Targeted industrial relief
British manufacturers are facing a number of pressures including rising global tariffs, increased material costs and soaring energy prices. This situation is not conducive to sector growth, and the industry will need targeted support to ease the burden.
Measures to reduce energy costs for manufacturers, as well as cutting business rates and reducing compliance pressures, will help to provide impactful improvements for the industry which are realistic and achievable given the Chancellor’s limited fiscal headroom. They will also help manufacturers to tackle the high material costs, whilst also encouraging further investment.
3. Strengthening the skills pipeline
Continuing investment in construction and manufacturing projects not only supports the current workforce, but also encourages employers to continue hiring new workers and take on apprentices. This is vital for the long term health and stability of these sectors and cannot be neglected.
Additionally, announcements aimed at restructuring the education sector to support vocational and technical training will be well received by the industry, and will help to ensure a continued flow of young talent into our industries. Acting now could allow these trainees to develop and enter the workforce at a time of increased investment and activity, should the economic picture improve over the next few years.
4. Proof of the ‘back British’ promise
Government rhetoric of backing British industry has been an encouraging sound bite, but this budget needs to see words matched with ambition. Demonstrating proof of government support for British industry will help encourage investment and strengthen the sector by prioritising UK firms.
Investment and procurement decisions in active sectors such as public infrastructure and defence, should be awarded to British suppliers where possible, whilst further measures to improve conditions and competitiveness for UK manufacturers would also be welcomed. The government can also reinforce the domestic supply chain by prioritising sourcing materials from UK companies where possible, such as purchasing British steel.
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