Vince Cable
Vince Cable, the UK business secretary, highlighted the carbon price floor as driving up energy costs for manufacturers Reuters

Business Secretary Vince Cable has warned that spiralling energy costs are becoming a "big problem" for British industry.

Energy costs have been at the centre of furious public debate in recent months amid sharp increases in household bills and falling incomes.

But industrial firms face the largest energy bills of all, threatening to derail a marked recovery in the manufacturing sector and weigh down the wider economy.

"Energy-intensive industry has got special problems arising from British energy costs," said Cable at a an event to launch a report by industrial giant Tata Steel Europe and consultancy firm PricewaterhouseCoopers (PwC) which calls for a foundation industries minister in the UK.

Cable added that the carbon price floor, a tax on fossil fuels used to generate electricity that energy firms pass on to consumers, is "pricing in a disadvantage to UK producers".

"We recognise that and I think the core of the industrial strategy for the foundation industries often revolves around that point," he said.

Foundation industries account for 25% of the manufacturing sector. They provide many of the materials needed for other firms in the sector as well as construction businesses. Productivity in foundation industries firms is 136% above the UK average and they turnover £69bn annually.

High domestic energy costs harm the competitiveness of UK firms against their rivals. Manufacturers' output makes up half of the country's exports, but they face energy costs that are as much as 30% above their European rivals.

Related

"If, as a result of high energy costs or other burdens, they become uncompetitive we will see more of them disappear from the UK as emerging economies thrive," said Terry Scuoler, chief executive of EEF, the manufacturers' organisation.

"It is not realistic to think we can exist without these industries which would be a disaster for the UK. Government must act to support this vital part of our infrastructure."

Karl Koehler, chief executive of Tata Steel Europe, urged the government to help industry manage their rising energy bills and for a new foundation industries minister to champion the sector across the world.

"If the government is serious about rebalancing the economy and creating sustainable jobs in the regions, it must recognise the importance of the UK's foundation industries," he said.

"We're not asking for hand-outs but we deserve a level playing field and an equal seat at the table."