Manufacturers react to business energy support package 2022

Posted on 21 Sep 2022 by Lanna Deamer

Energy bills for UK businesses will be cut by around half their expected level this winter under a new government support package. The scheme will fix wholesale gas and electricity prices for firms for six months from 1 October, attempting to shield businesses from crippling costs.

Some industry groups have warmly welcomed the package but warned further support may be needed after the winter. Others have expressed that the business energy support guarantee period is “really not certain enough” as it’s seen as a short-term fix with no long-term strategy.

UK manufacturers reported a slight fall in output in the three months to September, with a much sharper decline expected in the next three months, according to the latest CBI/Accenture monthly Industrial Trends Survey. This is the weakest expectation for output growth since the three months to January 2021. The CBI’s regular analysis on the industry shows that manufacturers are increasingly pessimistic about the future – furthermore, evidencing the urgent need for today’s energy support package.

Here’s what the manufacturing industry has to say.

Manufacturers react to the business energy support package:

Stephen Phipson, Chief Executive of Make UK, said: “The Chancellor has clearly recognised that we are heading for very stormy waters in the face of eyewatering increases in energy and other costs, together with a difficult international environment.  Industry will welcome today’s statement which, coming on the back of the support for energy, contains a number of positive measures to help shield viable companies from the worst impact of escalating costs and help protect jobs. The focus on prioritising growth with plans to speed up planning reforms, boost infrastructure and investment is especially welcome.

“However, this is the sixth growth plan in little over a decade which has seen ever increasing political uncertainty. This has resulted in zero certainty for business, the most important thing it needs. Government must try and reverse this process by working with industry to develop a long-term economic strategy together with a National Manufacturing Plan. At its heart must be a properly designed tax system and a certainty of policy that aims to transform the low level of business investment, develops the workforce of the future and equips people with the digital skills they will need in the new industries and technologies which are rapidly emerging.

“Given the tools and, the right economic environment, industry can help itself and, at the same time, help the Government meet its growth target. Now is the time to end to put in place the right building blocks for the long-term.”

Neil Clifton, Managing Director of Cube Precision Engineering in Rowley Regis, welcomed the government’s support package shares his positive outlook on the announcement: “Without intervention, our energy bills were due to rise from £12,000 in August 2021 to a massive £44,000 this year based on a similar level of consumption.

“On top of lots of external pressures, inflation and supply chain disruption, this would have been the last thing we needed, especially as we are trying to make the most of lots of exciting new opportunities. In fact, our tooling expertise has been in significant demand from the automotive and aerospace sectors, providing us with the largest order book in our history.

“Our bill will now be between £23k to £25k based on it being capped at £0.21p per kWh – not ideal, but something we can manage. I’m also looking forward to getting full details on the support and to see if levies are to be applied on top of the introduction of the capped rate.”

“This doesn’t help us at all!!” explained Nimisha Raja, Founder of Nim’s Fruit Crisps, who wasn’t impressed with the level of intervention.

“The government has done nothing to address the daily standing charge. When we entered into a new contract on April 1st, the only option available to my business was one with a £14 per day standing charge, with over and above double the unit rate we were paying previously. This saw prices go from 2.12p per kw to 4.08p per kw.

“This has meant our gas bill has increased from £2500 per month on average to £7500. Our energy bills have been increasing since last November when several suppliers ceased trading, so I have no idea on what they have based the 7.5p per kWh on?

“SMEs need a little bit more from the government. They talk about a new Growth plan being announced shortly, well the best thing for growth is giving us a fair playing field to do what we do best.”

Nimisha went on to add: “I was also hoping for some plans on reforming how energy suppliers are regulated and, rather than borrowing billions to pay companies who are already showing record profits, let’s introduce a one-off Windfall Tax fund that help businesses and consumers in need.

“We can then borrow more, in order to invest in more offshore resources so that we don’t have to be in this situation ever again. I simply don’t buy that a Windfall Tax will slow down growth.

“What will and is already slowing down growth across all sectors – retail, manufacturing and the service industry – is the crippling energy costs forcing many small businesses to close.

“As an owner who understands the fundamentals of buying at one price and selling at another, it is hard to accept the rhetoric from energy companies that higher prices and record-breaking profits are coincidental and not a direct result of the extortionate increases we are seeing.”

John Pearce, CEO of Made in Britain said: “We do welcome this considerable intervention to support British manufacturing now – but it’s longer-term certainty that is important for business planning and investment, and the six month cap on the government’s energy support scheme will not give enough reassurance to those makers working to five year growth plans.

“Naturally, we want to continue to see innovation and investment in the manufacturing sector.

“Even with this help, energy costs remain stubbornly much higher than this time two years ago, and this will be a worrying time for most of our 1,900 members at Made in Britain, all of which are using energy and resources to make the goods we all need.”

