Fears of Christmas chaos as energy price spike sparks warnings of factory shutdowns

Fears are growing of Christmas chaos for British businesses and consumers after industry warned of factory shutdowns within weeks as fuel prices spiral upwards.

In an emergency conference call with energy intensive industries, business secretary Kwasi Kwarteng was warned that electricity costs five times their normal level were “not sustainable” for a host of companies – some of which risk irreparable damage to facilities if they are forced to turn the power off.

Meanwhile, in an indication of growing concern in Downing Street about shortages in the shops at Christmas, Boris Johnson appointed a supply chain tsar to try to ensure the smooth flow of goods after weeks of empty shelves in supermarkets and snarl-ups at ports. Downing Street itself acknowledged the issues facing businesses across the UK were now “acute”.

Sir Keir Starmer accused the prime minister of allowing the country to descend into chaos by failing to develop a plan to cope with shortages of workers, including HGV drivers and meat processors, or with the unprecedented spike in global energy prices.

And Labour branded Johnson a “chancer” after he turned to former Tesco CEO Sir David Lewis as supply chain adviser just days after accusing business of creating the labour crisis by underpaying staff and relying on cheap migrant workers.

Sir David will head a new Supply Chain Advisory Group operating until the end of this year in a bid to head off shortages of goods in the vital festive period of soaring demand.

As Ofgem warned of a “significant” rise in domestic heating costs in the spring, industry sources told The Independent they expected April’s hike in the energy price cap to be a massive 34 per cent, pushing bills for around 15 million households on default tariffs over £1,700.

The developments came as the Bank of England warned of a wave of insolvencies from companies left vulnerable by the scale of debt they have accrued during the Covid-19 pandemic - including from government loans to keep them going through the outbreak.

And research by the Office for National Statistics found that one in six adults in Britain (17 per cent) have been unable to buy essential food items and 23 per cent non-essential food items because they were not available in shops in the last fortnight.

Friday’s video meeting between Mr Kwarteng and the Energy Intensive Users Group (EIUG) came after the government rejected suggestions that they might have to curb industrial energy use with a 1970s-style three-day week this winter due to a global supply shock that economists fear could derail the recovery from the pandemic.

China’s regime has instructed coal mines to increase output after the country suffered blackouts in recent weeks, and the EU Commission is working on potential plans to pool natural gas purchases and storage.

Speaking after the talks, UK Steel director general Gareth Stace called on the government to act as soon as possible to ease pressures on industry by cutting green levies on energy bills, as well as network charges.

“On Wednesday, the prime minister said that the economy should move toward higher wages,” said Mr Stace. “The steel sector is a high-wage employer, providing high-skilled jobs that pay significantly more than the regional average.

“Failing to act will mean we move away from a high-wage economy and walk blindly toward a low-wage one. We are a sector that should be at the heart of levelling up, bringing wealth and opportunity to communities outside London.”

EIUG chair Dr Richard Leese said “prompt and preventative measures” were needed urgently to prevent recent shutdowns of fertiliser and steel plants being repeated in other sectors.

Mr Kwarteng told representatives of sectors including steel, chemicals, paper, mineral products and glass that he was “keen to help our industrial base”.

“We want to help as best we can,” said the business secretary. “There needs to be a cross-Whitehall effort and I can help make your case.”

But there was no immediate announcement of action after what sources said was a listening exercise. Officials are to gather more data and information from companies over the coming weeks.

And shadow business secretary Ed Miliband said: “This is an energy crisis made in Downing Street. Kwasi Kwarteng is scrambling to meet industry bosses but he is all talk.

“This chaotic Tory government got us into this mess in the first place and has no plan to address it. Warm words at a meeting will be cold comfort for consumers and business who are facing ever increasing energy prices and a cost of living crisis.”

The director-general at the Confederation of Paper Industries, Andrew Large, said it was “very, very clear” across all sectors that there are “serious risks of factory stoppages as a result of the costs of gas being too high to bear”.

He warned: “In those circumstances, there will be a gradual knock-on effect through supply chains, right the way across manufacturing, consumer retail and other products. And so the risks are very, very real.”

Mr Stace said that producers are struggling in the face of energy prices five times last year’s average on top of sudden, erratic price spikes.

He added that “longer and more frequent pauses in production are becoming a fact of life” for the manufacturers. “These circumstances are simply not sustainable for the sector. We urge the government to take action, as has been done in Italy and Portugal, to support the sector.”

“Energy prices are so high that some companies have been forced to suspend production even at a time when the market for steel is incredibly healthy.”

While transport secretary Grant Shapps said the UK was now “at the tail end” of a petrol crisis which has seen pumps run dry for more than two weeks, the new supply chain tsar will be confronted with a host of other potential Christmas shortages, from computer consoles to pigs in blankets.

On top of expensive and time-consuming Brexit red tape at the border, businesses in the supply chain have been disrupted by an estimated 100,000 shortfall of HGV drivers – many of them EU nationals who stopped working in the UK after its withdrawal from the EU.

Supply chain issues have been massively exacerbated by the Covid pandemic, which has interrupted the steady flow of imports and exports around the world and driven the cost of a 40ft shipping container from China to Europe up from around $2,000 to $14,000 or more.

British farmers are increasingly irate over the government decision to allow just 1,000 visas for meat-processing staff, rather than the 15,000 the industry claims it needs.

Shortages of butchers and abattoir workers have prompted a cull of up to 120,000 pigs, while British turkeys will also be off the menu in many households due to a shortage of farmhands and processors.

Mr Johnson said Sir David “brings a wealth of experience which will help us continue to protect our businesses and supply chains” by future-proofing them against “global supply issues”.

But Labour business spokeswoman Seema Malhotra said: “British business deserves better than the chancer in Number 10.

“One minute the Prime Minister is bashing business and blaming them for every ill he’s created with his chaotic government, the next he’s begging a leading businessman to help him fix shortages and the Christmas supply chain crisis.”

The CBI, which has been calling for a taskforce modelled on the government’s Cobra emergencies committee, welcomed Sir David’s appointment.

Director general Tony Danker said: “Establishing a taskforce to move quickly – with both business and government around the table – will ensure government is far better informed about the nature and scale of the challenges and can formulate responses at speed.”