Britain’s manufacturing sector is facing a growing competitiveness problem, and it is not just about demand, skills, regulation or global trade.

It is about energy.

A new warning from manufacturers and trade unions has put the issue sharply back in the spotlight. According to Reuters, industry body Make UK and the Trades Union Congress have warned that high energy costs are already pushing manufacturing work overseas, with firms either moving production abroad or actively considering doing so.

This matters because manufacturing decisions are not made in isolation. A company deciding where to place its next production line, expand capacity, invest in automation, or retain skilled workers will look closely at the total cost of operating in each country. When the UK is structurally more expensive, investment does not always disappear in one dramatic announcement. More often, it quietly goes somewhere else.

That is the real danger.

The warning from manufacturers

Make UK’s latest Manufacturing Outlook report paints a worrying picture. While current output and orders remain positive, the underlying pressures are becoming increasingly difficult to ignore.

The report found that around one in four manufacturing firms have either moved activity overseas or are considering doing so. Almost one in ten have already moved production abroad due to higher business costs, with a further 16% considering it.

At the same time, almost four in ten manufacturers have delayed investment, more than a fifth have reduced headcount, and more than half say they have yet to see any benefit from the Government’s industrial strategy.

The problem is not simply that energy prices are high. It is that they are high enough to influence strategic decisions.

If a manufacturer cannot pass rising costs on to customers, margins are squeezed. If margins are squeezed, investment is delayed. If investment is delayed, productivity suffers. If productivity suffers, the business becomes less competitive. Eventually, the question becomes not how to grow in the UK, but whether the UK remains the right place to manufacture at all.

That is how deindustrialisation happens. Not always through one big collapse, but through hundreds of smaller decisions.

The Government’s response

The Government has already announced measures intended to reduce industrial electricity bills. The British Industrial Competitiveness Scheme is designed to cut electricity bills by up to 25% for more than 10,000 eligible manufacturers from April 2027.

The scheme will exempt qualifying businesses from certain electricity policy costs, including the Renewables Obligation, Feed-in Tariffs and the Capacity Market. The Government has said the support will be worth up to £600 million a year and will be backed by an additional payment in 2027 to cover support that firms would otherwise have received from April 2026.

A separate “Supercharger” scheme also increases support for some of the most energy-intensive sectors, such as steel, cement, glass and chemicals.

The issue raised by Make UK and the TUC is not whether these measures are welcome. They clearly are. The question is whether they are broad enough, fast enough and large enough to stop investment decisions being made elsewhere before the support fully arrives.

Make UK is calling for the British Industrial Competitiveness Scheme to be brought forward and expanded across the wider manufacturing sector. It argues that support should cover around 130,000 manufacturers, not just the 10,000 firms currently expected to benefit.

That would come at a significant cost. But the counterargument is that losing industrial capacity also comes at a cost, even if it does not appear as neatly in the public finances.

Why UK energy costs matter so much

Energy is not just another overhead for manufacturers.

For some sectors, it is fundamental to whether a plant is viable at all. Steel, glass, ceramics, chemicals, paper, food production, engineering and advanced manufacturing all rely on energy-intensive processes. Even where energy is not the largest cost, it can still be the cost that tips a marginal investment decision one way or another.

The UK’s electricity price problem is partly structural. Britain’s electricity market is still heavily influenced by gas prices because gas-fired generation often sets the marginal price of electricity. That means volatility in international gas markets can feed through into electricity costs even when a growing share of electricity is generated from renewables or nuclear.

This has become a strategic weakness.

Official analysis from the Office for National Statistics has already shown the scale of pressure on energy-intensive manufacturing. Output in several energy-intensive industries has fallen sharply since 2021, with basic metals and castings, petrochemicals, paper and inorganic non-metallic products all heavily affected.

The concern is that the UK may be trying to build an industrial strategy on top of an energy cost base that makes that strategy harder to deliver.

This is not just a problem for big factories

It is tempting to think of this as an issue only for very large industrial sites with furnaces, kilns, production lines and huge electricity bills.

That would be a mistake.

Manufacturing supply chains are deeply connected. A large producer relies on smaller specialist suppliers, fabricators, subcontractors, logistics providers, maintenance firms, packaging companies, engineers and local service businesses. If one major factory moves production overseas, the impact is rarely limited to that company alone.

