Energy costs driving manufacturers abroad, MPs told

Britain has seen an enormous flight of businesses this year because it has become uncompetitive to manufacture goods here, with larger companies finding the arithmetic works better in France and Germany, according to evidence given to the Defence Committee.

Stephen Phipson, chief executive of MakeUK, raised the point during a session on the implications of the Defence Investment Plan for British industry.

He said: “There is a wider point that I would like to make about manufacturing in this country, which is something that we have been talking to the Chancellor about. In fact, Julian and I were with the Chancellor this morning on this very subject. We are now losing a lot of companies because it is uncompetitive to manufacture goods here. That is because of energy costs in the UK.”

He continued: “This year, we have had an enormous flight of businesses out of the UK. In particular, larger companies are finding it hard to allocate capital to UK capability because the maths works better if you do it in France and Germany than it does in the UK. It is very difficult to isolate that just to the MOD, but there is a wider issue about the competitiveness of manufacturing in this country, which, to be fair, the Chancellor recognised this morning as a key issue for growth.”

Kevin Craven of ADS told MPs that price is not the only problem, saying grid connections are “now running at eight to 10 years versus an average of about four years anywhere else”, and that the same pressures show in skills and the supply of componentry. He said a broader economic focus is needed to secure the defence technology and wider defence sector.

Craven said government can help through enablement in areas such as skills and by considering the general business context, and named the carbon border adjustment mechanism as another measure coming down the track that makes it expensive to do business in Britain.

On firms leaving, Craven told the committee the numbers are low, that companies are nonetheless going, and that the United States and Europe represent more attractive defence markets at present. Julian David of techUK said the number saying they will no longer be in Britain is low, but that firms are shifting emphasis and investment money.

David also told MPs that international members who came to Britain to invest are not seeing a resulting pathway to growth and business, and are asking whether they made the wrong decision to expand here.

Arnab Dutt of the Federation of Small Businesses said British firms are finding opportunities abroad, particularly in the Baltics and northern Europe where countries see the threat as imminent. He said that if their capacity is taken up elsewhere, even though they would rather be working in Britain, the country will lose out, and described the risk to capability over the next few years as potentially very dangerous.

Phipson told the committee that Britain does not lack industrial capacity, pointing to thousands of smaller firms already exporting defence technology to other nations and to the automotive sector, which employs six hundred thousand people and has capacity available. He said those companies would rather be doing the work with their own Ministry of Defence.