Clock ticking on energy impact for manufacturers in 2023

18 January, 2023

“Government must also ensure that all major users of energy are included in any extension, not just those traditionally regarded as ‘energy intensive’. Otherwise there are some very significant companies that will fall through the cracks.”

Cara Haffey, manufacturing leader at PwC UK, said:

"With the Covid veil now almost completely lifted, the immense challenges still faced by manufacturers means it's no surprise that the impact of rising energy costs is the most pressing concern according to the firms we spoke to.

"UK manufacturers are resilient by nature, however we face another 12 months where it's likely that global supply chains will remain stretched and a string of pressure points will continue to spring up, from sourcing and purchasing to fulfilment and distribution. All of this plus the need to continue to refine our relationship with the EU - especially in regards to the movement of people - will see manufacturers facing a packed, and somewhat, daunting to-do list.

"Given the scale of the cost challenges, and the backdrop of a long winter, it is imperative that the right balance is struck between keeping our collective eye on the ball in regards to our netzero commitments while ensuring vital support is given to ensure that the sector - as adaptable as it is - can withstand what is likely to be a difficult year ahead.”

The survey also shows that input costs as well as energy show no signs of easing. The demand for talent and increased pay settlements means nine in ten companies (91%) expect to see their employment costs increase, while a similar number (87.2%) expect to see transport costs increase.

There is also evidence that the political instability of the last twelve months has impacted the competitiveness of the UK as a manufacturing location, with the number of companies believing it to be a competitive location halving from last year (down to 31% from 63%). Over four in ten companies (43%) believe the UK is now less attractive to foreign investors, while more than half of companies (53.2%) believe that on-going political instability is damaging business confidence.

However, despite these challenges, manufacturers continue to show the same resilience they demonstrated at the height of the pandemic by boosting their growth prospects through continued investment. This includes a focus on developing new products (71.5%), upskilling or re-training existing staff (69.3%) while almost two thirds are increasing investment in capital equipment (61.7%). Encouragingly, over half of companies (55.4%) plan to increase investment in Apprenticeships.

According to Make UK, these investments are especially encouraging given they have traditionally been areas prone to cuts during previous economic downturns.

Furthermore, to tackle the increase in energy costs specifically, over half of companies (54%) are continuing investments in energy efficiency with one in four looking at on-site generation to take themselves off the grid. To aid this process further, Make UK is calling for greater incentives to adopt green technologies through capital allowances and tax reliefs, a move supported by over a quarter (28.5%) of companies.

As well as becoming more energy efficient, the survey shows that manufacturers have not been diverted from a wider focus on their Environment and Social Governance (ESG) responsibilities. More than half (51.1%) say ESG investments are now more important than two years ago while a similar number (50.6%) has a strategy led by the Board with almost four in ten companies (39.1%) having a nominated Board member responsible.

The survey of 235 companies was carried out between 26 October and 15 November.

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