Britain’s Energy Crisis Is Driving Manufacturing Offshore

The UK risks a major wave of deindustrialization and widespread factory closures unless the government expands emergency relief measures for manufacturers battling soaring energy costs, a prominent manufacturing trade body has warned, as reported by the Guardian.

According to a June 2026 survey by Make UK and the Trades Union Congress (TUC), Britain faces an imminent risk of industrial collapse unless the government provides immediate financial relief to protect manufacturers from surging energy and power bills driven by systemic carbon levies and high fuel costs triggered by the Middle East conflict.

The joint manufacturing outlook survey confirms that the UK’s ~130,000 manufacturing firms are in crisis mode. Indeed, recent UK government data revealed that industrial electricity prices in the UK can be more than 90% higher than the median of International Energy Agency (IEA) member countries, rendering Britain’s energy-intensive industries far less competitive.

British manufacturers pay an average of around 27 pence ($0.36) per kilowatt-hour of electricity, much higher than 16p ($0.21)/kWh in other developed nations, according to the study.

The sector’s severe financial distress is evidenced by the fact that 25% of firms surveyed are holding fewer than 12 months of cash reserves.

Further,  one in ten manufacturers says they face insolvency within the year. To stay afloat, 38% of businesses have frozen or delayed investment plans, while 21% have been forced to cut staffing levels.

According to the study, 25% of UK manufacturers have already relocated parts of their production overseas or are actively considering moving to other countries in Europe and Asia where energy is cheaper.

Not surprisingly, energy-intensive industries, including chemicals, steel, Oil & Gas refining, foundries, glass production, cement, and pulp & paper manufacturing, have been amongst the hardest hit. 

The UK remains highly dependent on natural gas for power generation compared to other European nations. Natural gas serves a dual purpose in UK chemical manufacturing, functioning both as a raw material feedstock and a thermal fuel.

Unfortunately, UK natural gas prices have remained elevated due to the ongoing depletion of domestic North Sea reserves, coupled with the country’s heavy reliance on LNG. 

Compared to continental Europe, the UK maintains limited operational gas storage (roughly 2 to 10 days of supply), forcing the country to buy spot-market LNG during supply shocks.

Because gas is typically the most expensive fuel required to meet peak demand, it disproportionately sets the wholesale price for all electricity under the UK’s marginal pricing system.

Britain’s wholesale electricity market holds daily auctions where all generators are paid the price of the most expensive (marginal) source needed to meet demand. Since gas-fired plants are frequently required to ensure a stable supply, they set a high benchmark price that all generators receive. 

An aging infrastructure and byzantine energy policies make the situation worse. The UK energy grid is undergoing a generational shift to accommodate renewable energy sources. This requires massive expansions and equally massive grid investment.

But these substantial grid investments, including National Grid’s monumental £29 billion transmission rollout, have resulted in soaring “non-commodity charges” that are largely passed on to industrial consumers. In other words, they’re paying for the upgrades.

Roughly 50% of an industrial business’s energy bill consists of five government carbon taxes and levies allocated for electricity grid upgrades.

Policy costs such as Renewables Obligation (RO), Contracts for Difference (CfD) and Capacity Market (CM) charges make up many of the non-commodity costs on energy bills for UK industries. 

The government is now trying to mitigate some pain this is causing heavy industry, providing some targeted relief and compensation schemes to halt the capital flight. 

Expected to be launched in 2027, the British Industrial Competitiveness Scheme (BICS) will expand upon the initial British Industry Supercharger. BICS is designed to exempt 10,000 qualifying energy-intensive industries (EIIs) from paying specific renewable levies.

Businesses in sectors like aerospace, chemicals, and automotive are eligible to apply to the Department for Business and Trade (DBT) for EII certificates for levy exemptions and grid compensation.

This relief is expected to slash electricity bills for eligible firms by up to 25% or up to £40 per megawatt-hour. Additionally, the Network Charging Compensation (NCC) Scheme is designed to help offset high transmission and distribution grid charges.

The discount was increased from 60% to 90% in April 2026, though payout for some steel and manufacturing businesses may lag for a year. 

Manufacturing investment goes where energy is affordable and reliable. Britain currently offers some of the highest industrial electricity prices in the developed world.

The result is visible throughout the sector: investment delays, staffing cuts, shrinking cash reserves and production moving overseas.
Government support may slow the process for some companies.

It does not eliminate the cost gap. Manufacturers still have to compete against rivals in countries where electricity is dramatically cheaper. Until that changes, Britain will remain at risk of losing more industrial capacity to foreign markets.