Thousands of British companies face bankruptcy within the next year as soaring energy costs push the country’s industrial sector to the brink of collapse, according to a stark industry survey. The manufacturers’ body Make UK warned that many firms simply cannot cope with electricity and gas prices that are twice the average in continental Europe and four times higher than in the United States. One in ten manufacturing companies now believe it is likely or very likely they will be insolvent within twelve months.
The survey, conducted among Make UK’s members, revealed that a quarter of manufacturing companies have either already moved production overseas or are planning to do so. Larger businesses, which account for around 800 of the UK’s 130,000 manufacturing firms and are mostly foreign-owned, are relocating to mainland Europe and Asia where they can benefit from cheaper energy. Smaller domestic firms, lacking the resources to relocate, are instead forced to slash investment and jobs to survive. Almost four in ten (38%) companies have delayed investment, and more than a fifth (21%) have reduced their headcount. Despite raising prices, 98% of companies expect a significant squeeze on their profitability over the next quarter.
A crippling cost disadvantage
The damage is not limited to immediate cash-flow pressures. Britain’s industrial electricity prices remain among the highest in the developed world, nearly double the European Union median and the highest in the G7. For energy-intensive businesses – such as chemicals, ceramics, and glass – this cost gap is a direct threat to survival. The chemical industry alone has seen production output fall by 60% since 2021, with 25 site closures over the same period. The core reason, according to Make UK, is that the UK’s energy pricing structure is fundamentally uncompetitive.
Part of the problem lies in the UK’s heavy reliance on gas for electricity generation. Data from a House of Commons library report shows that in 2024 gas accounted for 30% of the UK’s electricity, compared with 16% in Germany and just 3% in France. This reliance is compounded by the marginal pricing system, which means the cost of the most expensive generator – almost always gas – sets the price for all electricity, even when cheaper renewables or nuclear plants are running. The Iran war has sent global oil and gas prices surging, with short-term gas futures nearly doubling in recent weeks. Almost half (46%) of industrial companies have already seen their energy bills rise further since the conflict began, and six in ten have passed the increase on to customers.
Stephen Phipson, chief executive of Make UK, said that although factory output had remained robust over the previous quarter, business confidence had dived to a four-year low. “The time for talking is over. The time for action is now,” he said. “Britain faces deindustrialisation unless manufacturers get relief from high energy prices. Electricity and gas in the UK are far too expensive and it’s costing our country steeply. We cannot afford to be delayed by political upheaval, or by further consultations.”
More than half of survey respondents said they had yet to see any benefit from the government’s industrial strategy, which was set out last summer. Phipson warned that many companies that would stand to gain from the government’s push to raise defence spending might already be bankrupt or moved abroad unless energy bills are reduced quickly.
Proposed solutions and political pressure
Make UK is calling on the Treasury to cover the cost of taxes and levies paid by industrial businesses through general taxation – the model used in France and Germany. According to Phipson, roughly 50% of industrial energy bills, amounting to £3bn annually, consist of government carbon taxes and levies such as the Renewables Obligation, Feed-in Tariffs, and Capacity Market charges. Removing these regressive policy levies, Make UK argues, would cut energy costs by 15%. The trade body also proposes introducing a fixed electricity price for manufacturers. It estimates that extending support to all companies in the sector would cost £3bn a year but could save 2.5 million jobs.
The government has already taken some steps. In April, it extended a subsidy scheme – the British Industrial Competitiveness Scheme (Bics) – that reduces bills by up to 25% for 10,000 companies that qualify as heavy energy users. The scheme is due to take effect in April 2027, with an additional payment backdated to this year. Alongside it, the British Industry Supercharger provides a discount on electricity network charges, raised from 60% to 90% for eligible sectors such as steel, chemicals, and glass. Yet Phipson argued that the Bics timeline is still too late for many firms, and Make UK wants the scheme expanded to cover all manufacturers, not just heavy users.
The Trades Union Congress has joined the call for urgent action. General secretary Paul Nowak said thousands of well-paid jobs – many in some of the poorest areas of the UK – were at risk. He urged the government to establish an emergency taskforce, introduce a temporary targeted gas price cap for critical industries, and speed up the implementation of Bics. The TUC also advocates structural reforms, including de-linking electricity prices from gas and increasing the UK’s gas storage capacity.
The government has signalled it plans to review the marginal pricing policy but has yet to outline how or when it could be abolished or reformed. In a statement, a spokesperson said: “Our manufacturing industries are vital to the UK’s success and economic growth, but we recognise the challenges they are facing, including on the cost of energy. We are tackling this through our modern industrial strategy, cutting electricity costs for industries across Great Britain, and announcing new support for the chemicals and ceramics industries. We will continue to work closely with manufacturing businesses across the UK to ensure we’re doing what we can to help them through tough times.”
