Cost of Energy: Ceramics Sector

Jack Brereton Excerpts

Tuesday 17th January 2023 Commons Chamber

[Jonathan Gullis]

I am grateful to the hon. Member, who is a really good friend. It is incredible that Strangford finds a way of linking itself to every single one of our constituencies across the House, and it could not be better served than by him; he is a doughty champion. I look forward to exchanging some pottery with him in the near future so that we can share in our fine ceramics. He is indeed correct to make the point about the cost implications of rising gas prices and the danger to small, medium and large firms, which could see lots of jobs lost if support goes earlier than it should do.

[Jack Brereton (Stoke-on-Trent South) (Con)]

I congratulate my hon. Friend on securing this important debate. The ceramics sector has not received the level of support that many other energy-intensive sectors have to help with the transition and decarbonisation. Does he agree that, given that 97% of businesses in the ceramics industry are SMEs, the ceramics sector really needs a dedicated pot of funding from the Government to invest in the transition and in improving energy efficiency measures?

[Jonathan Gullis]

I am extremely grateful to my hon. Friend for his fantastic words. He is indeed correct to say that the ceramics industry has already put about half a billion pounds of its own money into decarbonisation and energy efficiency. I totally agree and understand that steel is important to this nation’s history as well as its future, but ceramics are just as important. Ceramics are in our mobile phones, and our kneecaps in some cases, as well as in the aerospace adventures we want to see—aeroplane engines literally would not fly without the ceramic film that goes around them. Ceramics are so important, with about 20,000 jobs across our United Kingdom dependent on them, so I hope we will see some support for them. The chase to net zero is fine, but we cannot do it by damaging the ceramics sector. We want to remain competitive with the world while China continues to dump its cheap, unruly products on our country unfairly. Thankfully, we are protected by tariffs for now—we need a longer-term commitment to them—but we also need the carbon border scheme and adjustments to ensure that we are competitive with mainland Europe. I totally concur with my hon. Friend.

On average, gas is roughly 10% of the cost of manufacturing a plate. However, companies are currently exposed to gas costs five times what they were for many years and have seen gas prices hit 20 times the previous normal cost. Companies should, of course, aim to build some resilience into their processes, but that kind of market fluctuation is beyond anything they could reasonably have planned for. Regrettably, businesses will certainly be put at a disadvantage because of the rapid and staggering rise in energy prices. Increased energy costs could have a significant impact on local businesses that do so much for the community. I want to ensure that the UK Government are acutely aware of the impact the cost of energy is having on UK ceramics and get a commitment from them that they will do all they can to protect it.

First, it is vital to point out the significance of the ceramics industry. As a proud Member of Parliament for Stoke-on-Trent North, Kidsgrove and Talke, an area that is hugely proud of the ceramics industry, I want to point out the ceramics industry’s centrality to both the national and local economies. The UK ceramics industry employs around 20,000 people. It is a crucial part of Stoke-on-Trent. Johnson Tiles, established in 1901, made over half of the 888,246 ceramic poppies for the Tower of London, commemorating all British and colonial servicemen who died in the first world war, and employs over 200 people in Stoke-on-Trent.

The UK ceramics industry contributes around £2 billion to the UK economy, which really does mean that ceramics are one of our country’s last great exports. The British Ceramic Confederation, which represents over 90% of UK ceramic manufacturers and whose chief executive is Rob Flello, estimates that the ceramic industry exports around £600 million a year. We use the world-leading products designed by companies such as Steelite, Churchill China and Burleigh in this place, in the Members’ Dining Room and Portcullis House, to name just a few. The very tiles on the floor just down the corridor in Central Lobby, at the very centre of our great democracy, are from Stoke-on-Trent. Sadly, it is a constant source of irritation and frustration to me that there are not anywhere near enough Stoke-on-Trent-made ceramics in Government Departments. Therefore, one of my first initiatives in my brief stint at the Department for Education was to ensure all tableware in my ministerial office was made in Stoke-on-Trent. I am very proud that my former private office in the Department for Education now proudly boasts its cups and saucers.

