Energy cost hikes prompt SMEs to raise prices and look to efficiency measures

A recent survey conducted by Paragon Bank reveals that 90 per cent of UK SMEs experienced increases in their energy costs in 2023, and half have increased prices in response, but some are also looking to energy efficiency to mitigate against the squeeze on their finances.

Paragon’s survey of more than 500 businesses, conducted on behalf of the bank by Opinium, found that, on average, companies experienced a 26.6 per cent increase in their energy bill during the first three months of the year.

Four in 10 (41 per cent) companies reported an increase of between 20 and 50 per cent, with one in 10 recording an energy bill hike in excess of this. The increase in energy costs reflects the broader inflationary pressure facing UK SMEs.

Businesses reported an average cost increase for raw materials of 22.6 per cent during the period, and 21.4 per cent in the cost of new equipment and machinery. Additionally, employee salary costs were up 17.7 per cent on average.

The most common mitigating action was to increase the price of their own goods or services, implemented by 54 per cent of SMEs and being considered by a further 26 per cent.

Companies have also invested in their own operations to make themselves more energy efficient – 38 per cent of businesses said they have made investments in greener equipment, such as more energy efficient machinery, with 36 per cent making changes to their premises, such as the installation of solar panels.

Other measures implemented by companies included encouraging more employees to work from home (27 per cent), refinancing or extending loan terms on assets (20 per cent), seeking new equity finance (21 per cent) and taking out additional loans to fund the business (19 per cent).

Conversely, SMEs said they had cut planned investment (33 per cent), whilst one in five had reduced production output (19 per cent).

John Phillipou, Paragon Bank SME lending managing director, said: “The cost of energy has negatively impacted the majority of business throughout the UK, even with the government support package. Businesses have responded in several ways, with price increases being the most obvious way to mitigate the increase.

“However, it’s also positive that companies have been looking at ways they can reduce their energy bills by making themselves more efficient. We have seen businesses invest in their operations with the addition of more energy efficient equipment, whilst we have also funded changes to premises, such as the addition of solar panels. These are positive steps towards a greener future.”