The UK government is being pressed to wipe billions from the energy costs facing households and heavy industry by reforming the high taxes levied on electricity bills.
These policy levies mean the UK pays some of the highest energy bills in the world, and are simultaneously disadvantaging British industry and stifling the efforts of households to transition to lower-carbon heating systems, according to industry trade groups.
Make UK has warned that the government’s long-awaited industrial policy is at risk of being derailed by the high energy prices charged to UK manufacturers, which the lobby group states make the sector’s energy bills 46% higher than the global average.
The trade organisation has called on the government to cut industrial energy costs as part of Labour’s long-awaited industrial strategy, which is due later this month, by reforming “the complex and unfair policy levies that make low-carbon energy more expensive than fossil fuels”.
Its plan includes the state underwriting a fixed energy price for manufacturers. Under the scheme, manufacturing firms would receive top-up payments from the government if energy wholesale costs rise beyond the set price – but they would repay the difference to the exchequer if the wholesale price falls below the agreed price.
Stephen Phipson, Make UK’s chief executive, said: “If we do not address the issue of high industrial energy costs in the UK as a priority, we risk the security of our country. We will fail to attract investment in the manufacturing sector and will rapidly enter a phase of renewed de-industrialisation.”
“UK manufacturers have faced energy prices far above those of European competitors for many years, undermining their ability to invest, grow, and compete globally,” Phipson said.
Another trade organisation, Energy UK, blamed the government’s levies, which predominantly fall on electricity bills, for making cleaner alternatives such heat pumps artificially expensive in comparison with gas.
The energy sector trade body, which represents energy suppliers, has proposed “rebalancing” the charges currently levied on electricity bills on to gas bills, saving homes using electric heating £400 a year. State subsidies should then be used to ease the burden on low- and middle- income gas-using households that would face an extra annual cost of £40 under its proposal, it said.
Overall the scheme would make the government’s move from gas heating to electric heating about £40bn cheaper by 2040 compared with a situation in which policy costs are not removed from bills.
A government spokesperson said: “Through our clean power mission, we will get off the rollercoaster of fossil fuel markets – protecting business and household finances with clean, homegrown energy that we control.”
The spokesperson said that it was bringing energy costs for UK industries closer in line with other major economies through its British Industry Supercharger, a government energy cost-cutting programme for firms in sectors such as steel, metals and chemicals, which is expected to save businesses £5bn over the next 10 years.
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“We are also looking at a range of options for longer-term energy market reform, including the rebalancing of gas and electricity prices, with the impact on consumers at the heart of our approach,” the spokesperson added.
The comments about the government’s imminent industrial strategy proposals come as British business faces a string of challenges over the coming months.
The business and trade secretary, Jonathan Reynolds, is expected to urge Donald Trump’s administration to cut a deal to reduce taxes on UK steel exports to zero this week, after the US president vowed to double his global steel tariff to 50%.
Elsewhere, private sector companies expect activity to fall in the three months to August to their weakest level for three years, according to the CBI’s latest growth survey. A separate poll of the UK hospitality industry also stated that recent increases to employer national insurance contributions and the changes to business rates mean that a third of the sector is operating at a loss.