The loss of manufacturing activity also affects local economies. Manufacturing jobs are often skilled, relatively well-paid, and located in places where alternative employment may not be as easy to find. Losing those jobs can weaken towns, reduce apprenticeship opportunities and erode local technical skills.

There is also a strategic resilience issue. The pandemic, Brexit disruption, the war in Ukraine, Middle East instability and global shipping shocks have all shown that supply chains cannot be treated as abstract spreadsheet lines. If the UK wants resilience in defence, clean energy, infrastructure, food production, transport, construction and advanced technology, it needs domestic manufacturing capability.

A country that cannot make enough of what it needs becomes more exposed to global shocks.

The contradiction at the heart of industrial policy

There is a clear contradiction in the UK’s current economic ambition.

On one hand, the country wants to grow advanced manufacturing, clean energy, defence capability, electric vehicles, life sciences, digital infrastructure and strategic supply chains.

On the other hand, manufacturers say they are being asked to compete internationally while paying energy costs that make the UK less attractive than rival locations.

That is not sustainable.

Industrial strategy cannot just be a list of priority sectors. It must address the operating environment that determines whether those sectors can actually grow.

For a manufacturer, strategy is brutally practical. Can we produce at a competitive cost? Can we invest with confidence? Can we recruit and retain skilled people? Can we win orders at acceptable margins? Can we survive the next shock?

If the answer to those questions is weaker in the UK than elsewhere, capital will move.

The business lesson: cost structure is strategy

The immediate policy debate is about Government support, electricity levies and industrial competitiveness. But for business leaders, there is also a broader lesson.

Cost structure is strategy.

A business can have a strong product, a skilled workforce and good customers, but if its cost base is out of line with competitors, its strategic position weakens. That applies to manufacturers facing high energy bills, but it also applies more widely to any business dealing with rising wages, rent, finance costs, logistics costs or raw material prices.

The key question is not simply whether costs are going up. It is whether costs are rising faster than the business can improve productivity, increase prices or differentiate its offer.

When costs cannot be passed on, they must be absorbed. When they cannot be absorbed, investment is cut. When investment is cut, the business becomes less competitive. That cycle can become very difficult to reverse.

For manufacturing firms, energy should now be treated as a board-level strategic risk, not just a procurement issue.

What manufacturers should be doing now

Manufacturers cannot wait for Government policy alone. Support may come, but timing and eligibility remain uncertain.

Businesses should be reviewing their energy exposure in detail. That means understanding which products, contracts, customers and production processes are most sensitive to energy price movements. It also means stress testing margins under different energy cost scenarios.

Firms should look again at procurement strategy, contract terms, energy efficiency, onsite generation, demand flexibility, automation and process improvement. For some businesses, the opportunity may be in reducing peak demand. For others, it may be in changing production schedules, investing in more efficient machinery or renegotiating customer pricing mechanisms.

Cash flow also matters. Make UK’s warning that many firms have limited cash runway should not be ignored. Energy shocks are dangerous because they hit profit and cash at the same time. A profitable business on paper can still fail if it cannot fund the working capital strain created by rising input costs.

The strategic priority is resilience.

What this means for the UK economy

The UK has a choice.

It can treat high industrial energy costs as a temporary problem affecting a few heavy users. Or it can recognise them as a long-term competitiveness issue that cuts across manufacturing, investment, jobs, productivity and national resilience.

The Reuters report, the Make UK survey, and wider coverage from The Guardian and other business media all point in the same direction. Industry is not just asking for help because costs are uncomfortable. It is warning that investment and jobs are already being diverted elsewhere.

That is a very different problem.

Once a production line moves, it may not come back. Once skills are lost, they take years to rebuild. Once supply chains weaken, future investment becomes harder to attract.

Energy policy, industrial strategy and business competitiveness can no longer be treated as separate conversations. They are part of the same issue.

If Britain wants to remain a serious manufacturing economy, it must offer manufacturers a serious cost environment in which to compete.

Otherwise, the UK may not lose its industrial base in one dramatic moment. It may simply watch it leave, one investment decision at a time.