UK manufacturers are at risk due to a 30 per cent increase in energy bills, according to a new report.

With Thursday’s pre-budget report in mind, a submission, by EEF- the manufacturer's organisation, claims that hikes are putting businesses at a competitive disadvantage.

The costs account for around a sixth of the value added by manufacturers.  With most firms struggling to pass on higher costs within a competitive market, EEF believes further rises could erode around a third of manufacturing profitability by the end of the year.

Latest figures show that companies are facing electricity and gas bills that are at least 30 per cent higher than last year, while wholesale gas prices for the coming year are 25 per cent above those on the Continent.

A barrage of extra costs has hit the sector during 2004, including the increase in employers liability insurance by 30 per cent as well as the rising cost of steel and other metals by 40 per cent.

Martin Temple, EEF director general, said: “We have now got to the stage where it is difficult to understand the rationale for increases in gas prices on this scale and have made clear to the government that it is an issue that needs independent examination.

“In the short term they are not only threatening to erode all the positive gains companies have made in the last year but, in the longer term, put us at a serious competitive disadvantage with our EU competitors.”

Evidence collated by the group show that many companies are being forced to outsource their production and investment to plants overseas.

EEF is calling on the government to continue negotiations with other EU countries to develop National Allocation Plans for the EU Emissions Trading Scheme. By liberalising their markets, EEF believes the rest of the EU has a major part to play in increasing competition.

In addition, EEF has urged Chancellor Gordon Brown to freeze the Climate Change Levy at its current level. With higher energy bills already raising the focus on energy efficiency, the group believes clarity is needed over the need for a Climate Change Levy.

The pre-budget submission also calls for:

  • The introduction of a capital credit for investment, including for leased assets
  • Measures to boost skills including funding for the removal of the age cap on modern apprenticeships.
  • Measures to increase the supply of science, technology, engineering and mathematics (STEM) skills available to business, especially the development of more effective links between science and schools.
  • In the area of better regulation, an extension of the Vehicle Industry Policy and European Regulation (VIPER) initiative to other manufacturing sectors.