Manufacturing sector on track for three years of falling employment
Daily Telegraph
Britain faces years of industrial decline as net zero sends factory energy prices rocketing, economists have warned.
EY Item Club said Britain’s manufacturing sector was on track for three years of falling employment in the face of energy costs that are four times as high as those in the US, and 50pc more than those paid by factories in France and Germany.
Factory output is also expected to shrink by 0.6pc this year, the influential forecaster predicted.
Peter Arnold, the UK chief economist at EY, said the sky-high energy costs were the result of running down fossil fuels without a reliable replacement.
He said: “UK businesses currently pay the highest electricity prices in the developed world. This has been driven by high and volatile global energy prices, particularly for gas, which has left the UK exposed given its reliance on gas for electricity and heating and, combined with declining oil and gas production, has not been helpful for prices.
“The UK has invested heavily in renewables like wind and solar but these are intermittent, as opposed to say nuclear power, and this can also increase pricing volatility.”
Ed Miliband, the Energy Secretary, is racing to move Britain towards an entirely clean energy system by 2030, necessitating a switch to energy sources that are quicker to construct than nuclear – such as wind and solar.
Mr Miliband has argued that breaking Britain’s reliance on oil and gas will ultimately lower energy bills. However, Kemi Badenoch, the Conservative Party leader, and industrialist Sir Jim Ratcliffe have both blamed net zero policies for surging prices.
Sir Jim, the Ineos boss, warned in January that Britain’s chemicals industry was facing “extinction” because of high energy bills and the shift to net zero. After Ineos closed down a synthetic ethanol centre in Scotland because of carbon taxes and energy costs, Sir Jim said: “We are witnessing the extinction of one of our major industries as chemical manufacture has the life squeezed out of it.”
Ms Badenoch said the UK’s goal to reach net zero carbon emissions by 2050 is “impossible” and risks “bankrupting” the country.
She said in a speech this week: “Our success at reducing emissions has also come at a significant cost: the highest electricity bills in the developed world.”
Northern regions of England will be held back by the industrial decline, EY said, with Aberdeen in particular hammered by the slump in the oil and gas industry. Britain’s mining and quarrying sector, which includes the oil and gas sector, is poised to shrink by 1.8pc per year over the next three years.
EY said it was “hard to dispute the fact that policy has played a key part” in the decline of the North Sea. Labour has banned new oil and gas licences, increased the windfall tax on the industry and extended it until the end of the decade.
There are few signs that wind and solar power can replace the lost jobs. EY said: “New investments in renewable energy are yet to, and may never fully, replace the lost activity and employment.”
Employment in manufacturing is shrivelling as a result, with the number of industrial jobs poised to fall by 3pc per year on average between 2025 and 2028
EY’s warning about deindustrialisation came as the Confederation of British Industry (CBI) said rising taxes and regulation were harming businesses.
Louise Hellem, the business group’s chief economist, said: “Decisions made at the autumn Budget and upcoming changes outlined in the Employment Rights Bill have knocked business confidence. Our economic analysis shows that firms are set to reduce output and hiring and are having to pass on cost increases to customers.”
Insolvency figures suggest companies are struggling. Compulsory company liquidations surged to an 11-year high in February, official figures showed. There were 393 court-ordered liquidations in February, up from 263 a year earlier.
Sam Fenwick, insolvency partner at Wedlake Bell, said: “We are seeing businesses hastily planning for the increases in National Insurance and National Living Wage, which kick in next month. Times were already tough and, where profits margins are threadbare, that extra cost could be the straw that breaks the camel’s back.”
Separately, credit ratings agency Fitch cut Britain’s growth forecast and warned more inflation is on the way in part because of rising energy bills. It now expects GDP to grow by 1.1pc this year, down from its previous prediction of 1.8pc. Inflation is expected to hit 3.3pc by the end of 2025, above the earlier forecast of 2.8pc.
Last night, a Government spokesman said: “We have a plan to make Britain a clean energy superpower so we can end our energy insecurity, and we are bringing energy costs for industry closer in line with other major economies by fully exempting eligible firms from certain costs linked to renewable energy policies.”
A Scottish Government spokesman said: “At the heart of our approach to ensuring a just transition to net zero by 2045 are our valued and highly skilled oil and gas workforces ... We have established a Just Transition Fund for the North East and Moray, which has already allocated £75m for projects that create jobs, support innovation, and develop skills, including specific projects to support energy workers to transition.
“This is in addition to our £125m investment in the region through the Aberdeen City Region Deal to help diversify the economy, support growth in the life sciences and food and drinks sectors and promote the renewable energy sector.”