Energy price rises to hinder UK firms' net-zero plans

Almost one-third of UK businesses believe that energy price rises are likely to have a negative impact on investments in net-zero measures, the Confederation of British Industry (CBI) has found.

New survey data from the organisation reveals that 69% of firms expect energy costs to increase in the next three months, with almost a third anticipating rises of more than 30%.

This is expected to act as a barrier to growth, with 30% saying that the price hikes are likely to stifle current or planned investment in energy efficiency or net-zero measures.

Despite these challenges, firms are doing their best to absorb costs, with around one in three saying that they do not expect to pass on additional energy costs to customers.

However, with many firms already feeling the pinch amid the rising cost of living, the CBI said that further price rises could “push many viable businesses to the brink” unless “urgent action” is taken to support them and their supply chains.

It has published a three-point plan to support vulnerable firms by targeting help where it is needed most, cutting costs, and kick-starting an energy efficiency drive that reduces demand and boosts the UK’s energy security.

“While helping struggling consumers remains the number one priority, we can’t afford to lose sight of the fact that many viable businesses are under pressure and could easily tip into distress without action,” said Matthew Fell, CBI chief policy director.

“The guiding principles for any intervention must be to act at speed, and to target help at those households and firms that need it most.”

The CBI's three-point plan for the UK government includes targeted interventions for the most vulnerable households through existing mechanisms like the Energy Bills Support Scheme, and HMRC replicating time-to-pay flexibility granted during the pandemic.

It also recommends that the government announce a business rates freeze now for 2023/24, provide people with upfront financial support to help retrofit household insulation, and support the most energy intensive sectors through an expansion to the Industrial Energy Transformation Fund.

“Firms aren’t asking for a handout, but they do need autumn to be the moment that government grips the energy cost crisis,” Fell continued. “Decisive action now will give firms headroom on cash flow and prevent a short-term crunch becoming a longer-term crisis.

“With firms under pressure not to pass on rising costs, there is a risk that vital business investment is paused or halted entirely. That in turn could pose a real threat to the UK’s economic recovery and net zero-transition.”