Chemical sector at very high risk as soaring energy costs drive UK industry closer to collapse

The British chemical industry faces an existential crisis as a leading credit insurer deems the entire sector “very high risk” amid unprecedented rises in energy costs and a surge in insolvencies. Coface, a global authority in credit insurance, attributes much of this turmoil to escalating energy prices, which are undermining profit margins, causing liquidity problems, and leaving companies unable to fund essential repairs and operations.

Data from Coface reveals that insolvencies across British industry are now approximately 60 percent higher than pre-pandemic levels, a trend that has hit the chemical sector especially hard. Jonathan Steenberg, Coface’s UK economist, notes that delays in payments and growing business failures connect directly to the rapid increase in energy bills, which have an immediate knock-on effect through wage and supply chain inflation. These dynamics have led the insurer to classify chemicals as a “very high risk” sector, even as it continues to provide cover for those operating within it.

The scale of the industry’s importance to the national economy cannot be overstated. With a direct workforce of around 138,000 people, 5,000 firms throughout the United Kingdom, and a further 360,000 jobs supported indirectly, the sector is the vital upstream supplier for countless British manufacturers. Its export value reaches an impressive £61 billion annually, making its stability a bellwether for wider industrial health.

Yet recent developments paint a grim picture. The UK’s largest bioethanol producer, Vivergo Fuels, has announced the closure of its Hull plant after the removal of a key tariff on US imports—a direct outcome of the post-Brexit UKUS trade deal. With energy costs far exceeding those faced by American competitors, Vivergo’s leaders warn their site is no longer viable in the global market. The government, for its part, ruled out direct intervention, citing poor value for taxpayers, but pressure mounts as other plants may face the same fate. Rising bills have pushed energy’s share of total cost structures above 50 percent for many facilities.

Industry giants are not immune. Ineos’s Grangemouth site has been loss-making for the past five years, its directors say, due to a combination of high energy taxes and policies affecting its gas feedstock. Former fertiliser giant CF Industries halted operations at Ince and Billingham in recent years, underscoring the bleak outlook for energy-intensive production. Steve Elliott, chief executive of the Chemical Industries Association, places the blame squarely on government: “Multiple levies on power and gas and the rejection of domestic supplies have made it impossible to remain competitive.”

Statistics reinforce these concerns. The Office for National Statistics reports a 75 percent increase in industrial electricity prices and a 108 percent rise in gas costs since 2021. Heavy industry output has dropped by one third since then and is languishing at levels not seen since 1990. Andrew Griffith, the shadow business secretary, has warned that if the sector continues to suffer, the UK will inevitably end up importing the same chemicals from abroad—hardly a victory for domestic industry or for meeting net zero ambitions.

The government stresses efforts to protect jobs and decarbonise industry under a new “Plan for Change”, but the immediate reality on the ground signals a tipping point. With energy competitiveness now the critical determinant for survival, the coming months will prove decisive for the fate of Britain’s chemicals sector.