Energy supplier upfront payments threaten UK manufacturing sector
The government's pledge for rebalancing the UK economy and making the City less pivotal to the country's well-being, risks being undermined by energy companies demanding hefty upfront payments to power new factories.
Ever higher energy bills, are contributing to manufacturers shutting down plants or relocating to other countries. British factories suffered the sharpest slowdown in business last month since the last recession.
The British Ceramic Confederation has examples of some members being asked for deposits of up to £200,000 – the equivalent of four months' worth of power – before energy firms are willing to take them on as customers.
The problem exacerbates wider difficulties from the economic downturn said Laura Cohen, Chief Executive of the confederation.
"Five of our members have closed in the last few weeks. Members tell me they have seen their energy costs increase considerably in the last year, typically by 30% or more, and in one case doubling. In addition, from 2013 they face a crippling array of climate-related taxes and costs in the UK through higher electricity [prices]."
Manufacturing firms which need huge amounts of gas and electricity to make their products, are particularly hard hit.
We have a number of examples of these upfront energy costs affecting our clients – for example:
One manufacturing company had a poor credit rating, so had a limited choice of suppliers and any that were prepared to quote were requesting security deposits in the region of £20,000 for a 6 month contract.
Another manufacturing company was required to pay a £60,000 security deposit for their gas contract.
These upfront charges are an additional burden to an already struggling economy.
We recommend all companies, particularly energy-intensive industries like manufacturing, ensure they have a clear energy management strategy which takes account of potential risks from increased energy prices, potential security deposits and potential regulatory or legislative changes.
Source: Markit/CIPS UK manufacturing PMI Survey
