--- description: 2022 was a year of rising energy costs in the UK, with major implications for local business. Discover the effects of UK electricity prices on small companies. image: https://gdm-localsites-assets-gfprod.imgix.net/images/getapp/og_logo-94fd2a03a6c7a0e54fc0c9e21a1c0ce9.png title: UK electricity prices: How are SMEs impacted? --- # What impacts are UK electricity prices having on SMEs? Canonical: https://www.getapp.co.uk/blog/3309/impacts-uk-electricity-prices-SMEs Published on 09/01/2023 | Written by David Jani. ![What impacts are UK electricity prices having on SMEs?](https://images.ctfassets.net/63bmaubptoky/41llyPTiB83xMlLLTKvYwH/16c8199448cbe567639fac61a04381c8/GA_-_INTL_-_Header_-_Energy_Supply_Changes_Part_2-1200x630-DLVR.png) > UK electricity prices rose sharply throughout 2022 and are expected to stay high for the foreseeable future. Rather unsurprisingly, this is having an acute impact on British businesses and is making managing workplace energy supply even more critical for company leaders. Where does this leave small-to-midsize enterprises (SMEs)? ----- ## Article Content UK electricity prices rose sharply throughout 2022 and are expected to stay high for the foreseeable future. Rather unsurprisingly, this is having an acute impact on British businesses and is making managing workplace energy supply even more critical for company leaders. Where does this leave small-to-midsize enterprises (SMEs)?In this articleMost SMEs report higher-than-normal energy pricesElectricity price rises directly affect company performance18% say they are experiencing more power cuts than usualUK electricity prices are having a direct impact on employee welfareScottish businesses are struggling the most to surviveCompanies increasingly seek government aidAdjusting to the new realities of high electricity costsIt has been reported that Britain has the highest electricity bills in the world right now, and many businesses are feeling the pinch. We wanted to investigate the effects of these new higher electricity bills on British businesses. To do this, we surveyed 388 SME owners, executive managers, and senior managers to learn how they responded to these challenges.The winter of 2022-2023 has brought with it much higher energy bills than in previous years and many businesses are still recovering from the disruption caused by the acute phase of the COVID-19 pandemic. As a result, we sought to understand the impact on SMEs and the extent to which they rely on extra support from the government to survive the current energy crisis.Scroll down to the bottom of the page for our complete methodology.  Most SMEs report higher-than-normal energy pricesUK gas and electricity prices have contributed to an increasing cost of living crisis across the country. However, despite some government interventions such as the energy price cap, businesses have still borne the brunt of higher prices of electricity in the UK.  When we asked our sample whether they’d observed a rise in electricity prices since the beginning of 2022, 85% said yes.Prices rose significantly for 30% of the respondents. 55% said that the prices had risen slightly, but of that group, 22% said they expected further price increases from energy suppliers were still to come.It was noticeable that Northern Ireland, Wales, and Scotland were especially impacted by the rise in costs. In these parts of the country, price increases were reported by 90% or more of respondents. From those who’d observed higher prices, estimated costs had risen by as much as 20% for most company leaders. However, even greater rises in Scotland were commonly observed, with 36% of our Scottish sample saying they’d noted 21% to 50% higher prices than the year before. By comparison, only 14% of English respondents observed the same levels of increases. Electricity price rises directly affect company performanceThere are many ways that higher costs for business could impact operations, and these can have a big effect on companies' strategies for the future. Having already seen the extent of energy bill rises in the UK, we dived deeper into our data to learn more about how these trends affected SMEs’ overall performance. Firstly, we found that 91% of those who experienced higher electricity prices reported an impact on company performance. For approximately two-fifths of company leaders, this had affected their operations significantly. This was felt most in Scotland and England, where 42% and 40%, respectively, felt a significant impact. In Wales and Northern Ireland, on the other hand, only approximately 30% noted these significant effects on their company performance.   