Some business leaders claim that the political unrest in the UK is harming the country’s competitiveness and making it less appealing to foreign investors. Manufacturers have warned that high energy costs will force them to reduce employment and production this year.
The warning from the trade group Make UK comes as ministers finalize the specifics of a revised program that could be unveiled as early as this week and will take the place of the current energy cost assistance for businesses that expires in April.
At a time when many companies are struggling with rising costs, it is anticipated to provide businesses with significantly less financial support.
Chancellor Jeremy Hunt made a U-turn with the successor program after declaring in the autumn that most businesses would no longer receive state assistance with energy bills after the spring.
Even so, the estimated cost of £5 billion over a year is only about one-seventh of the £18 billion the government has already spent capping business energy bills during the current six-month scheme, measured in terms of money spent per month.
The government is also planning to offer more assistance to businesses that use a lot of energy, but this is probably only going to apply to a few industries.
According to Make UK, planned reductions in staff and production would likely be made worse by a less generous energy relief program.
Nearly three-quarters of businesses predicted an increase in energy costs this year, according to a survey of top executives in the manufacturing sector that Make UK and PwC conducted.
Similar percentages of those surveyed stated that they expected to take steps like reducing headcount or production and that energy costs posed the biggest risk to their business and to consumer confidence.
The support program in its current form was supported by nearly half of the businesses.
Stephen Phipson, chief executive at Make UK, said: “While an expansion of the energy relief program will be appreciated, it has so far only served as a temporary fix, and making it less generous will only make the situation worse for many businesses.”
More than 200 senior executives from the manufacturing sector were surveyed about their expectations for the coming year.
Additionally, it provided proof that the UK’s competitiveness as a manufacturing location and its appeal to foreign investment had been negatively impacted by the political unrest of the previous year.
Over four out of ten businesses believed the UK to be less appealing to foreign investors, while the percentage of businesses who said the UK was a competitive location decreased from 63 percent to 31 percent from last year.
Business leaders caution that eliminating energy subsidies would leave many businesses with unaffordable bills, which would add to the additional costs brought on by the supply chain effects of inflation.
However, some executives and traders in the energy sector expressed optimism that lower-than-expected energy bills later in 2023 might result from the unseasonably warm weather that spread across Europe in the final weeks of December and the first few weeks of January.
Based on typical usage, Martin Young of Investec Bank predicted that the price cap, which determines energy bills for the majority of British households, would fall to about £3,460 per year in April, then to £2,640 per year in July, and finally to just over £2,700 in October.
Blackout danger also seems to have diminished.
Due to lower-than-anticipated gas consumption across the continent, storage sites ended 2022 with strong levels. They were over 83% full at the end of December, which is more than 10% higher than the average of the previous five years and about 30% higher than at the same time in 2021. This has increased confidence that the continent will have enough gas supplies to get through the winter.
The UK depends on imports from the continent during extremely cold snaps, especially during peak hours, as it has less gas storage capacity than many other European nations.