UK energy supply chain at risk

I was recently in Manchester, talking to a range of EIC members about policy, their needs, and the opportunities and risks in the energy industry. And yes, we touched on the budget.

The supply chain is not a homogenous entity; it is not all the same, nor can it be easily siloed or pigeonholed into different technologies, regions or capabilities. EIC members are multifaceted yet straightforward, responsive yet steeped in a proud history, regional yet global. They are skilled, innovative and resilient. But we are pushing them to their limits.

In all the talk of the Energy Profits Levy and ‘just transition’, we lose sight of these companies – and that has never been clearer than it is today.

Tax burdens harm investment

The Energy Profits Levy is a tax on industry that the government was warned about and has ignored. Its effects will be felt down the supply chain. Time and again, we have warned that, yes, a company may have its majority profits in oil and gas – but that is because there is not yet another energy technology sector in which to transition.

This is not for want of trying or desire. Lack of project certainty, continually changing policies and energy ministers, and uncertainty over what the UK energy sector looks like for investment, have all caused instability and unease.

Those directly affected by the Energy Profits Levy will reassess their North Sea investments and reconsider the value of remaining. Our supply chain does not yet have that luxury.

Rising costs threaten wages and jobs

There is also the cumulative effect of other taxes. An increase in national insurance contributions, along with a rise in the minimum wage, begs the question: what actually happens to wages? Where will this money be found in companies that are already waiting for more projects to come their way? The money being raised from these measures will cost more in the long term.

The energy supply chain employs one in every 55 jobs in the UK – a vast number of people. And these people aren’t confined to clusters or belts; they are distributed throughout the UK, many of them outside the ‘energy regions’.

No clear transition path

Companies operating in oil and gas find it hard to transition to cleantech because of a lack of projects and lack of certainty that one project will lead to another – there is no visible work pipeline. And when work is anticipated, it faces delays and pushbacks; look at nuclear in the budget and the Track 2 carbon capture, utilisation and storage project announcement earlier this month. While the oil and gas industry was already on pause, we aren’t clear on a long-term, non-parliamentary energy roadmap.

What we have is a piecemeal approach, pilot projects and first projects. Companies can’t build a five-to-10-year business plan from that. Any work that actually arises from this is a ‘potential bonus’, not a ‘pay the bills’ energy strategy. This, coupled with the budget, has taken a fragile industry and plastered it with a ‘do not drop’ sticker – as the delivery man lobs it over the gate.

Lack of project certainty, continually changing policies and energy ministers, and uncertainty over what the UK energy sector looks like for investment, have all caused instability and unease

Budget ignores integrated industry needs

This was a budget that went beyond a ‘bad’ and a ‘good’ energy sector. The sector is integrated and, once again, this wasn’t taken into consideration: it is easier to point at the ‘big bad ones’ than the family-owned and operated, internationally trading companies that work across oil, gas and hydrogen, or oil, gas and nuclear. Such companies employ local apprentices and skilled workers, and conduct their business globally, beyond the UK.

An uncertain future for the UK energy sector

Our members are global; have we made the UK a more unattractive place in which to operate? And what does that mean for companies that want to be here but are finding it increasingly difficult?

Delayed projects, lower margins, higher costs, fewer operators, a difficult sector in which to operate and no long-term strategy beyond the headlines – we are certainly not taking industry with us on the ‘net-zero journey’, regardless of what the intentions were.

The budget will now be discussed and debated, and we’re yet to see the devolved nations’ response – that will come shortly. But in the meantime, we need to secure those one in 55 roles, protect our SMEs and ensure the UK remains welcoming for the energy sector.

The potential is great and the ability is there, but politicians’ understanding and will does not seem to be in the same place.

Time for political accountability

Our members need certainty – they want to be in the UK. Let’s do better, let’s deliver on the Industrial Strategy, let’s stop targeting the wrong areas and let’s engage more effectively.

We will continue to build on our policy asks and increase engagement. We will make it clear that this budget hurts our members and that we are jeopardising our net-zero future. To engage with that, please contact me at Rebecca.Groundwater@the-eic.com

The UK government has also put out a consultation on its plans for an Industrial Strategy. Unless it starts listening, our great supply chain’s capacity and capability might not be able to add to the coffers or deliver on net zero. However, by the time this realisation sets in, the current government may well be out of power, and we will have another set of net-zero targets and vision for what the UK energy landscape should look like.

Political cycles are all well and good, but not when we jeopardise our people, our expertise and our assets.

Image credit | Getty