UK exposed without bailout for key defence and nuclear suppliers

Companies in energy intensive sectors could halt production on sensitive inputs if government does not intervene

The business department has submitted proposals to use public funds to support heavy industry, but it’s unclear if the Treasury will back them. (Getty)

The UK could be forced to rely on other nations for key nuclear and defence components unless ministers offer heavy industry an energy bailout, The Independent has learnt.

Without fresh funds factories could be forced to halt production of critical inputs such as high-tech ceramic coatings, steel components and bespoke glassware, according to government and industry sources. Such products are used in a range of high security environments, including nuclear reactors, laboratories, ships and submarines.

Britain would be forced to seek many of these inputs from overseas if these domestic companies fail, according to industry and government sources. This could breach some departmental procurement rules and the government’s aims laid out in its Integrated Review. The review pledged to “strengthen the resilience of our critical supply chains” so that the UK can engage with China “with confidence”.

The government is looking to push China out of key nuclear power projects over security concerns. Last month fresh details of plans emerged to force Chinese energy giant, CGN to give up its 20 per cent stake in the Sizewell C nuclear plant in Suffolk.

Concerns over whether a failure to secure financial aid will push sensitive suppliers to the wall will add to pressure on the Treasury, after Kwasi Kwarteng, the business secretary, presented a plan to the department for assistance for industries worst-affected by soaring energy prices.

The cabinet minister made a formal request to Rishi Sunak’s department for support to energy intensive industries on Monday amid growing calls for emergency assistance and warnings over job losses. It followed a string of bilateral meetings with representatives of ceramics, steel, glass and chemicals industries throughout Monday.

The renewed drive to engage with industry came after The Independent revealed last week that factories in these sectors could shut down production lines within weeks if there was no government aid to ease pressures from rising energy costs. Energy can account for as much as a third of the outgoings of these firms, leaving them highly vulnerable to the recent spikes in electricity and gas prices.

A government source told The Independent that BEIS (Department for Business, Energy, and Industrial Strategy) had submitted proposals to Mr Sunak’s department – but details were not immediately clear. They confirmed that both industry and the business department the manufacturers’ role in critical supply chains as part of their discussions with Number 11.

A business department spokesperson said: “We are determined to secure a competitive future for our energy intensive industries and the sectors reliant on them, including nuclear and defence, and in recent years have provided them with extensive support, including more than £2bn to help with the costs of energy and to protect jobs

“Our exposure to volatile global gas prices underscores the importance of our plan to end Britain’s dependency on fossil fuels and build a strong, home-grown renewables sector so we can protect consumers​, including these industries, into the future from gas prices set by international markets.”

Mr Kwarteng’s request follows a public spat between the two departments over the weekend. The business secretary was accused of “making things up” during broadcast interviews, after he suggested that the Treasury was engaged in talks on over support for heavy industry.

Number 10 sought to draw a line under the row on Monday, lending its support to the business secretary and insisting that the Treasury was playing a role in the cross-Whitehall talks.

“This is a significant challenge, and there’s work across government to mitigate it,” the prime minister’s official spokesperson said.

However, they stopped short of confirming and declined to elaborate on whether “mitigations” would include financial support, saying: “I’m not going to jump ahead of any future conversations. It’s right that we continue to listen carefully to what industry are saying and have talks across government about whether any action is needed to mitigate the challenges.”

There is recent precedent for government intervention in one of the sectors most-affected by the rise in energy costs. In July, the Ministry of Defence (MOD) bought steel-maker Sheffield Forgemasters. It said the move would protect supplies for the defence and nuclear programmes.

Last month the government also provided a temporary bailout to CF Fertilisers, which produces around 60 per cent of the UK’s carbon dioxide used in industries metal production to food storage.

The sharp rise in energy prices has prompted a fresh examination of the UK’s reliance on energy imports. While Britain has not generally sourced its natural gas from Russia, other major European economies do. A reluctance on Russia’s part to increase its exports to the continent in the face of supply shortages has increased pressure on the some of the UK’s key suppliers, such as Norway.

Conservative frontbencher Lord Agnew also said on Monday that soaring energy costs were nothing to do with a lack of global gas stocks, but rather due to a “geopolitical move” by Russia to put pressure on Europe. The remarks appeared to be the strongest language yet from the government, with the Treasury minister directly pointing the finger at Moscow for the current crisis.

“The current squeeze on gas prices is nothing to do with the quantity of gas available,” he told peers in the House of Lords. “It is a geopolitical move by Russia to put pressure on Europe and we are caught up in that. Public ownership of our own utilities would make no difference.”

The peer’s comments followed a call from Labour’s shadow Chancellor, Rachel Reeves, for the Treasury to support energy-intensive industries. She also accused the chancellor of being “missing in action” over the crisis.

“A temporary increase in energy prices must not mean great industries like steel, ceramics, glass, paper and chemicals disappear, just because they happen to be intensive users of energy,” the shadow chancellor said, urging the government to “get an immediate grip” on the situation.