Britain’s sky-high energy costs threaten to wreck hopes of growing the economy and regenerating former industrial heartlands with the technologies of tomorrow, Labour has been warned. The Mayor at the heart of efforts to turn the former Redcar Steelworks into a thriving freeport described the price of energy as the “biggest challenge” facing the 4,500 acre regeneration project.

The International Energy Association reported the UK had the highest industrial electricity prices of its members in 2023. Electricity cost just 6.5p per kWh in the United States but 26p in the UK.

Tees Valley Mayor Ben Houchen warned of the impact on his region. He said that while companies making investment decisions could secure sites, planning permission and the benefits of the freeport, if the UK is not “competitive on energy pricing” they “can go and spend their money elsewhere”.

If the UK fails to reduce bills for both businesses and people, he added, “this country is not going to be able to move forward and create the growth that it needs to put money in people’s pockets”.

He also warned that Chancellor Rachel Reeves’s decision to hit employers with increased National Insurance contributions had already resulted in job losses in the supply chain.

The Conservative Mayor said: “People in Government do not appreciate the fact that raising National Insurance is not some sort of free tap of money they can turn on as and when they need it. It has an impact on jobs. Businesses realise that taking on somebody is going to cost them even more.”

His concerns were shared by Shadow Chancellor Sir Mel Stride, who visited the Mayor at the Teesworks freeport a day before it was announced the economy had grown by just 0.3% between April and June.

Warning of how high energy prices put prosperity at risk, he said: “Overall UK electricity supply has declined since the mid-2000s, and prices have risen. We have halved the electricity we generate through nuclear power – surely one of the greatest strategic errors our governments have made over recent generations.”

He warned the UK’s position at the top of the electricity pricing table was “not just a problem for heavy industry”.

“It also affects our ability to build the large, energy-hungry data centres essential for modern artificial intelligence,” he said.

Champions of Teesworks have a 25-year vision for the site, hoping that more than 4,000 jobs will be created as companies move into 4.5million sq ft of manufacturing space for offshore wind projects.

The steelworks closed in 2015 with the loss of 3,000 jobs but the location is now one of the largest brownfield regeneration initiatives in Europe. The mammoth project has been the focus of controversy but an independent review found “no evidence to support allegations of corruption or illegality”.

The Shadow Chancellor said the country was enduring a “cruel summer of uncertainty” amid fears of tax increases in the autumn Budget.

The National Institute of Economic and Social Research this month warned £51.1billion in higher taxes and lower spending a year may be required by 2029-30 if the Government wants to close a £41.2billion budget deficit and maintain a £9.9billion “buffer” against economic shocks. It recommended building a bigger buffer and introducing “a moderate but sustained increase in taxes”.

Sir Mel said: “Where we are at the moment is a very precarious situation and the markets are going to be watching very closely because this big black hole is going to have to be filled, we’re almost certain, by tax increases. Those tax increases in turn will be a further brake on the economy so we’re not going to be getting that kind of growth that really is the answer to the country moving forward.

“So it is a very difficult time and of course [there is] great uncertainty over the summer – a cruel summer of uncertainty as people are waiting, as businesses are waiting, to see what is going to happen.”

British industry took another knock on Friday when Associated British Foods announced the closure of Hull’s Vivergo bioethanol production plant. The company blamed the Labour Government’s decision to lift tariffs on US bioethanol; it said the Government had refused to offer either short-term financial support or “long-term regulatory certainty”.

The Mayor said his “nightmare” scenario for the upcoming Budget was another round of tax hikes.

He said: “What’s really interesting is the Labour party hasn’t breathed a word about potential spending cuts. As any household will know, if you spend beyond your means and you rack up that credit card bill, at some point the bank is going to come knocking. And that’s the same thing for this Labour Government as well.”

A Government spokesman defended Labour’s record on energy, saying: “After a decade of inaction on industrial energy prices, we are slashing the electricity costs for thousands of businesses by up to 25% – making them more competitive and unlocking growth. We are also launching a golden age of nuclear to help deliver clean power, including approving Sizewell C and confirming that Rolls-Royce SMR is the preferred bidder to develop the country’s first small modular reactor.

“Through the AI Energy Council, we are bringing together the likes of NESO, EDF, Microsoft and Google in solving the energy challenges of AI, as we realise its potential to deliver economic growth.”