We asked our respondents who had been affected by a performance loss about the effects they had noticed specifically. The top five most commonly selected answers were:Increased prices: 68%Reduced investment: 39%Loss of competitiveness: 32%Stalled projects: 28%Reduced production: 24%  The increase in prices passed on to customers was also noticeably much higher in Scotland, Wales, and Northern Ireland, where an average of 72% of respondents, compared to England’s 64%, reported this as a consequence of higher electricity costs. Tips for SMEsHigher prices at a time when budgets are already stretched can significantly affect a business’s performance. Company leaders can use price optimisation software to find the most appropriate ways to adjust retail prices without losing essential customers.Another common impact for businesses arising from higher electricity costs is lower profits. This was especially reflected in our findings, where we observed a strong trend of profit decreases amongst our participants who had noticed energy price rises in the last year. Almost three-quarters of respondents (74%) said they had seen profits drop in the wake of a higher wholesale electricity price. This also affected Scottish companies the most, where 78% of respondents in Scotland said they had observed a drop from the higher electricity prices. When we asked those who had seen their margins squeezed how much they thought their company’s profits will have dropped this year due to electricity costs, they estimated decreases of:5%-10% for 39% of respondents 11%-20% for 33% of respondents 21%-30% for 11% of respondents31%-40% for 4% of respondentsAdditionally, 1% of this sample estimated their profits to have fallen by over 50% throughout 2022. As these findings show, the drop in profits for UK SMEs is widespread and significant. Now more than ever, companies must prepare to react strategically to avoid excessive losses and harm to productivity and sales.      Software tools to control costsSmall business owners and managers need to keep on top of many facets of their operations impacted by energy price rises to ensure their long-term success. Company leaders can use many software tools to help them succeed in the goal of keeping costs under control. Some options include:Data analysis softwareEnergy management softwareFinancial management softwareFinancial risk management softwareMarketing analytics softwarePrice optimisation software18% say they are experiencing more power cuts than usualConcerns about the scarcity of electricity are another factor businesses have had to consider over the previous year. As recently as October 2022, the energy watchdog Ofgem asked UK households to reduce electricity and gas use to help avoid straining the National Grid.Power outages can prove highly disruptive by causing shutdowns for prolonged periods of time. As a result, we questioned our sample to see whether there have been a greater number of power cuts than normal to gauge the situation.Whilst we observed around a fifth of our sample experienced higher than normal power cuts, most business leaders (82%) said they had had none or the same as they would expect to see in a normal year.This is a more reassuring picture than the one we saw regarding profits and exposure to higher business energy costs. However, we still observed 18% of company leaders were experiencing more power cuts than average.Most (45%) of those experiencing cuts to electricity supply said they’d had two to four outages during 2022. Around a third reported five to seven outages throughout the year. These had significant impacts on business for 48% of this group and had a minimal impact for 42%.Whilst energy supply is holding for most UK businesses, there were still extra challenges in 2022 to maintain a constant supply for a considerable group of company leaders. Yet, thankfully, widespread and prolonged blackouts didn’t materialise.Tips for SMEsThe Centre for the Protection of National Infrastructure (CPNI) recommends an up-to-date business continuity plan to account for severe disruptions such as power cuts. Business continuity software can help SMEs set up a plan, keep it updated, and share it with stakeholders.UK electricity prices are having a direct impact on employee welfareA further consideration for businesses is the impact energy insecurity and rationing are having on staff. As prices of electricity rise, controlling and reducing energy use has become more of a necessity. This not only affects business management, but it can also have major consequences for its workforce too. Following the pandemic, employees have reported lower mental health, which remains a factor when managing workplace morale. This begs the question of whether the effects of UK electricity price rises further exacerbate the decline in workforce wellbeing.We asked this question to our respondents who had noted an impact on company performance resulting from higher energy costs. Of this group, 56% indicated that they had been forced to reduce temperature controls such as air conditioning and heating.  Did you know?A recent BBC report examining the effects of lower temperatures on the human body, notes significant downsides of working conditions at temperatures lower than 18°C. These negative effects can include lower cognitive performance, discomfort, and greater susceptibility to viruses.   