Tue. Jan 18th, 2022

The British industry reacted with dismay after the government indicated it had little appetite to provide immediate financial support to energy-intensive users struggling with rising gas and electricity prices.

In October, British Prime Minister Boris Johnson Gave order ministers to investigate possible state aid for heavy industries to offset rising energy costs.

But Junior Secretary of State Lee Rowley wrote to the Energy-intensive user group last week, diminishing expectations of any intervention. In the letter, which was seen by the Financial Times, he pointed out that the most exposed sectors had received “extensive support” for a number of years, including “more than £ 2 billion to help with the high electricity prices”.

The letter stopped excluding any aid, saying the government remains committed to a “dynamic manufacturing base”.

A subsequent meeting with Kwasi Kwarteng, the business secretary, made no progress last Thursday, according to three people familiar with the situation.

One operations manager warned that the government’s approach increases the risk that some companies will have to stop production. “Our plea to the government was ‘do not leave it until it happens, because if you do, then the ability to restart some industries may disappear’. These are heavy industrial processes that you can not just switch on and off. ”

A second manager added: “We are not looking for handouts. We are asking for policy involvement.”

Business leaders were particularly irritated by the £ 2bn claim in Rowley’s letter, which they said did not mention the cost to industry of shifting to renewable targets, which is estimated at up to double that figure. “It was dishonest, to put it kindly,” one said.

Richard Leese, chairman of the EIUG, declined to comment at the meeting. But he added: “The government’s response so far does not seem to acknowledge the immediacy of the situation.”

Operations executives believe the government is more focused on finding ways to compensate for the looming cost of living crisis, exacerbated by rising household energy bills.

Ministers are reluctant to intervene when no company has yet failed or shareholders or the capital markets have had to withdraw for financing, although some factories have curtailed production in times of peak energy prices.

“Last autumn, trade bodies warned that there would be Armageddon without urgent support. “It seems that many firms are well entrenched and have had the support of parent companies, so understandably ministers are reluctant to throw taxpayers cash around without proper care this time around,” said one government official.

The government said it would “continue to engage constructively with industry to understand and help mitigate the impact of high global gas prices”.

Heavy industries have also stepped up pressure on the government to intervene in the carbon market next week to reduce the amount they have to pay for emission permits.

As part of Brexit, the UK launched its own emissions trading scheme last year. Consistently high prices since September have caused the UK’s “cost control mechanism” (CCM) last month for the first time, forcing policymakers to consider whether to intervene in the market.

At the time, the government held off but the CCM was reactivated at the beginning of January and it will have to decide by next Tuesday whether to act. This will involve increasing the supply of permits to lower the price.

Managers have said that if the government brings back carbon prices in line with those of a year ago, energy-intensive companies could avoid more than £ 470 million in extra annual costs.

Gareth Stace, director of UK Steel, urged the government to take action, saying it represents “an opportunity … to curb the runaway costs of electricity suffered by the steel sector and to cut energy bills across both industrial and domestic markets” to reduce ”.

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