SUBSIDY CUT MAY LEAD TO BLACKOUTS AND JOB LOSSES, WARNS UK INDUSTRY BODY

Mon 09 January 2023:

As the chancellor, Jeremy Hunt, prepares to announce a sharp reduction in industry support, the trade body Make UK said the impact from sky-high energy costs on manufacturers showed no sign of abating, The Guardian reported.

The industry group, which represents 20,000 UK manufacturers, said that cutting financial support would exacerbate job losses and reduce factory output, hurting the economy.

Hunt is expected to unveil a package of measures this week to help businesses with high energy costs, including the extension of a scheme beyond its March expiry date.

However, the chancellor told bosses in a crunch meeting last week that the current measures are “unsustainably expensive”, and would be replaced at a “lower level”.

According to a survey of more than 200 senior manufacturing industry bosses by MakeUK and the accountancy firm PwC, almost three-quarters of companies (70%) expect their energy costs to increase this year, with two-thirds saying they expect to cut production or jobs as a result.

In the latest business surveys by accounting and business advisory firm BDO, employers also signalled plans to pause recruitment amid concerns about a recession, with firms struggling with high inflation and supply chain pressures.

Make UK found as many as 60% of bosses had grown increasingly concerned about blackouts affecting their business, while almost two-thirds (64%) said higher energy costs posed the biggest risk to their company. More than 13% have specifically considered closing the business or implementing shutdowns, with more than one-in-10 considering relocating production to another country where energy costs are cheaper.

Despite heightened concern among industry leaders, wholesale energy prices have fallen sharply over recent weeks after a period of relatively mild weather in the UK and Europe.

Economists at HSBC said falling prices could benefit businesses and help to bring down inflation. Elizabeth Martins, a senior economist at the bank, said, “Assuming only minimal additional support from April, then this drop in gas prices will be critically important for many businesses.”

“Of course, many bills may still go up. But compared with some of the bills companies were facing before [current government support was introduced], the current levels look decidedly more manageable,” she added.

Stephen Phipson, the chief executive of Make UK, said that existing levels of government support were an inadequate sticking plaster, with manufacturers also struggling with ongoing supply chain disruption, labour shortages, political uncertainty and high transport costs.

“Making it less generous will make the situation worse for many companies. In fact, there is a very strong and urgent case for matching the more generous schemes our competitors have in place,” he added.

“Government must also ensure that all major users of energy are included in any extension, not just those traditionally regarded as ‘energy intensive’. Otherwise there are some very significant companies that will fall through the cracks,” he said.

Low confidence among companies about the economic outlook and problems with productivity are making them reluctant to hire new staff, according to BDO’s latest business surveys.

Businesses’ hiring intentions slumped to a two-year low, the weakest reading since the final quarter of 2020 when they were facing new COVID restrictions, according to the firm’s employment index. This was despite firms reporting slightly improved levels of output and business confidence to BDO in December.

“Inflation and supply chain pressures are clearly being felt across the board, as employers pause recruitment plans and consider redundancies to manage rising costs,” said Kaley Crossthwaite, a partner at BDO.

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