74% of the managers and owners who had instigated these changes reported a slight or significant reduction in employee welfare as a result. This, for many businesses, is an unavoidable consequence of higher electricity prices and one that will continue as long as cutbacks in electrical energy need to be made.Scottish businesses are struggling the most to surviveSurvival is becoming a real struggle for many businesses as the higher electricity costs in the UK continue to shrink profits and slow production. This toxic mix is a reality for numerous small companies today and could prove unsustainable in the long term.The consequences of these economic challenges have become noticeable in the last few months, with examples such as the news of UK restaurants closing faster than during the COVID-19 pandemic making the headlines. As a result, we expected to see some of these existential worries reflected in our findings.We asked our survey sample to indicate how likely they were to be able to continue operating following the increases in electricity costs. We discovered that these higher electric bills represented a survival threat for many of the respondents.Around a 10th of SME leaders whose company performance had been impacted by higher electricity bills said their businesses were at risk of closure from the current increase in prices, whilst approximately half expected to be able to continue if costs don’t rise further. This was highest overall in Scotland, where 14% of our sample said they already faced the prospect of shutting down entirely, even without further increases. In total, 71% of Scottish SME owners and managers said they faced the risk of closure either now or should prices rise further.This presents a stark outlook for UK businesses, with over 50% of the businesses feeling the brunt of electricity price hikes facing a risk of closure should prices keep rising. Without further support or a fall in electricity costs, this could prove an insurmountable problem for SMEs across Britain. Companies increasingly seek government aidWith households and businesses feeling the squeeze from higher electricity bills in the United Kingdom, the government has stepped in to offer some relief. In many cases, this was achieved through the introduction of caps for customer energy rates and subsidies.The UK government’s biggest aid package for businesses over the winter of 2022-2023 is the Energy Bill Relief Scheme (EBRS), which offers eligible companies a reduction on the unit price of gas and electricity. This is set to run until March 2023.With many businesses facing an existential threat to survival from increased electricity supply costs, government aid has become essential for numerous SMEs. As a result, we anticipated that much of our sample would seek this support. This is the trend we generally observed in our findings.We found that 50% of the business owners and managers we asked that had been impacted by higher bills were either receiving or had requested aid from the government. A further 32% were eligible to receive aid but had not applied for it yet.How critical is government aid to SME survival?Of those that had aid available to them and had had their profits curtailed by the rise in prices, 54% said the government support was essential to their continued survival. When looking at individual countries, Scottish businesses needed this support most acutely, with 64% requiring it to survive compared to 51% in England.Furthermore, a fifth of companies nationwide said that the aid would not be enough to get their companies through the winter and beyond. As we can see from these results, government aid has proven mostly successful at keeping businesses afloat during these challenging times. However, our survey indicates that for many, it could be too little too late and more may need to be done to shore up small companies in the long run.Adjusting to the new realities of high electricity costsBusinesses have had to adjust fast to the new realities of high electricity prices. These costs have a profound effect on employees, finances, and the smooth operation of company processes. This situation has required some difficult decisions to ensure survival. The key takeaways we observed from the first part of this study are as follows: The majority of company leaders we surveyed (85%) have seen electricity costs rise since the beginning of 2022, which has direct consequences for companies’ performance and profitabilityElectricity supplies remain mostly stable, but around one fifth of our sample noticed more power cuts than they usually would in a year in 2022Respondents from Scottish companies reported a greater level of immediate closure risk than in other parts of the UKHalf of the companies in our survey impacted by higher electricity bills were using or actively seeking government aidSMEs also have many options to control their electricity usage or to find cheaper sources. These are the factors we will explore in detail in the second part of this study. In our second look into electricity supply in the UK, we explore:How businesses can use software to alleviate some of their energy costsWhere renewable energy comes into the electricity supply pictureLooking for energy management software? Check out our catalogue. ## Disclaimer > MethodologyThe data for GetApp’s Electricity Insecurity Survey was collected between October to November 2022 and comprises answers from 388 participants. We selected our survey sample based on the following criteria:UK residentsOwners, executive managers, or senior managers of SMEs (companies with 2-250 employees) founded no less than a year agoWorking in companies where a significant portion of the employees regularly attend a physical workplace/office  ## About the author ### David Jani David is a Content Analyst for the UK, providing key insights into tech, software and business trends for SMEs. Cardiff University graduate. 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