Mick Howard, CEO of soft drinks manufacturer, Clearly Drinks, commented: “The six-month scheme confirmed today by the government to support businesses and non-domestic energy users with their energy bills from 1 October is one that is welcomed as a starting point to help companies across the UK. Like all SMEs, the continuous rise in energy bills and the scale of the crisis is severely affecting us, especially as a company operating within the manufacturing sector. Unlike larger organisations that can absorb the costs, the rises are hitting smaller UK businesses the hardest and support is long overdue.

“Everyone is trying their best during this tough period but to remain profitable as a business, like many we have had to make some difficult decisions that have been out of our control. This includes increasing our prices which is directly impacting consumers’ pockets and is consequently affecting demand. Not only that but it is also affecting businesses right through the supply chain which means costs are going up on all materials and packaging which is further impacting the bottom line.

While the scheme will be reviewed for vulnerable industries, we hope that the plan confirmed today will help take some of the pressure off small businesses and will reassure us all that we can start to feel positive for the future again.”

Brian Holliday, Managing Director Siemens Digital Industries, GB&I said: “UK manufacturers need a stable industrial policy strategy that gives business the confidence to plan and invest. While these short-term, energy cost saving measures are welcome the government response also needs to be equitable – different businesses have fared well or badly and that varies by sector and size – we recognise that some need immediate help to enable them to survive, others need investment to help them thrive.

“We are investing in sustainability at our Congleton factory which will be carbon neutral eight years ahead of our original target but recognise that the government has a role to play in signposting and stimuli for the manufacturing sector. On energy, Manufacturers need a swift response but one that is equitable over a one size fits all approach.”

From the Department for Business, Energy and Industrial Strategy (BEIS), Anthony Ainsworth, COO at npower Business Solutions said: “The government had been under pressure to publish more details of how it would support businesses with their energy bills this winter, so the announcement of the Energy Bill Relief Scheme ahead of the emergency Budget on Friday will be welcome – at least for the short term.

“The recent insight from our Business Energy Tracker report revealed that 77% of businesses said energy was their biggest risk, so the ‘Supported Wholesale Price’ of £211 per MWh for electricity and £75 per MWh for gas, which BEIS says is less than half the wholesale prices predicted this winter (£600 per MWh for electricity and £180 per MWh for gas), will provide relief for many organisations across the UK.

“However, there is still a lot of detail that needs to be established and there also needs to be a longer term view. Unlike households, these measures are only in place for the next six months, although the government has said it will assess specific support for ‘vulnerable businesses’ after that time period.

“So the question is, what happens after six months? We have campaigned for more support for businesses to enable them to reduce overall energy consumption. There is a real need to accelerate energy efficiency initiatives, whether that is through targeted incentives or extending schemes that provide tax breaks for installing more efficient equipment. While short term support is undoubtedly needed, we can’t afford to lose sight of the long-term net zero goal.

“For now though, we will be working closely with BEIS and our customers to put these immediate measures into practice.”

Johnathan Dudley, partner and Head of Manufacturing at audit, tax, risk and advisory firm Crowe said: “The extension of the cap to all businesses (rather than just SME’s as initially thought) is welcome.  Without support to big businesses they could retrench or leave the UK and this trickles down to supply chain and support service sectors – and then on to incomes and jobs. This is arguably at least as important as homes… with no job, individuals cannot pay power bills at any price.

“While it’s great that the support isn’t ‘loan based’ as was suggested previously (it’s direct cost support), the period guaranteed at this point is really not certain enough.

“The limited term of support generates continued uncertainty. Any business measures to shift production and operations to save energy usage will take much longer than six months to source, test and implement. Moreover, businesses will be planning next year, three years and five years ahead right now… a six months support period without firm visibility for the future will not prevent strategic decisions that need to be made.

“It remains to be seen what the detail and assurances will be for the review. I hope that this proves sufficient assurance to provide stability for energy costs and ultimately enable businesses to survive and thrive in the future. This is vital for the good of our economic recovery and the long term wealth of the nation in the future.”

“I would also like to see, maybe in the mini budget on Friday, some grant based support for businesses investing in making their businesses ‘greener’. This, combined with the above package could provide a longer term sustainable future.”

The Confederation of British Metalforming (CBM), which represents 200 UK manufacturers of fasteners, forgings and pressings, cold-rolled and sheet metal products, has initially welcomed the Government’s announcement around support for Energy bills for business.

Geraldine Bolton, CEO of CBM, commented: “At first glance, it’s positive, especially as it gives breathing space to our members and it covers all sectors, which is really important.

“However, there are some important factors that we would want clarity on before getting too carried away.”

CBM President Stephen Morley raised some of the issues: “Firstly, it is only for six months with a review in three, so we need clarity on what happens after that, and we certainly don’t want to see other sectors get preferential treatment when the review is carried out.”

He added “Another point that everyone appears to be missing is that this clearly states it is based on wholesale costs. This only equates to 35% of the cost, the rest is made up of 45% on delivery, 15% on taxes and state charges and 5% on purchasing.

“This could be open to interpretations by different suppliers and needs direction or, better still, regulation.”