British factories facing collapse, Reeves warned: Tax hikes and energy prices are existential threat for firms

Rachel Reeves was last night warned that soaring taxes and energy bills risk putting Britain on the path to ‘significant de-industrialisation’.

In a bleak report ahead of the Budget, Make UK said manufacturers are still reeling from the Chancellor’s £25billion national insurance tax raid, which has pushed up the cost of employing staff.

The industry lobby group also said the sky-high electricity prices faced by industry were ‘an existential threat to the short-term survival of many’ firms.

And the report warned that firms fear worse to come in the form of further tax hikes, including an inheritance tax raid on family businesses from April next year, and the Workers’ Rights Bill.

A survey by S&P Global showed the manufacturing sector has cut jobs for 12 months in a row since the Budget in October last year.

It was the latest evidence that the national insurance tax hike – which the Chancellor claimed would not affect working people – is in fact hitting livelihoods.

 In a further blow, S&P Global said activity across manufacturing has suffered a 13th consecutive month of decline. 

Rob Dobson, a director at S&P Global, said: ‘There are concerns the forthcoming Budget will exacerbate the lingering challenges created by last year’s Budget.’

Stephen Phipson, chief executive of Make UK, said: ‘Business is facing a potent combination of weak demand at home and abroad, as well as escalating costs across the board.

‘If we are to get growth off the floor, then it is going to be business that provides it and this Budget simply has to have growth as the number one focus.’

Make UK found 70 per cent of manufacturers are bracing for further tax hikes in the Budget on November 26. 

And 68pc said their costs have risen by more than expected in the past six months, forcing 58 per cent to raise prices already while 53 per cent intend to hike their prices in the next six months. 

More than nine in ten said the hike in national insurance contributions has hit their business with 54 per cent offering lower pay rises, 29 per cent freezing salaries, and 51 per cent halting recruitment.

And 95pc of manufacturers expressed concern about the Employment Rights Bill, and Make UK said there was ‘dismay’ at the failure to address energy bills. 

The report said: ‘Britain’s manufacturers are urging the Government to use the forthcoming Budget to focus solely on measures to boost growth, warning that any further increases in business taxes, as well as a continued failure to reduce industrial energy costs, risks setting the UK on a path to de-industrialisation.

‘Energy costs are an existential threat to de-industrialising the UK, and we need to get them down as a matter of urgency.’

The crisis was underlined by S&P Global, whose purchasing managers’ index (PMI) of activity came in at 49.7 in October – on a scale where the 50-mark separates growth from contraction.

That was up from 46.2 but marked the 13th month in a row in which the sector has been shrinking. 

The boost was partly attributed to the restarting of car production at Jaguar Land Rover, the UK’s biggest car maker – benefiting not just JLR itself but also the network of smaller firms in its supply chain. 

But the bounce could prove short-lived as overall demand remained sluggish.

Dobson said: ‘Manufacturers seem to be stuck in a holding pattern until the domestic policy and geopolitical backdrops exhibit greater clarity.’