High energy costs and lack of investment leave British workers without resources and a “big problem” in the world, the think tank warns, The Institute for Public Policy Research has found that UK factory workers have 47 percent less resources, including machines, tools and technology, than international peers.
The problem is caused by a permanent lack of investment in British industry which, in turn, is linked to high energy costs.
The IPPR recommends that the government change the focus of future energy support schemes so that companies with the greatest potential for future investment receive more aid.
This can help “drive new factories, new resources and new jobs”, it says. The IPPR survey found that UK private firms invest just 11.1 per cent of GDP, compared with 12 per cent in Germany, 12.7 per cent in France and 18.2 per cent in Japan.
Of the G7 countries, only Canada invests less.
This translates into poor technology for the workforce, and the UK has a 38 per cent capital gap compared to peer countries.
When manufacturing, this difference rises to 47 percent. In fact, this means that British workers have very little “machinery, buildings, robots and intellectual property” that they earn per working hour.
Manufacturing competition continues to be driven by the adoption of the latest technology and “this change increases the use of electricity”.
Higher energy costs mean factory workers are suffering, the think tank has warned
It means the UK’s high electricity costs are a decisive factor, says the IPPR. In the era of smart factories this is a “big problem”.
“Electricity prices act as a barrier to investment that the economy needs,” the report’s authors warn.
“If British industry is not going to continue, it will need a constant stream of UK taxpayers to keep it alive.”
It says that “this permanent damage – which is holding back UK productivity and growth – could worsen when energy prices rise again”.
High electricity prices have negative effects on workers
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PAThe IPPR states that the British Industrial Competitiveness Scheme (BICS), the government’s program to reduce industrial electricity costs for manufacturers, should be carefully considered, with the possibility of decisions driving future investment.
The scheme will come into force in April next year – but only around 7000 businesses will be selected, out of around 32,000 eligible.
BICS aims to reduce electricity costs by 25 per cent. The Department of Trade and Industry is currently drafting eligibility criteria, with decisions expected soon. Its current guidelines use a “threshold voltage” mechanism, which measures whether the voltage is in the center of a business’s main structure.
But this could see core sectors, which use a lot of energy and supply goods and services to other industries, pushing out peripheral sectors, such as advanced manufacturing, clean energy and digital technologies.
The IPPR says subsidies should be directed to companies that will invest in the future rather than those whose high energy costs are a daily business expense.
Otherwise, it says, the taxpayer “will increasingly be called upon to provide a lifeline to an old, strange institution”.
Pranesh Narayanan, senior researcher at IPPR, said: “British industry faces two challenges: companies are investing too little, and they face some of the highest electricity costs in Europe, and the two are linked.
“But the government has a unique opportunity to reduce energy bills for businesses and encourage investment.
“This is not a question of helping companies to stand still.
“With limited financial space, every pound should go to sectors where lower energy costs will drive new factories, new equipment and new jobs.”
The think tank recommends “adjustment of the scheme’s eligibility criteria to prioritize sectors where lower electricity costs can unlock new investment”.
It says: “BICS should focus not only on how much electricity costs are placed on today’s balance sheet, but where lower electricity costs can help drive tomorrow’s investment.”
Saying this was a “crucial moment” for industrial policy, the report says: “British industry is facing twin challenges; long-term low business investment and persistently high energy costs.”
“For some businesses, high electricity costs are a short-term survival threat but not a deterrent to investment.” For some, these costs offset investments in new technology and innovation.
“The government will be under great pressure to support the former, but the long-term competitiveness of British industry depends on the latter.”
The crisis in Iran will make the situation worse, says the IPPR, with companies already feeling pressure from the war. Some schemes, such as the British Industrial Supercharger, provide relief to the strongest industries, it says.
“BICS, on the other hand, should be reserved for its primary purpose: supporting long-term industrial strategy and facilitating new investment.”
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