Manufacturers have warned that high energy costs could force factory closures and inflict an estimated £85 billion hit on the wider UK economy unless the next Government takes urgent action to reduce industrial electricity prices.
The warning comes in a new report, ‘From Crisis to Stability: A Future Energy System for Manufacturers’, published by
Make UK in partnership with green energy company
Ecotricity. The report highlights the continuing impact of high and volatile energy prices on manufacturing businesses and calls for a series of reforms aimed at delivering cheaper, cleaner and more secure power.
According to the report, 90% of manufacturers have seen their energy bills rise since 2022, while more than half identify energy costs as their biggest challenge in the years ahead. Most alarmingly, 13% of manufacturers said further energy price increases could prove terminal for their operations.
Make UK estimates that a 13% decline in manufacturing activity would result in an annual loss of £85 billion to the UK economy, including around £50 billion across supply chains. The report also found that seven in 10 manufacturers have been forced to pass rising energy costs on to customers as margins come under increasing pressure and investment decisions are delayed.
The organisation argues that structural flaws within the UK electricity market are leaving manufacturers at a competitive disadvantage. It points to the continued influence of gas on wholesale electricity pricing, the burden of policy levies on electricity bills, slow grid connections, ageing infrastructure and post-Brexit trading arrangements as factors contributing to elevated costs.
Despite the challenges, manufacturers remain committed to decarbonisation and view the transition to cleaner energy as a way to improve resilience and competitiveness. Nearly three quarters of those surveyed believe a renewable-led power system offers the best route to lower energy costs, while 71% said achieving net zero remains important to their operations.
The report found that almost nine in 10 manufacturers have already begun implementing energy efficiency measures, while 63% have taken steps towards electrification. Furthermore, 87% said they would invest more if the gap between gas and electricity prices was narrowed.
Make UK is calling on the next Government to introduce a range of immediate and long-term measures, including bringing forward the British Industrial Competitiveness Scheme, moving electricity policy levies into general taxation, expanding business rates relief for green investment, creating a successor to the Industrial Energy Transformation Fund and accelerating electricity market reform to reduce the influence of gas on power prices.
Commenting on the findings, Stephen Phipson CBE, chief executive of Make UK, said: “High energy costs are one of the biggest threats to the future of manufacturing in the UK. Companies want to invest, innovate and decarbonise, but they cannot do so while electricity prices remain internationally uncompetitive.
“The incoming Government must act quickly, ensuring support reaches the whole manufacturing base while investment decisions are being made now. That means delivering the British Industrial Competitiveness Scheme this year, extending it to all manufacturers, and moving policy costs off electricity bills.
“Manufacturers are not asking for permanent subsidy. They are asking for an energy system that allows them to compete, invest and grow in the UK, at a time when wider business cost burdens have already increased significantly since 2024. Without urgent action, we risk losing industrial capacity that will be extremely difficult to rebuild.”
Dale Vince OBE, founder of Ecotricity, said the current electricity pricing mechanism was preventing lower-cost renewable power from delivering savings to businesses.
He said: “Ecotricity has been campaigning for years now - to end the energy market absurdity that sets the price of all electricity to be the same as that from gas. This ‘link’ prevents Britain’s lower cost green energy from bringing down energy bills. It ensures that British manufacturers remain exposed to volatile global gas markets, undermining competitiveness - for no good reason at all.”
He added: “The economic case for reform is clear. During the 2023 energy crisis, breaking this link would have saved UK businesses an estimated £30 billion. Inflation could have been 1.5 percentage points lower, Bank of England interest rates almost one percentage point lower, economic growth 0.6 percentage points higher, and the UK economy £36 billion bigger in GDP terms. The link fundamentally undermines our economy, as well as forcing overpriced energy on us.
“British companies continue to face some of the highest energy costs in Europe - our next Prime Minister must seize the opportunity to lift this burden from our whole economy and finally break the link.”
The report also highlights examples of manufacturers already investing in energy efficiency, solar power, electrification and digital technologies to reduce emissions and costs. However, Make UK argues that individual company initiatives alone cannot offset the impact of an energy system that remains expensive, volatile and slow to support industrial transformation.
The report concludes that delivering cheaper, cleaner and more secure energy will be critical to protecting the UK's manufacturing base and supporting the next phase of industrial decarbonisation and growth.
To read the report visit the Make UK website.