Not only does the UK ceramics industry clearly play a crucial role in both the national and local economies, but it is impossible to understand enough the emotional significance of this historic industry. For the people of Stoke-on-Trent and wider north Staffordshire, the ceramics industry is a source of immense pride. Local manufacturers are being priced out of the market by companies overseas in places such as China. This is, of course, at huge expense of the end product’s quality, as we all know that “Made in Stoke-on-Trent” is a sign of excellence.

The ceramics industry is an immensely energy-intensive industry. As such, Putin’s abhorrent, illegal and immoral invasion of Ukraine in February of last year has had a demonstrable impact on the industry. Gas prices have caused considerable instability in the ceramics industry, which is traditionally used to very reasonable energy prices. The base rate for wholesale gas prices is now £1.62, which is four times its stable average before February 2022.

Research by UK ceramics manufacturers suggests that productivity costs are exponentially higher—the average is 47% higher—in addition to an enormous increase in the price of energy. Again, research points to a staggering increase in costs, this time of around 400%. The UK has been hit especially hard by the global energy crisis, and our ceramics manufacturers have significantly higher overheads. By contrast with the UK, average price increases for overseas factories are only 29%. All this means that the sales volumes of ceramics manufacturers in Stoke-on-Trent are impacted and they struggle to compete against imported competition from cheap-labour countries such as China and European countries with far more generous support packages.

The shocking increases in prices meant that the Government’s previous energy relief scheme was so important for the ceramic industry and Stoke-on-Trent’s leading ceramics businesses. One manufacturer told me that over the winter months the scheme saved them an estimated £4 million, giving them a huge boost in these turbulent times. In times of global instability, the scheme has allowed our first-class manufactures to remain competitive, keeping their high-quality products on the market and on our shelves.

I welcome that the new scheme from April seems to include UK ceramics manufacturing, but overall it is still going to have a significant impact on manufactures’ overheads and thus competitiveness. In places such as Spain and Italy, which is a major competitor country on ceramics, their major ceramics businesses are being underwritten and helped to cope with energy costs. UK ceramics also struggle to compete with German competitors, which have electricity rates that are 38% lower.

For UK ceramics manufacturers to be most competitive, we need a level of support similar to that for, or at parity with, European businesses. This will ensure that the ceramics industry, the jewel in the crown of our great country’s manufacturing, is able to prosper well into the future. One way we could do this is to consider getting rid of regulations in order to make it easier for UK ceramics manufacturing sites to be regenerated. We could thereby drastically improve the short and long-term prospects of UK ceramics. Furthermore, we can point to other manufacturing industries such as textiles and plastics that are also struggling. If we cannot and do not support these industries, the UK will be far less competitive and, crucially, it will deter foreign investment. This puts skilled jobs at risk, not just in Stoke-on-Trent but throughout the country.

I must put on the record the devious behaviour of some energy suppliers that have sought to use never-before-used small-print clauses to levy additional charges and fees as a way around the price cap. I am aware of a business that was hit out of the blue with a £3 million bill for gas that the supplier bought from the wholesale market but that was seemingly lost in transit to its customers. It is important to note that the gas was never used by the manufacturer but was nevertheless charged to that customer. There are other examples of poor business practice used to extract money from hard-pressed UK ceramics manufacturers.

The UK ceramics industry is working tirelessly to become carbon neutral, as my hon. Friend the Member for Stoke-on-Trent South pointed out. In an energy-intensive industry, in the current energy crisis, this is all the more commendable. With the publication of the Skidmore review on net zero, the House should note that China still builds most of the world’s coal-fired power stations. UK ceramics manufacturers have to compete against a country that is not tied down by net zero targets. Many UK ceramics businesses are working with the British Ceramic Confederation to research the production of various ceramic products using hydrogen-fired kilns, and many UK ceramics manufacturers have signed up to the confederation’s net zero commitment by 2050.

