UK plan to cut energy bills for industrial firms threatens to leave small businesses out in the cold
- Written by Sam Hampton, Researcher, Environmental Geography, University of Oxford
The UK government aims to cut energy bills for large businesses by up to a quarter over four years, thanks to a £2 billion investment within its new industrial strategy[1]. The aim is to make British manufacturers of steel, cars, chemicals, glass and other industrial sectors more competitive with foreign firms.
UK businesses pay some of the highest energy prices[2] in Europe. Under the new scheme, roughly 7,000 energy-intensive businesses will be exempt from paying green levies on their electricity bills. These levies raise funds to support the deployment of renewable energy and to enact energy-efficiency measures like the insulation of low-income households.
The exemption should make it a bit easier for British companies to switch from fossil fuels to electricity by making the latter cheaper – an important step in the decarbonisation of the economy to tackle climate change. And it may lower costs enough to bring them within orbit of prices paid elsewhere in Europe.
However, heavy industry in the UK is already largely shielded from many of the levies applied to the average energy bill. The British Industry Supercharger scheme, which since April 2024 has exempted energy-intensive industries from renewable energy policy costs and provided discounted network charges, is set to save British manufacturers between £320 million and £410 million[3] in 2025 alone.
There are other limitations with the strategy. To start, more could be done to encourage firms to switch from fossil fuels to electricity by not just cutting electricity levies but shifting some onto gas bills.
The cost of expanding and upgrading the grid[8] to support more electrification and renewables is another concern. These investments in power lines and wind farms will be essential, but they won’t come cheap. Reducing the contribution made by big businesses to these costs means the burden for these essential upgrades will fall on smaller businesses and households.
There are several options for addressing these challenges, however. One is to make energy demand more flexible, by financially incentivising businesses to use electricity when its supply from renewable sources is generally greater.
Another way to cut network costs for businesses is to offer grid connection arrangements[9] with a less secure electricity supply. These arrangements include allowing the network operator to reduce maximum capacity during times of grid congestion, and sharing a connection with several other businesses.
Most importantly, the UK needs to move away from a system where the cost of gas sets the price of electricity most of the time, even though less than half[10] of the country’s electricity now comes from gas. This can be achieved by expanding renewable energy storage (in the form of grid-scale batteries for example), so that grid operators are less reliant on gas power plants to fill gaps in electricity supply from wind and solar.
Reform to Britain’s energy market and its pricing structure would make a real difference too, though this will also require significant investment in grid infrastructure and careful regulatory change.
Read more: How gas keeps the UK’s electricity bills so high – despite lots of cheap wind power[11]
While the government’s priority is energy savings for larger businesses, small and medium-sized enterprises (SMEs) typically pay the highest rates for their energy. This is even despite most smaller firms being exempt from green levies.
Energy-intensive sectors, such as hospitality and retail, remain highly vulnerable to energy costs. Average non-domestic electricity prices increased by over 75%[12] between 2021 and 2024, while gas prices more than doubled. This has contributed to a surge in business failures: in June 2024, company insolvencies were 17% higher[13] than a year earlier, reaching the third highest monthly total since 2000.
Unfortunately, support for SMEs is heading in the wrong direction. Having funded a pilot energy advice service[14] in the West Midlands, the government’s June spending review did not include funding to expand support for energy efficiency or renewable installations to SMEs nationwide. This leaves millions of smaller businesses exposed to high energy prices, without help to cut costs or emissions.
The government’s new strategy may help some of the UK’s largest manufacturers compete internationally. But without targeted support for smaller firms, the benefits could be unevenly shared. The UK’s wider economy will continue to struggle with high energy costs and business failures as a result.
References
- ^ industrial strategy (www.gov.uk)
- ^ highest energy prices (www.ft.com)
- ^ £320 million and £410 million (www.gov.uk)
- ^ Sign up to our daily newsletter (theconversation.com)
- ^ “modern industrial strategy” (assets.publishing.service.gov.uk)
- ^ by around 15% (www.energy-uk.org.uk)
- ^ EPA-EFE/Adam Vaughan (epaimages.com)
- ^ cost of expanding and upgrading the grid (www.neso.energy)
- ^ grid connection arrangements (www.nationalgrid.com)
- ^ less than half (www.ucl.ac.uk)
- ^ How gas keeps the UK’s electricity bills so high – despite lots of cheap wind power (theconversation.com)
- ^ increased by over 75% (www.gov.uk)
- ^ 17% higher (www.gov.uk)
- ^ pilot energy advice service (www.businessgrowthwestmidlands.org.uk)
- ^ Get a weekly roundup in your inbox instead. (theconversation.com)
- ^ Join the 45,000+ readers who’ve subscribed so far. (theconversation.com)
