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When the Governor of the Bank of England paid a visit to firms in East Anglia this summer, the boss of a local scrap metal firm didn’t mince his words.
David Dodds, managing director of Ipswich-based Sackers, told Andrew Bailey that his company is facing a cliff-edge this autumn due to soaring energy costs.
‘We had him in our boardroom for two hours,’ Dodds says. ‘We hope we gave him a useful insight into the challenges we face as a company operating in the UK and internationally.’
Crunch time: Large numbers of firms are on fixed energy contracts that are due to end in October, at which point they will face huge hikes
That is a polite way of saying he made no bones with Bailey – who has been widely criticised for his failure to tackle rising prices – about the grim reality facing Sackers and many other firms.
Sackers has been in business for nearly 100 years and has survived the Second World War, the economic travails of the 1970s, and numerous economic downturns.
But, even for the most seasoned and resilient businessmen and women, this energy crisis is daunting.
Bills have already spiralled upwards alarmingly and, unlike households, there is no cap.
Large numbers of firms, including Sackers, are on fixed contracts that are due to end in October, at which point they will face huge hikes.
‘We’re now paying £120,000 a month for electricity. That bill has gone up 171 per cent in less than a year,’ says Dodds. ‘We’re planning on it going up by another 60 per cent per annum when we renew in October.’
‘We have a healthy business but it won’t be if we keep on sucking in all that cost.’
He is not alone.
Around one in five firms are set to renew existing energy contracts in October, with gas prices having skyrocketed from 45p to £7 per therm over the past two years.
This is on top of a welter of other problems, including supply chain bottlenecks, labour shortages and inflation running at more than 10 per cent – a fact for which Bailey is being castigated by politicians and public alike.
But it is the staggering increase in energy costs that has left many firms concerned about their viability this winter.
The crisis is particularly acute for manufacturers due to their high energy consumption.
‘We shouldn’t be exposed to this uncertainty’
Steve Keeton, who employs 2,000 workers in high-skilled jobs at the Electric Glass Fibre company in Wigan, said recent hikes are ‘entirely unaffordable’.
His company’s energy bill has soared since last year and he says the situation is ‘make or break’.
Keeton argues the situation for business is getting ‘worse and worse’. And this could have dire knock-on effects on the economy as a whole.
If companies close in large numbers, jobs will be lost and banks will be forced to write off loans gone sour.
It will also be a setback for the Government’s levelling up agenda – since many manufacturing jobs are in the regions – as well as a blow to Conservative hopes of keeping Red Wall seats.
The batch of energy renewals in October will pile billions of pounds onto firms’ costs. In so far as these can be passed on to customers, that will fuel inflation further at a time when it is already rampant.
Dave Dalton, who heads the Energy Intensive Users Group and trade association British Glass, said concerns are mounting among his members.
‘If you are looking to buy energy for winter 2023, then you are looking at anything up to £7 rather than 45p per therm.’
Facing the scrap heap: David Dodds and Helen Crapnell of Ipswich-based scrap metal firm Sackers
Volatility in the energy market has made signing contracts highly stressful for companies, which could find themselves locked into deals at sky-high prices.
‘We might as well just go down to the casino and put it all on black,’ says Dalton. We should never be exposed to this uncertainty.’
He says the glass industry, which is a high gas user, has seen its total energy expenditure rise from £250million to £1billion since last year.
Other industries are in a similar plight, including steel, chemicals, paper and ceramics.
It is a significant setback for the UK’s hopes of becoming an export powerhouse post-Brexit.
Dreadnought Tiles, which has been making bricks for 200 years, is facing the prospect of an energy bill that could soon exceed its multi-million-pound turnover.
Managing director Alex Patrick-Smith said: ‘We are trying to save money, save our workforce and our customers.
‘The three are not compatible.’
The crisis comes as British industry, once mocked as an oxymoron, was on the brink of a renaissance.
Businesses that survived the upheaval of the 1980s, or which have set up since then, are very different beasts from the dirty, lumbering factories of old.
From aerospace to automotive, new gleaming workshops with the latest robotics thrum with activity across the country.
The UK has ambitions to become a world-leader in advanced manufacturing and to be at the forefront of the Fourth Industrial Revolution using cutting edge technology such as artificial intelligence (AI), the ‘Internet of Things’, genetic engineering and quantum computing.
But the vertiginous rise in energy costs is wreaking havoc with those aspirations.
Steve Ayre is managing director of Rutland Plastics, a family-owned firm based in the East Midlands employing 160 people with sales of around £16million. The company makes plastic injection mouldings for a range of industries.
He says: ‘We need electricity to melt the plastic we mould.
‘We’ve seen our energy bills double from £400,000 two years ago –and if we bought at today’s prices our annual bill would be £1.2million.
‘The risk is our customers will go to France or Germany. It’s a huge concern for UK manufacturing.’
Industry lobby groups have put forward several proposals to ease pressure on businesses, including calls to waive or reduce business rates for the next 12 months and a reversal in the national insurance hike.
Sackers’ MD David Dodds believes another windfall tax on oil companies like BP and Shell is ‘100 per cent necessary’.
Another suggestion is a price cap for businesses.
Some argue the most immediate fix would be direct financial support to firms in the form of grants or loans.
Alternatively, there are suggestions that ministers could introduce a fund to make loans to companies that would be paid off over a long period.
Alex Patrick-Smith of Dreadnought Tiles said: ‘I appreciate Government debt cannot keep rising – but this is a crisis.’
Manufacturing firms are the backbone of our economy. The men and women who run them are survivors who have proved themselves to be adaptable, resilient, hard working and brave.
But when they shiver, we all catch cold.
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