The UK is at risk of losing its status as a major manufacturing hub after a sharp rise in energy prices forced around 40% of companies to cut investment, according to a report from CBI and Energy UK.
In a stark message to ministers, the report said British businesses – from chemical producers to pubs and restaurants – were being undermined by the failure to cap prices and modernize the UK's aging gas and electricity networks.
A wide-ranging review of outdated regulations governing the sale and delivery of energy is also needed to boost investment and boost economic growth, the report said.
Energy UK, which represents more than 100 power producers and retailers, said electricity costs for businesses remained 70% higher than before Russia's invasion of Ukraine, while gas prices were 60% higher.
A survey used in the report found that almost 90% of businesses had seen rising energy bills over the last five years and four in 10 had reduced investment as a result.
Without reducing energy costs, “the risk of job losses, production cuts, factory closures and offshoring will increase,” the report said.
The CBI and Energy UK said ministers must work with industry to carry out a comprehensive review of the UK's energy needs and how they can be met during the transition to net zero.
A task force made up of researchers from both organizations and industry groups will examine how reforms could reduce prices and improve the efficiency of gas and electricity networks.
The aim is to convince ministers that initiatives to improve the UK's energy system do not go far enough and that the UK is at risk of widespread deindustrialisation.
The UK has some of the highest industrial energy prices in the developed world. They are almost two-thirds above the average for International Energy Agency (IEA) countries and are the highest among G7 members.
In an indication of the impact, figures for 2025 show that UK trade in goods has slumped to its worst level on record. Britain reported a goods deficit of 248.3 billion pounds – 30.5 billion pounds more than last year.
The Office for National Statistics said the widening gap could only be partly filled by a surplus of £192 billion in the services sector, up £16.4 billion on the previous year.
Last year, manufacturer lobby group Make UK said the government should provide millions of pounds in additional subsidies to prevent the industry from shrinking.
Louise Hellem, chief economist at the CBI, said industrial sectors were already suffering severe financial problems from the dramatic rise in energy prices.
“You can already see it in the chemical industry, which has experienced several closures,” she said.
Hellem described this year as a “pivotal moment” for the UK’s industrial strategy.
For medium-sized companies, electricity prices in Great Britain are around twice as high as the EU median. Prices for non-domestic gas are in line with those in the EU, the report said, but are significantly higher than in the US and Canada.
“This is hampering economic growth ambitions and preventing companies from investing in the clean energy transition – despite knowing the long-term benefits of such action – which in turn undermines one of the government's key policies,” the report said.
Energy Secretary Ed Miliband has sought to protect some of Britain's biggest energy consumers. Last year the government announced it would cut electricity prices for 7,000 “heavy consumers” by up to £40 per megawatt hour in a bid to “move the UK from an outlier to the middle of the pack”.
Dhara Vyas, the head of Energy UK, said she was concerned that thousands of businesses outside the ring fence would continue to be hit by high energy bills.
The government has made significant progress in reducing domestic energy costs, she said. But the help offered to some industry users was not just “a sticking plaster” but was also funded by other bill payers.
She added: “Reducing prices for all businesses is fundamental to the UK’s growth story.”
She said the first report showed “how high energy costs are holding back the UK economy and the limits of existing support”.
“But our goal will not just be to reduce costs. It will be the first of its kind to take a fundamental look at the energy market and regulations to see how it can be made more effective,” she said.
A government spokesman said ministers were aware that energy costs were “one of the biggest challenges facing industry” and that they were “moving full steam ahead” to implement last year's industrial strategy to tackle the issue.
“We will shortly publish the response to our consultation on eligibility for the British Industrial Competitiveness Scheme, which will cut electricity bills for over 7,000 businesses by up to 25%, and our Supercharger support package will reduce businesses’ electricity costs by up to £420 million a year,” they said.
About the Author
