UK Industry Tells PM to Move Energy Levies to General Taxation

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(Bloomberg) — High energy costs are undermining the UK’s economic performance, prompting business groups to urge the next government to shift billions of pounds of green levies from electricity bills to general taxation.

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Industrial electricity costs are 45% above the G7 median, leaving UK businesses at a disadvantage to international competitors, according to a report by the Confederation of British Industry and Energy UK. The groups argue that moving legacy renewable subsidy costs into general taxation would lower electricity bills, strengthen industry and support economic growth.

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“With a new Prime Minister coming into office, it’s clear that reducing business energy costs must be a day-one priority,” said Louise Hellem, chief economist at the CBI. “If we want to tackle the cost of living and invest in public services, we need stronger economic growth – and that can’t happen while firms are navigating sky-high energy bills.”

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Andy Burnham, who’s poised to become the UK’s next prime minister, has pledged to revive the country’s stagnant economy. Cutting energy bills has been a cornerstone of that agenda since Labour took office two years ago. But businesses say progress has been slow, and persistently high energy costs are already weighing on investment.

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Four in 10 companies surveyed said they have cut capital spending because of steep electricity bills, with money that could have gone toward innovation, automation or expansion instead being used to cover day-to-day energy costs, according to the report.

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About 2.7 million businesses in the UK, accounting for around 90% of the country’s non-domestic electricity consumption, are facing high energy costs. Shifting funding for the Renewables Obligation and Feed-in Tariff schemes, which support renewable energy, from electricity bills to general taxation could reduce business energy bills by as much as 20%, depending on the type of business, according to the report.

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Make UK, an organization that supports manufacturers, is calling on the government to bring forward plans for energy bill support for businesses and expand the aid to 130,000 companies, from the 10,000 it’s currently set to help.

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The support package, known as the British Industrial Competitiveness Scheme, is scheduled to launch in April 2027. It would exempt eligible businesses from certain green levies on their energy bills, while allowing them to claim backdated payments as though the exemptions had taken effect this month.

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Separately, a cross-industry group, led by North Sea energy producers, issued a warning letter to all Labour MPs, urging the party to support oil and gas production in the UK’s aging basin amid the nation’s growing reliance on imports. 

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“Support for the North Sea is about more than oil and gas. It is a signal that the country remains committed to producing, building and manufacturing,” according to the letter, signed by industry executives, trade unionists and trade bodies, among others.

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“We fully support the government’s ambition to build a secure, lower-carbon energy system, but the energy transition must follow an ‘all-energy approach’ that builds on existing industrial strengths,” said David Whitehouse, Chief Executive Officer of Offshore Energies UK, the industry lobby group. 

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—With assistance from Olga Tanas.

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