Britain stands to forfeit £250 billion in economic value over the next decade, a sum equivalent to 8 per cent of current GDP, unless ministers act decisively to bring down the country’s stubbornly high energy costs.
That is the stark warning from a new report by PwC, which argues that persistently high industrial electricity prices are blunting Britain’s competitiveness and acting as a drag on growth right across the economy.
A heavy reliance on imported energy, combined with the marginal-pricing system under which gas typically sets the price of power, has left Britain saddled with the highest electricity costs in the G7, the group of large economies that also takes in France, Germany and the United States. A larger share of policy costs, including renewables subsidies and grid upgrades, is also loaded onto British bills than is the case elsewhere.
Rising wholesale gas prices since Russia’s invasion of Ukraine have widened the gap between the UK and other leading economies, the report found, a gulf that peaked at 63 per cent in 2024. The strain has been felt most acutely by energy-intensive industries, with UK steelmakers among those facing some of the steepest price gaps against European rivals.
About half of the investors PwC surveyed cited electricity costs and infrastructure planning as priority areas for improvement, with energy security fast becoming, in the firm’s words, “a defining factor in economic competitiveness and growth”. The concern is borne out by the numbers: industrial electricity prices in Britain now run well above the median across International Energy Agency member countries, leaving domestic manufacturers at a clear disadvantage.
The competitive squeeze is already prompting firms to vote with their feet. A survey by Make UK, the manufacturers’ lobby group, found that a quarter of British manufacturers had either moved some operations overseas or were weighing up doing so, because high energy costs at home were rendering them “uncompetitive”. Nine per cent had already begun outsourcing more of their production abroad, the group reported, while a further 16 per cent were considering joining them, a trend Business Matters has tracked as the exodus gathers pace.
Energy-intensive industries have the most to gain from lower costs, but Simon Oates, of PwC UK, noted that “frontier” technology firms and power-hungry data centres are set to become ever larger consumers. That, he suggested, could mean considerably more than £250 billion is unlocked by tackling the problem.
PwC is calling on the government to lead a national energy plan, drawn up alongside businesses and investors, that assesses the country’s needs and sets out how they can be met. The energy crisis triggered by the war in the Middle East, said Vicky Parker, of PwC UK, represented an “inflection point”. As she put it: “If action isn’t taken off the back of this one, that’s probably a missed opportunity.”
The study suggested that some of the policy costs levied on bills should be reallocated, to balance “long-term energy security objectives with the need for price competitiveness in the short term”. The government, Oates argued, also needed to “reset the rulebook around regulation”, which too often “comes through an affordability lens”.
“What we’re missing is that one of the challenges that is in place to affordability is that we have a highly volatile electricity price, and if you get the growth, you get real wage growth, which is an unlock to affordability,” he said. Greater cohesion between regulators, including on environmental and planning matters, could likewise help to bolster confidence and draw in fresh investment, the report suggested.
The Department for Energy Security and Net Zero said: “The lesson of yet another fossil fuel crisis is the UK needs to get off the fossil fuel rollercoaster and onto clean homegrown power we control to bring energy security and lower bills for good.”
It added that the government was “taking action to tackle the challenges our industries face through our modern industrial strategy”, including cutting electricity costs by up to 25 per cent for more than 10,000 manufacturing businesses through its British Industrial Competitiveness Scheme, a move Business Matters reported when it was unveiled. Whether that proves enough to keep British industry from drifting overseas, however, remains the open question.