Rising energy costs could drive investment away from UK: EEF

Posted on 13 Oct 2014 by Callum Bentley

Britain’s ambitions for a better-balanced economy could be seriously undermined by escalating energy costs, warns a new report by EEF.

The report projects a 50% hike in electricity costs by 2020 and claims the hike would hit investment, margins and competitiveness, potentially applying a brake to economic growth. It goes further to state that just 4% of manufacturers would be left unscathed.

  • 73% of manufacturers say the projected rise in electricity costs would have a noticeable impact on profit margins – over half (53%) say it would hit their competitiveness[2] 
  • Energy already accounts for 6% or more of turnover for 27% of firms[3] – affordability is a key  concern for 83% of companies[4]
  • Balancing act: while a third (32%) say the UK’s lead in setting ambitious climate targets drives innovation, 41% say it risks undermining competitiveness[5]
  • EEF is calling on the next Government to ensure that energy policy supports ambitions for a better-balanced economy.

According to the report, almost three quarters of manufacturers (73%) say electricity hikes of this magnitude would have a noticeable impact on their profit margins, while over half (53%) say it would hit their competitiveness. Over a third (34%) would be forced to cut spend in other areas of their business.

However EEF says the most worrying statistic is that the hike could lead a quarter of manufacturers (25%) to consider investing in facilities overseas.

The findings suggest that the increases would be adding to the pressure that manufacturers are already under – over a quarter (27%) are already spending more than 6% of turnover on energy. For 83% of companies affordability is already a key concern. This rises to 87% amongst mid-sized firms.

There are also concerns over the adequacy of Government energy efficiency schemes – less than one in five firms (19%) say the key UK schemes provide the right incentive to improve energy efficiency. Almost four in ten (38%) believe the schemes are overly complex.

As a result, businesses are split over the UK taking a leading role in developing ambitious climate targets. While a third (32%) say it drives innovation, 41% say it risks undermining competitiveness. And, although almost a quarter (23%) say it creates new markets, this is out-weighed by the 46% who want to see the UK remain in line with global competitors.  This suggests that, going forward, a more balanced approach is required from policy makers.

Gareth Stace, head of climate & environment policy at EEF, says: “This is a wake-up call that the tension between the pursuit of low carbon policies and Britain’s ambitions for a better-balanced economy must be resolved. Failure to do so could hit investment, margins and competitiveness, putting the brakes on growth and leaving our economy stuck in the slow lane.

“It’s time for a fresh approach. Low carbon is rapidly becoming synonymous with anti-competitive, which is why we are urging all parties vying for government to commit to review and reform current policies and mechanisms. Above all, we are seeking a firm commitment to implement the Energy Intensive Industries package announced in the 2014 Budget as soon as possible. High energy costs are crippling for manufacturers of all sizes, but rapid implementation of this scheme would at least reduce the burden on those who are most exposed.”