David Wells Chief Executive, Logistics UK
There has been a keen focus on net-zero policy recently with the publication of the independent Skidmore Net Zero review report and the Department for Business, Energy and Industrial Strategy’s (BEIS) Electric Vehicle Charging Plan, as well as the recently announced levelling up fund’s focus on supporting carbon reduction nationwide. While these are encouraging steps forward for industry – which is keen to decarbonise – another recent announcement from BEIS, which outlines the reduction in energy support through the Energy Bills Discount Scheme (EBDS) comes as a blow and will impact the UK logistics industry’s ability to plan for a lower carbon future.
The current scheme – in which the unit cost of gas and electricity is capped for all businesses – provided much needed certainty for members, especially SMEs who account for 99% of the logistics sector. However, the replacement EBDS – due to begin in April – will see the level of support significantly decrease, with the scheme providing wholesale gas and electricity price discounts based on sectors’ energy and trade intensity rating.
While the current scheme has seen £18 billion of support provided over six months, the incoming scheme will see an approximate 85 per cent reduction in support, to £5.5 billion spent over the next 12 months. While the government has indicated this is due to costs falling, average gas and electricity market prices were only 35% lower in the first week of January compared with the week the EBRS was announced in September, and as a result, many businesses will face significant financial pressures.
Under the new scheme, those in the top 80% rating for energy intensity and those in the top 60% for trade intensity will receive the greatest discount. In the view of Logistics UK, the proposed caps currently appear quite arbitrary, and it is likely that some sectors with greater inter-sector differentials of energy and trade intensities will be placed under greater pressure than others. For example, it has been noted that the automotive industry has not been granted a higher band discount, despite having energy intensive operations such as battery production. Given the breadth of the logistics sector, there will be inter-sector differential across our membership too.
Our industry is already facing substantial cost increases from significant wage inflation and the prospect of a 23% rise in fuel duty this spring. Additionally, fleets are transitioning to alternatively fuelled and powered vehicles and are facing rising vehicle acquisition and fuelling costs, with members also reporting costs of over £1 million for upgrading power supplies to their depots. The reduction in financial support received from the original EBRS will only amplify these cost pressures and divert funds needed by industry to invest in new zero-emission technologies and meet the decarbonisation targets set by government.
Given the continued volatility in energy supply and markets, we are urging the government not to rule out further support if it is needed, even if this lands within the planned 12 months of the new scheme, and to use its Spring Budget to retain the 5ppl fuel duty cut introduced in March 2022 in order to avoid further spikes to inflation. The business group is also calling for a long-term transition plan for low carbon fuels across all transport modes – supported by a clear regulatory framework with the right price signals – to provide businesses with clarity and the confidence to invest.
Logistics UK is one of the UK’s leading business groups, representing logistics businesses which are vital to keeping the UK trading, and more than seven million people directly employed in the making, selling and moving of goods. With COVID-19, Brexit, new technology and other disruptive forces driving change in the way goods move across borders and through the supply chain, logistics has never been more important to UK plc. Logistics UK supports, shapes and stands up for safe and efficient logistics, and is the only business group which represents the whole industry, with members from the road, rail, sea and air industries, as well as the buyers of freight services such as retailers and manufacturers whose businesses depend on the efficient movement of goods.
For more information about the organisation and its work, including its ground-breaking research into the impacts of Covid-19 on the whole supply chain, please visit www.logistics.org.uk