As I outlined earlier, Stoke-on-Trent was at the beating heart of Britain’s first industrial revolution, and I am adamant that it can also be the centre of the green revolution, too. The British Ceramic Confederation is looking into the development of hydrogen technology to power factories. This is an exciting opportunity for the Government to support a crucial industry while also making this country more self-sufficient. As we all know, the war in Ukraine has vividly illustrated the importance of not relying on other countries for our energy.

In May, the British Ceramic Confederation was delighted to announce that £300,000 of Government funding had been awarded for a project to study the feasibility of using hydrogen as a fuel for the UK ceramics sector as the industry pushes towards net zero targets. This was a fantastic and highly welcome first step in supporting the ceramic industry to achieve net zero. Today, I ask the Minister to clarify what next steps the Government will take to further advance our goal of achieving net zero by 2050 by providing direct support on innovation to the UK ceramics industry? Will the Minister meet me and colleagues from the ceramics sector to explore direct research funding?

The purpose of this debate was to highlight, on the Floor of the House, the impact of the cost of energy on our great ceramics sector. It is impossible to overstate its centrality, at both local and national level, to communities such as Stoke-on-Trent North, Kidsgrove and Talke. I therefore implore the Minister to demonstrate that the Government remain steadfast in their support for the sector and those who work in it. As I have said, they are a fundamental element of Stoke-on-Trent’s economy, its jobs and its heritage.

This is one of our great country’s last great assets, and it is of paramount importance that we support it.

[The Minister for Industry and Investment Security (Ms Nusrat Ghani)]

I congratulate my hon. Friend the Member for Stoke-on-Trent North (Jonathan Gullis) on securing the debate. As usual, he made a sensible and well-rounded speech. He is always lobbying the Department very hard, and he continues to be a champion for UK ceramics manufacturers. I am grateful to him for describing the impacts on the sector so clearly, and I can confirm that we in the Government are indeed steadfast in our support for it. Following Putin’s barbaric invasion of Ukraine, we committed billions of pounds to help households and businesses keep the lights on this winter, and I can reassure Members that we want to keep the kilns firing as well.

The Government recognise the significant contribution that energy-intensive industries make to this country. We know how valuable they are to local economies and communities, providing about 375,000 jobs directly, and millions more in the industries that they support through supply chains. That is particularly true of Stoke-on-Trent North, the birthplace of Wedgwood, some of whose china now sits proudly in my hon. Friend’s former Department, and whose strong connection with the ceramics sector continues to this day.

My right hon. Friend the Prime Minister has set out our objective, which is to grow the economy with better-paid jobs and improved opportunities throughout the country. If we are to meet that objective, energy-intensive industries such as ceramics, glass and steel will be crucial. As we continue our transition to net zero, about which my hon. Friend spoke so passionately, they will also be crucial to the manufacture of everything from electric cars to wind turbines, and we will do all we can to support them. In my role as Minister for Industry, I have engaged with business and trade associations, and have witnessed at first hand their drive and passion to work with the Government to find a sustainable solution to those challenges that works for us all.

We can all agree that the last few years have been exceptionally difficult for everyone, and energy-intensive industries were no exception. Looking forward, however, I am confident that we can deliver a better future, unlocking the opportunities that net zero offers to build resilient industries bringing growth and jobs to communities across the country and providing security, opportunity and prosperity in the years to come. We have already made enormous progress: between 1990 and 2019 we grew our economy by 76% and cut our emissions by 44%, decarbonising faster than any other G7 country.

However, there is a long way still to go, and given our present economic conditions it is more important than ever to accelerate the move away from fossil fuels and towards clean, affordable energy. We are clear about the fact that we must do all we can to ensure that we drive the green transition in a way that is resolutely pro-business and pro-growth, ensuring that no one is left behind on our journey to a low-carbon future, and as we do so we will consider carefully the recommendations of the Skidmore review, published last week.

