Britain can’t rely on cheap solar but this shouldn’t put our economy in the shade

Ed Conway, the Sky News economist, noted recently that the UK has stopped making ammonia and sulphuric acid. Salt is probably next to go. This worries some people.

That the UK is deindustrialising is not news. The Lancashire cotton industry – the backbone of our Industrial Revolution – began its decline a century ago. Taken as a whole, the UK has become less and less reliant on factory jobs since 1951. Deindustrialisation is not unique to the UK, of course: the US peaked at the same time, France and Germany around 1970.

There are two main reasons for the ongoing collapse. The first is Brexit, which is unambiguously bad news for UK manufacturing. This was known at the time, with the most serious pro-Brexit economist, Prof Patrick Minford, arguing in the Financial Times that “EU membership certainly benefits the manufacturing industry”. We got what we voted for: fewer manufacturing jobs.

The second reason is energy costs. Basic economics and common sense tells us that energy-intensive industries will move to where energy is cheap. Indeed, cheap energy explains why the industrial revolution happened here. We had coal and could mine it cheaply. No other country could undercut our energy costs, back in the day. Now energy costs are extremely high in the UK. It is easy for Nigel Farage and shadow energy secretary Claire Coutinho to paint Labour’s energy security secretary Ed Miliband and the rush to net zero as the culprits. It is certainly true that the recently agreed prices for offshore wind are higher than many expected. But these accusations miss the bigger picture.

The cheapest electricity worldwide comes not from burning coal or gas, but from the sun in sunny parts of the world. That is why solar installations have taken off spectacularly since 2020.

This is a problem for us. There is nothing we can do to make Britain as sunny as, say, Texas. The Lone Star State is as close to the equator as is southern Morocco. A solar panel in west Texas will generate three times as much electricity as that same panel near Blenheim Palace, where a large solar farm is proposed. Give or take, that explains why electricity is about two-thirds cheaper there than here. Whether we build solar or wind or burn gas does not matter much for prices: we cannot have electricity anywhere near as cheap as in Texas, or other sunny places.

Texas doesn’t only have more sun – it has more reliable sun. Even in winter it gets more sun than we get in summer. Sun day in, day out is what creates the reliable, low-cost electricity that business craves. Such places are where energy-intensive industries will move over the next two decades. We just have to accept it. So do the Germans, who have a lot more industry to lose.

That doesn’t mean all our industry will leave Britain. Some things are sufficiently heavy, bulky or fragile that local production makes sense. Some firms (think Airbus or Rolls-Royce aero engines) value their incredibly skilled workforce. For others (think Rolls-Royce cars), being British-built is just intrinsic.

Still, our future is overwhelmingly in the service sector. Designing clothes and cars, but probably not making either of them. In tourism, which is why we must welcome Universal Studios and similar theme parks. In universities, which are major sources of exports and income for places such as Coventry, Huddersfield and Sunderland, as well as London, Oxford and Cambridge.

We should not worry too much about what is happening. Economies can and do change, and it is King Canute-like to try to prevent such fundamental economic tides. We have not been able to feed ourselves domestically for 200 years, and that has not mattered. Smaller countries have never been able to produce all the supposedly critical manufactured goods themselves, and they survive and prosper. We too are a small country, however hard that is to accept, and we too will be fine.

Tim Leunig is director of economics at the consultancy Public First

Photograph by Steve M Smith/Rolls-Royce plc via Getty Images