Rising energy costs threaten business investment and UK competitiveness

A new paper from the CBI and Energy UK has explored the relationship between rising energy costs and their impact on UK businesses. It finds that over the course of 2025 and into this year, energy prices have consistently ranked among the top concerns for UK firms, with CBI surveys showing that nearly 90% of businesses have seen their energy bills rise over the past three years.

In addition, the average UK business currently faces electricity costs that are around 70% higher than before the 2022 energy crisis, while their gas costs are over 60% higher. This increase comes on top of a broader rise in the cost of doing business, creating significant pressure on margins.

CBI and Energy UK write: “The UK continues to face substantially higher electricity costs than peers, with industrial prices nearly two-thirds above the median of International Energy Agency (IEA) countries and the highest among G7 members. For medium-sized businesses, UK electricity prices are around double the EU median”[i]. They note that while the UK’s non-domestic gas prices are considerably higher than the likes of the US’ and Canada’s, they are broadly in line with the EU and IEA medians. However, they add that the UK’s significant exposure to gas leaves it vulnerable to price volatility, as seen during the recent energy crises[ii].

As a result, CBI and Energy UK warn that high energy prices risk painting British industries as less attractive than their international competitors, increasing the threat of production shifting overseas and weakening the UK’s trade performance. They state that ultimately this adds to the overall cost of doing business, curtailing growth and fuelling cost of living pressures.

Next steps to tackling the burden on business

The two organisations have formed a partnership to develop policy proposals to address the persistently high energy costs that are impacting businesses investment and competitiveness across the UK. While the UK Government has sought to support businesses with its Modern Industrial Strategy[iii] (a ten-year plan to stimulate investment, improve competitiveness and create one million skilled jobs), the CBI have said that this initiative is too far off and is too narrow in scope.

The partnership says: “These measures go only so far in easing cost pressures and leave large sections of the economy unprotected. The lack of clarity on both the implementation of the scheme and what support there will be for those not in scope, is creating difficulties for businesses and energy suppliers alike. As a result, investment decisions are being delayed, and long-term planning is increasingly constrained”[iv].

In the interim, The CBI and Energy UK call on policymakers to:

1.       Convene a cross-government forum to regularly review business energy costs and the actions being taken to address them. This should bring together the Treasury, Department for Business and Trade (DBT), Department for Energy Security and Net-Zero (DESNZ), and energy regulator Ofgem.

2.       Conduct a comprehensive review of the effects of current and future policy and network charges on business energy costs and resilience, identifying options to mitigate these impacts. 

3.       Evaluate the performance of current and future business energy bill support mechanisms, from capital programmes and funds to targeted sector support, to identify where enhancements or new measures are required.

4.       Introduce tools that help businesses to develop robust energy strategies and improve energy efficiency. 

5.       Collaborate with the energy industry to assess market design options and regulatory change that could cut energy costs.

Over the coming months the partnership plans to further assess funding models for essential energy infrastructure, and to explore how government can reshape energy policy to better support both key industrial sectors and the everyday economy.

References

[i] cutting-business-energy-costs-cbi-euk.pdf

[ii] Ibid

[iii] The UK's Modern Industrial Strategy 2025 - GOV.UK

[iv] cutting-business-energy-costs-cbi-euk.pdf

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