Will High Energy Bills Be the Bane of Existence for Manufacturing SMEs in the UK?

The future of more than 160 jobs is facing a bleak uncertain future after the Walsall-based castings and engineering group Chamberlin recently started insolvency proceedings. The insolvency route was taken after the foundry operator was hit with a winding-up petition from its main power supplier.

The move complicated operations for the company which has already been struggling with debt pressure from other creditors and banks. Following the petition, the company’s shares were suspended from trading on the alternative investment market (AIM) resulting in the group losing further sales revenue.

Chamberlin in a trading update confirmed it couldn’t secure additional funding to support the scale and form of business operations needed to maintain ongoing business stability.

Before this, Chamberlin had tried different cost-reduction actions and increased wholesale customer prices across the group, but there needed to be more liquidity to keep it above water.

However, due to the lower-than-expected Q3 demand for Chamberlin,  the lower sales also negatively affected profitability and working capital driving down share prices and denying the group the much-needed reprieve. 

Chamberlain happens to be among the very first victims of high energy bills that have been strangling the UK manufacturing SMEs. As most of these SMEs were already struggling with pandemic disruptions and trying to recover, the energy crises that followed complicated recovery efforts.

In the UK, the expiry of the Energy Bill Relief Scheme, which provided a discount on wholesale gas and electricity prices in March 2023 added to already mounting pressure for businesses. Although a new scheme called the Energy Bills Discount Scheme replaced the Energy Bill Relief Scheme from April 2023 to March 2024, its provisions were underwhelming for energy-intensive sectors, especially manufacturing.

Under the new scheme, businesses were to receive a gas and electricity bill discount based on a supported price, with a maximum unit discount of £40.0/MWh for gas and £89.1/MWh for electricity. The aim was to balance between supporting businesses and limiting taxpayer exposure to volatile energy markets.

SMEs still found it challenging to cope with rising costs since even if they qualified for more support, the new scheme may was not sufficient to offset substantial increases in energy expenses. 

The situation was dire for many manufacturers and many were already sounding the alarm even before the expiry of the Energy Bill Relief Scheme. For instance, a Make UK survey in 2022 found that nearly 60% of manufacturers reported that increased energy costs were business-threatening. 

Some were already taking drastic measures, including job cuts, and more severe actions like shutdowns and redundancies were expected to become inevitable if prices continued to rise by over 50% in the next 12 months. 

Business interviewed expected the impact of high energy prices to extend beyond energy-intensive industries, affecting manufacturers of all sectors and sizes. In further bleak news, a Barclays’ SME Barometer had found that at least three-quarters of small and medium-sized companies had reported they were worried about the long-term impact of the cost of living crisis, soaring energy bills and rising inflation on their business. 

In the report, over 51% of the SMEs had said they were concerned that rocketing prices would dent consumer spending. Many indicated that they feared they would have to increase their prices in response thus making them less competitive.

While the situation has mildly improved, the manufacturing sector especially SMEs continues to struggle with high energy bills. The recent Chamberlin group case follows exactly the route businesses were predicting as early as 2022. The materialising of these risks puts pressure on a sector already struggling with other unprecedented challenges. Without an end in sight, high energy bills are becoming the proverbial straw that broke the camel’s back.