The government says it wants to weaken one of the most frustrating features of the UK energy market: the way gas prices can still push up electricity costs even when a large share of power is coming from cheaper renewable and nuclear sources. For smaller firms, that will matter if it turns into something practical rather than just another reform headline.
The plan announced on Tuesday is to offer more existing low-carbon generators long-term fixed-price contracts, so less of Britain’s electricity is exposed to wholesale prices set by gas. Ministers say that should make bills more stable for households and businesses when international gas markets jump. The change is not an instant cut, and the government has not put a firm savings figure on it, but it is one of the clearer signs yet that ministers know energy volatility is still a live operating problem for SMEs.
What is actually changing
Under the current market structure, the wholesale price of electricity is often set by the last and most expensive source needed to meet demand, which is frequently gas-fired generation. That means even businesses using power in a system with lots of wind, solar and nuclear can still end up paying prices shaped by global gas shocks.
The government does not want to rebuild the whole pricing system overnight. Instead, it plans to move more older renewable and other low-carbon generators on to voluntary fixed-price contracts, similar in principle to the contracts already used for many newer clean-energy projects. The argument is simple enough: if more electricity is sold at stable pre-agreed prices rather than gas-linked market prices, bills should become less vulnerable when oil and gas markets lurch.
Alongside that, the Electricity Generator Levy will rise from 45% to 55% and be extended, aimed at capturing more of the exceptional profits some generators can make when gas prices spike. Ministers are also using the wider announcement to push planning, grid and electrification measures intended to speed up clean-power rollout.
Why this matters to small businesses
Plenty of SMEs will read this and ask the obvious question: does it cut my next bill? Not necessarily. The changes still have to go through consultation, and the government says the new contracts are intended to start later this year, with an allocation process in 2027. The near-term pressure remains very real, especially with energy markets jumpy again because of conflict in the Middle East.
That is why the more useful SME reading is about volatility, not miracle savings. If this reform works, it should help reduce the size of future electricity shocks rather than magically make power cheap overnight. For small manufacturers, refrigerated retail, hospitality, workshops, salons, laundries and service firms running energy-hungry equipment, that matters. Stable bills make budgeting, pricing and staffing decisions less guesswork-heavy.
BritishSME has already looked at how weak growth keeps pressure on margins and customer demand. Energy volatility makes that worse, because it adds another cost line that can move quickly while customers still expect fixed prices and fast quotes.
What SMEs should do now
First, treat this as a medium-term policy shift, not a reason to relax about summer bills. BBC reporting on current market conditions says the next household energy cap announcement is due on 27 May 2026, with forecasts already pointing to a possible rise from July if wholesale prices stay elevated. Business tariffs work differently, but the same wholesale pressure still matters.
Second, review where electricity costs are actually landing in your operation. Many firms know the headline bill but not the drivers inside it: refrigeration, extraction, lighting, EV charging, late-evening peak use, electric heating, or older kit running inefficiently. A pricing reform in Westminster is not a substitute for understanding your own load.
Third, if your margins are tight, check whether your quoting and pricing assumptions still make sense. This is similar to the issue BritishSME highlighted when looking at fuel-duty uncertainty and its knock-on effect on running costs: even when the policy direction sounds helpful, firms still need to protect themselves against the messy period before any savings land.
Finally, keep an eye on the government consultation and on supplier communications rather than waiting for a dramatic headline about bills collapsing. If contracts for older generators expand as planned, the real business benefit may be fewer nasty surprises rather than one dramatic one-off reduction.
A useful reform, if it survives contact with reality
This is one of those policy changes that is easy to oversell. The government is right that businesses should not be so exposed to gas-market shocks when a large and growing share of the electricity system is not gas-based. But SMEs have heard enough promises on energy to be entitled to some scepticism.
Still, the direction makes sense. If the UK can reduce the share of electricity pricing still anchored to volatile gas, smaller firms get a better chance of planning calmly instead of firefighting every time global events hit commodity markets. That would not solve every bill problem, but for many SMEs it would at least remove one of the dafter risks from the cost base.
Sources
- GOV.UK, Decisive action to break influence of gas on electricity prices, published 21 April 2026
- BBC News, Electricity bills targeted in planned shakeup to energy pricing, published 21 April 2026
- BBC News, Energy bills: What is happening to gas and electricity prices?, accessed 21 April 2026
