Andy Burnham will walk into Downing Street next week with an in-tray already overflowing, but business has told him exactly where to start: energy bills that sit 45 per cent above the G7 average and act, in the words of the CBI and Energy UK, as an “anchor” holding back the economy.
Stripping a suite of green levies out of business energy bills could cut costs by a fifth and deliver a £130 billion boost to the economy by 2050, according to a report from the two lobby groups published on Tuesday, compiled with analysis from Cornwall Insight and the National Institute of Economic and Social Research.
For smaller firms the stakes are immediate. Retailers, food and drink producers and hospitality businesses, the sectors least able to hedge or absorb energy costs, stand to benefit most from the recommendations. That will resonate with the eight in ten SME owners who already fear what a Burnham premiership will mean for their business.
The problem is not new, but it is getting worse. Britain’s electricity prices put firms at a competitive disadvantage, stifle investment and have contributed to the country’s sluggish productivity growth since the 2008 financial crisis, official price data shows. The war in the Middle East has compounded the pain, with the UK’s heavy reliance on imported gas pushing factory costs up at their fastest pace since Black Wednesday.
The report’s central charge is that successive Conservative and Labour governments have spent decades loading the cost of the net-zero transition onto electricity bills. Its remedies include scrapping the renewables obligation, a scheme launched in 2002 requiring suppliers to provide a set quantity of renewable energy, and ditching a two-decade-old levy on businesses using electricity generated outside the UK. The lost revenue, it argues, should be recouped through general taxation or a public fund.
Dhara Vyas, the chief executive of Energy UK, said: “Energy is an essential service that underpins both daily life and economic growth. Yet years of making policy decisions with little regard to the impact on business energy users has left the UK with some of the highest industrial energy costs in the developed world.”
Louise Hellem, the CBI’s chief economist, said: “With a new prime minister coming into office, it’s clear that reducing business energy costs must be a day-one priority. If we want to tackle the cost of living and invest in public services, we need stronger economic growth, and that can’t happen while firms are navigating sky-high energy bills.”
Whether Burnham listens may hinge on who he installs next door. Ed Miliband, seen as his most likely choice to replace Rachel Reeves as chancellor, has rigorously pursued the fastest possible route off fossil fuels as energy secretary, drawing criticism from business groups who argue the private sector is shouldering too much of the net-zero burden. Sowing early tension between Numbers 10 and 11 is the last thing Burnham needs, with voters having deserted Labour over Reeves’s £25 billion payroll tax raid and the botched winter fuel U-turn.
Reeves is expected to strike a valedictory note at the Mansion House dinner this evening, saying the government has been “fixing the foundations, restoring economic stability, and proving our capacity to deliver radical change”.
Burnham, for his part, wants to reindustrialise the economy. The report’s verdict is blunt: that will be impossible “on the back of some of the most expensive electricity in the developed world”. With one in four manufacturers already moving production abroad or weighing it up, SME owners will learn a great deal from the new prime minister’s first appointment, and his first bill.