My hon. Friend talked about low-carbon hydrogen and carbon capture. We know that there is a huge amount of potential in those transformative forms of energy, which will support the UK on its journey to energy independence and offer vital British industries such as the ceramics sector an opportunity to make the transition away from expensive oil and gas. These are technologies in which we are at the cutting edge globally, and we have set our ambitions high. We are aiming for up to 10 GW of low-carbon hydrogen production capacity by 2030, including four carbon capture, utilisation and storage clusters, and we are delighted that industry is doing the same. We support the British Ceramic Confederation’s ambition to use hydrogen technology, and we would be happy to discuss its plans further.

In recognition of the increased pressure facing all businesses, the Government took bold action. In October 2022 we announced the introduction of the energy bills relief scheme for Great Britain and Northern Ireland, which provides a price reduction to ensure that all eligible businesses and other non-domestic customers are protected from excessively high energy bills over the winter. The relevant price reduction for each business is being automatically applied to its bills by its supplier on the basis of eligibility, but I will come to the case that my hon. Friend mentioned.

As soon as that scheme was under way, we started a review of it to help to inform our next steps when it comes to an end on 31 March 2023. Last week we announced the successor to the energy bill relief scheme, which will be called—they love their titles—the energy bills discount scheme. As with the current scheme, the new one will be aimed at everyone on a non-domestic contract, including businesses, voluntary sector organisations and public sector organisations such as schools, hospitals and care homes. This will provide a discount on gas and electricity unit prices for energy bills during the 12-month period from April 2023 to March 2024, subject to a maximum discount. The relative discount will be applied if wholesale prices are above a certain price threshold.

Also as with the current scheme, suppliers will automatically apply reductions to the bills of all eligible non-domestic customers. Recognising that some non-domestic energy users in Great Britain and Northern Ireland are particularly vulnerable to high energy prices due to their energy intensive and trade exposure, these sectors will receive a higher level of support, subject to a maximum discount. The ceramics sector forms part of this group. These businesses, which we refer to as energy and trade-intensive industries, will however need to apply for the higher level of support, and we will work with the sectors, including ceramics, over the coming weeks and months as we finalise the details of this part of the scheme. I spoke to my hon. Friend the Member for Stoke-on-Trent North earlier today to confirm that he will be invited to those meetings.

Additionally, the Government are determined to secure a competitive future for our energy-intensive industries for the long term. In recent years, we have provided extensive support, including more than £2 billion to help with the cost of electricity and to protect jobs. This support includes electricity price relief schemes for eligible energy-intensive industries such as chemicals, cement, ceramics, paper, glass and steel. One of the specific EII schemes is the exemption scheme, which provides relief for a share of the indirect costs arising from the renewable levies. Eligible businesses receive a discount on their electricity bills and the UK ceramics sector received around £17 million from this scheme between 2016 and 2021. I know that my hon. Friend will want more, and we will obviously keep an eye on this.

In addition, there are several other funds in place to support businesses with high energy use to increase efficiencies and reduce emissions, including the £315 million industrial energy transformation fund, which will help to enable the sector to go green. As my hon. Friend will be aware, the ceramics sector recently secured £18.3 million for the Midlands Industrial Ceramics Group from the Government’s Strength in Places fund to help establish a global centre for advanced technical ceramics. This will ultimately lead to the creation of 4,200 jobs by 2030.

[Jack Brereton]

The Minister mentioned the fund that is available for energy-intensive sectors. Given that 97% of the sector is small and medium-sized enterprises, they are often excluded from the funds while the larger energy-intensive industries get them. Can we not have some dedicated funding for the ceramics sector, given that it is mainly made up of SMEs and has previously been excluded from bidding for a lot of this funding?