The UK government has two proposals to bring down energy costs. One targets businesses which consume high volumes of electricity, like steel and aluminium, and the other aims to expand manufacturing.
Manufacturing in the UK is set to receive increased governmental support as part of the country’s new industrial strategy. This plan aims to ease energy costs and generate more skilled employment opportunities and will be unveiled next week. Energy-intensive industries in the UK have long complained about bearing higher electricity costs than their European Union (EU) rivals, while the industrial sector on a broader scale has faced a stunted skilled recruitment process.
Reform Party leader Nigel Farage has openly called for the reopening of domestic coal mines to provide fuel for new blast furnaces, arguing that Welsh people would accept mining if they were paid a higher wage. Similarly, to further boost the manufacturing workforce, the government has approved a £600 million package to build 1.5 million homes.
Two proposals to bring down energy costs are in the pipeline. One targets businesses which consume high volumes of electricity, like steel and aluminium, and the other aims to expand manufacturing. These two goals form the crux of this new industrial strategy and can be announced as early as Monday.
The government plans to increase the network compensation charging (NCC) scheme, a discount that energy-intensive businesses pay on their electricity fees to stay connected to the grid, from 60% to 90%. This discount, however, will be borne by other electricity bill payers, like households. This discount has been made available by the British Industry Supercharger initiative, introduced by the previous government.
Increasing the discount could help struggling steelmakers by bringing down electricity costs by £6.50 per megawatt-hour (MWh). This plan will also help bigger companies under government control, like Tata and British Steel, which would face the financial strain of transitioning from blast furnaces to more eco-friendly green electric arc furnaces. The Guardian reported that industry sources said that while this policy has been received favourably, it is expected to save the manufacturing sector only about £15 million annually.
Despite these concessions, British electricity prices are likely to remain higher than those of Germany and France. This is because electricity prices in the UK are linked to wholesale gas prices, which comprise a larger part of the British energy mix than the rest of Europe.
The UK Business and Energy Minister acknowledged at the Paris Airshow that for British companies and companies which want to invest in the UK alike, energy prices are a challenge. Making prices competitive with the rest of Europe is also a challenge.
For smaller manufacturers, the new ‘intensity threshold’ will be introduced to provide relief. The scheme should be implemented by 2027 and will analyse the ratio between a company’s energy consumption and its turnover, and will adjust the support on offer accordingly.
Manufacturing sector trade bodies like Make UK which have long campaigned for such favourable policies have welcomed the move. According to The Guardian, Stephen Phipson, chief executive of Make UK said that described this new strategy as a much-needed vaccine for an industry which has been plagued with challenges on all sides.
This move is also expected to attract the necessary investments into the sector. As manufacturing expands, the government can soon make good on growth targets, thereby revitalising the economy. This new industrial strategy could give the state-owned British Business Bank more authority to make direct investments in companies, especially small and medium-sized ones. However, the Department of Business and Trade has yet to make an official announcement revealing further details of the industrial strategy.
The Labour government was set to unfurl this new industrial strategy earlier this year, but those plans were temporarily put on hold as ministers decided to announce detailed sector-wise plans. The plans for individual sectors were unveiled to show the government’s commitment to kick-starting growth.
