SMEs and energy costs – should the government help?

High energy costs in the UK have been putting increasing pressure on businesses.

In a recent survey for comparison service Utility Bidder, more than four in ten reckoned that energy prices are one of the biggest challenges they face, and almost as many said they've seen their energy bills increase in the last 12 months. 

And figures show that two-thirds of businesses making less than £10,000 per year are paying between £1,000 and £1,500 for energy annually – indicating that it's the smallest firms that are most vulnerable.

"Nearly 80 per cent of businesses have seen their energy bills increase in just the past year, and yet there’s still no cap in place to protect them," said Utility Bidder CEO Chris Shaw. 

"For too long, British businesses – especially small and independent ones – have been left exposed to unstable energy prices without the safety nets that domestic consumers have."

Nearly two-thirds of those surveyed told the researchers that they want energy price caps and stricter regulation brought in immediately, demanding protections similar to those given to residential customers.

And more than half said they wanted direct government support through financial subsidies or grants, with a similar number calling for tax breaks or incentives for energy efficiency. Only 18.1 per cent stated the support they’re currently receiving is making a meaningful difference.

The government, too, is concerned about energy prices. And, as part of its “Industrial Strategy”, a new British Industrial Competitiveness Scheme has been created that's expected to cut energy costs by up to 25 per cent for more than 7,000 businesses in key manufacturing sectors such as aerospace, automotive, and chemicals.

The move exempts firms from paying levies like the Renewables Obligation, Feed-in Tariffs and the Capacity Market.

And, in July 2025, the government announced that it was planning to take further action on energy prices for businesses, increasing the current 60 per cent discount on network charging costs to 90 per cent from 2026. This will, it says, bring the UK’s industrial energy prices in line with its European competitors.

"We’re wasting no time in powering ahead with our plans to tackle energy costs for great British businesses and level the playing field," said Business Secretary Jonathan Reynolds.

"The cornerstone of our modern Industrial Strategy, this landmark new support will meet a longstanding need from industry which other governments shirked – paving the way for new investment and job creation at the heart of our Plan for Change."

However, these announcements do nothing for SMEs. They’re targeted specifically at 500 of the UK’s most energy-intensive firms, which, says the government, will allow them to save up to £420 million a year. And “energy-intensive” is defined in terms of the organisation's total energy consumption, rather than in terms of the percentage of profits they're spending.

The problem is particularly pressing for hospitality businesses, which tend to have a higher level of energy usage proportional to their size. Recent research from comparison site BusinessComparison, for example, found that some takeaways are paying more than £20,000 a year on electricity. 

"Energy is one of the largest controllable costs for any food business, yet it’s often overlooked until it becomes a crisis,” said Philip Brennan, founder and managing director at BusinessComparison. 

"Many small hospitality businesses are still tied into what are known as deemed contracts, which are default or out-of-contract energy rates that kick in when a business doesn’t renegotiate or switch at the end of their fixed term." 

These rates, he said, are typically far more expensive than negotiated deals. 

There's plenty of help for SMEs wanting to reduce their energy consumption. A recent pilot scheme, for example, from the Business Energy Advice Service (BEAS) is offering free energy assessments and 50 per cent match-funded grants – though currently only in the West Midlands.

It gives advice on solar panels, improved refrigeration, buildings insulation, and water management, as well as recycling and waste, ventilation, heating, and energy-efficient lighting. Most energy suppliers offer similar advice too.

But many SMEs have already taken every energy-saving measure possible, and cut their consumption to the bone. And, found researchers from Resolve Energy late last year, three quarters of small businesses now believe that their future survival is dependent on an increase in government support.

Suggestions on how to deal with this have included lowering the eligibility threshold for help to include more businesses with high energy costs relative to their size, rather than just considering their overall consumption.

Meanwhile, the application process should be streamlined, to help SMEs that have limited administrative resources, with more grants and subsidies should be made available.

"To stabilise the situation, there needs to be a long-term, predictable support system for SMEs. This will not only protect jobs but also help businesses thrive and innovate without the constant threat of unpredictable energy bills," say the Resolve Energy researchers.

"As energy prices fluctuate, the government must recognise that SMEs are not simply waiting for a handout; they are seeking a stable foundation from which to grow and contribute to the UK economy."

If you’d like to reassess your insurance and ensure you’re getting the most competitive prices maintaining strong coverage, speak to a member of our specialist team at Howden today on 0330 008 1334.