Government urged to get behind energy support scheme

Britain’s manufacturers are urging the Government to guarantee funding for the proposed business energy support scheme amid concerns that it is struggling to stand by its commitment announced earlier this year as part of the new Industrial Strategy. The call comes as Make UK publishes modelling, carried out for the organisation by Flint Global, on how the scheme could be extended to all manufacturers ahead of the Budget next week and, the publication of the consultation on the British Industrial Competitiveness Scheme (BICS) later this week.

According to Make UK, it is essential that not only is the energy support scheme extended to all manufacturers from the current planned help for 7,000 companies but, is brought forward from the current planned implementation date of 2027. This is critically important as the costs of new transmission investment and nuclear power are due to hit manufacturers next April which could potentially increase energy bills for companies by approximately half a million pounds per annum.

Make UK warned that other countries are acting faster and more decisively to shield their industries from high energy costs and, sticking to the current implementation will be too late for many companies and leave the UK facing weaker investment and, the risk of managed decline of key industries.

Make UK’s CEO Stephen Phipson said: “We are at a critical and pivotal juncture for the economy with an urgent need to focus on boosting the current levels of anaemic growth and economic performance which is the only way to improve the public finances. While recognising the fiscal constraints, there are a number of practical, targeted measures Government could announce that would produce impactful returns.”

Eye-watering energy costs
He added: “In particular, the clock is ticking on tackling our eye-watering energy costs and it is now more a case of political will rather than any technical constraints to addressing these. It is imperative that the planned scheme is not only extended to all manufacturers but brought forward the current implementation date. Without this not only will the benefits not be felt in the current Parliament but many companies may not be around to feel them at all.”

According to the modelling, a broader energy support scheme would unlock far greater economic benefits. Every £10 reduction per MWh in energy bills across manufacturing boosts the economy by £800 million (0.03%) a year if sustained over the medium term. Every £10/MWh bill reduction would bring greater tax revenue too, of around £300 million a year.

Broadening the BICS to all manufacturers would benefit over 115,000 businesses and grow the economy by £3.3 billion (0.12% of GDP). The cost to the Exchequer would also be £3.3 billion leaving a minimal net cost given the tight fiscal situation. In the medium- to long-term, the scheme should be funded through new revenue streams. Carbon prices have increased by a third since March (and the previous forecast), which could raise £500 million in 2029-30. Linking the UK ETS to the EU ETS could raise a further £400 million.

Furthermore, temporary short-term borrowing is manageable given the resulting boost to productivity and growth, coupled with additional unlocked investment, limiting any risk to the gilt markets. There is also potential for further long-term funding via proposed savings from reforms to the energy system and ‘bearing down on system costs’.

Key Budget priorities
In addition to modelling the costs and funding of the energy support plans, Make UK also published estimates of the costs and benefits from its other three key Budget priorities. While recognising the challenges facing the public finances, Make UK believes this small package of affordable, targeted, and high-impact tax measures would help boost growth at a time when it is desperately needed given last week’s anaemic GDP figures.

Promoting green investment through the business rates system — protecting businesses from higher rates when they invest in ‘green’ technologies and energy efficient products will deliver £3 of private investment for every £1 of tax relief, driving innovation and decarbonisation across UK manufacturing.

A new Skills Investment Pledge to ringfence the current £2 billion annual revenues from the Growth and Skills Levy and Immigration Skills Charge to support private sector investment in skills. By committing more funds and trusting businesses with more flexibility to decide how levy funds are spent, this will conservatively provide a £4.4 to £5.9 billion annual boost to the economy in the long run. It would increase current growth and skills spending by over two thirds, equivalent to around 235,000 new apprentice starts a year.

Extending full expensing to leased plant and machinery. Allowing businesses that lease plant and machinery to deduct these costs in year one will unlock critical capital investment, particularly for smaller businesses. This would cost £300 million in 2029-30 but would boost the economy by £160 million through additional investment and productivity.