Britain’s manufacturers are being placed at a significant competitive disadvantage by energy costs far above those faced by international rivals, new research has found.
According to a report, commissioned by think tank Civitas and produced by energy and economic experts Mike and Douglas McWilliams, UK manufacturers would save £11.4bn a year if they paid the same industrial electricity and gas prices as their US counterparts. In 2024, UK manufacturers paid £16.6bn directly for energy. At US energy prices, that bill would have fallen to just £5.2bn – a 69% reduction. The report warns that the situation is contributing to deindustrialisation and offshoring.
The findings underline the extent to which energy costs are affecting the competitiveness of UK manufacturing, particularly for energy-intensive businesses operating in global markets.
UK energy costs far above international rivals
The report compared the UK with 10 major manufacturing nations and trading partners and found that industrial electricity prices in Britain are four times higher than in the US and six times higher than in China. The disparity also exists within Europe, with UK industrial electricity costs reportedly double those in France and 70–75% higher than in Germany and Italy.
Gas prices are similarly uncompetitive, with UK industrial gas costing five times more than in the US and 14–20% more than in Japan, China and Germany.
For manufacturers already facing pressure from labour, materials and other operating costs, the differential represents a substantial additional burden and one that international competitors do not necessarily face. Indeed, electricity accounts for 70% of manufacturers’ direct energy expenditure, with gas representing a further 20%, according to the report.
The potential savings are considerable across other comparator economies too. Had UK manufacturers paid German prices in 2024, their energy bill would have been £11.3bn, representing a £5.3bn saving. At Chinese prices, the saving would have been £10.2bn, while US prices would have delivered the largest saving at £11.4bn.
A growing threat to UK competitiveness
The report argues that the problem is not simply a short-term increase in manufacturers’ costs, but a structural competitiveness issue.
UK industrial electricity prices remained relatively stable for almost two decades before beginning a sharp rise in 2008. They have since doubled, leaving the UK with some of the highest electricity costs among major economies and around 50% above the International Energy Agency median, according to the study. For manufacturers competing against companies in countries with significantly lower energy costs, this creates an inherent disadvantage.
The authors warn that high energy costs are contributing to deindustrialisation and offshoring, with the report suggesting that the UK manufacturing base cannot remain competitive under current conditions. That warning is particularly significant given the UK’s efforts to encourage manufacturers to invest domestically and strengthen supply-chain resilience. A future report in the series will attempt to quantify how much of the UK’s deindustrialisation can be attributed to high energy costs.
Decarbonisation comes at a cost
The report also examines the relationship between energy prices and the UK’s decarbonisation strategy.
Britain has made one of the most aggressive moves among the countries studied to reduce fossil-fuel generation. Between 2000 and 2024, electricity generated from fossil fuels fell by 68%, while renewable electricity generation increased by 1,242% – the third-highest increase among the comparator countries. However, the authors argue that the UK’s higher energy costs are not an unavoidable consequence of pursuing net zero.
The report notes that almost all of the comparator countries have their own net-zero ambitions, although their timescales and approaches differ. It therefore argues that there is scope to reduce UK energy costs without compromising the country’s 2050 net-zero target.
Mike McWilliams, co-author of the report, said some of the UK’s high energy costs stem from historic decisions and geographical factors, but argued that policy changes could still make a difference.
There is scope to reduce energy prices without prejudicing the 2050 net zero target through better planning, changing our regulatory mechanism and making best use of our exceptional energy resources.
Mike McWilliams
For UK manufacturers, the figures illustrate the increasingly difficult equation facing industry: decarbonise, invest and grow in Britain, while competing against manufacturers whose energy bills can be dramatically lower.
The scale of the gap identified by the Civitas study suggests that energy policy is no longer simply an environmental or infrastructure issue for UK industry. It is becoming a fundamental question of manufacturing competitiveness and the UK’s ability to retain production onshore.
For more information, download the full Renegotiating British Energy Policy: An international comparison of energy costs and policies report.
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