The turbines stopped for good at Ratcliffe-on-Soar, the UK’s last coal-fired power station, on 30 September, marking a significant step in the UK Government’s world-leading policy to phase out coal power, and a major milestone in the UK’s ambition to achieve net zero by 2050.
Despite this encouraging development, more needs to be done to make net zero a reality, and to help small firms become more energy-efficient – while insulating them from future price shocks, to boot.
Accounting for 99% of the business population, the contribution small businesses could make to decarbonising our economy cannot and must not be overlooked. In fact, taking small steps across our community will have an outsized impact.
Energy efficiency and cost savings go hand in hand – the need for urgent action to help small firms become more energy-efficient and reduce their energy usage was highlighted during the energy price crisis in 2022, when a third of small businesses saw their prices doubled, and 11% had their bills tripled or more.
These swingeing price increases sadly led to the closure of many small firms, and left others with long-term cost rises which they could ill afford.
The ongoing damage caused by the energy crisis can be glimpsed in the latest business population statistics from the Department for Business and Trade, which show that the number of small businesses in the UK contracted by around 56,000 between the start of 2023 and the start of 2024, with a far higher average baseline for energy bills playing its part, tipping businesses out from viability.
FSB’s Small Business Index has found that utility bills have been the first or second-most cited cause of overall annual cost increases for over two years, mentioned as a major driver of costs by nearly half of small firms (48%) in the Q2 2024 survey.
Improving energy efficiency on small businesses’ premises would directly cut energy usage as well as costs, preventing or at least minimising the impact of another similar price crisis in future.
Energy efficiency improvements are not cheap, especially to small business owners and the self-employed who rely on their savings to get through tough times.
According to FSB’s Accelerating Progress report on net zero, more than half of small firms hold back from addressing their energy usage due to a lack of savings and uncertainty around the length of the payback period.
Government support is a vital part of the picture in empowering small businesses to improve their energy efficiency.
Plenty of green policies are focused on big polluters and domestic decarbonisation, but only a few are small business-focused. For example, the Business Energy Advice Service, which was built on FSB’s Help to Green proposal, was launched last year as a pilot to offer small firms in the West Midlands free energy audits and allowed some to access up to £100,000 of matched funding towards the cost of recommended measures.
A logical next step would be making the scheme available nationally, to support small businesses across the country.
Meanwhile, the Industrial Energy Transformation Fund, theoretically open to all energy-intensive businesses, is not suitable for almost all SMEs to access.
On average, the initial cost for a small firm to make changes to its manufacturing processes in the past three years is just over £36,000, according to FSB data, under half of the minimum £75,000 SME threshold currently in place for the fund.
If the scope of existing funding can be expanded and partly ringfenced for small businesses, as well as reducing the grant threshold to £20,000, then smaller projects would be better able to get the support they need.
Many small businesses are also looking at changing their transport habits to cut emissions.
The Workplace Charging Scheme, which covers 75% of the total cost of the purchase and installation of electric vehicle charging points for small businesses premises in England, Wales, and Northern Ireland, is set to end in April 2025.
Small firms would expect the deadline be extended but, with only six months to go, no announcement has been made as yet.
Small businesses which rent, rather than own, their premises face additional challenges if they want to become more energy-efficient. A fifth of small firms told FSB their landlord does not allow the installation of energy efficiency measures.
We would like to see the creation of a taskforce of suppliers, small business landlords and business groups to agree on ways to cut energy use in these properties, and to provide resources and tools to support SMEs in engaging with their landlords.
Alongside this, the Government could set up a task and finish group to look at reviewing the law on commercial tenancies, to prevent commercial leases from blocking low-carbon, cost-cutting improvements.
Even though many small businesses – especially microbusinesses, with fewer than 10 employees – and domestic consumers engage with the energy market in quite similar ways, there is a treatment gap between the two, with small firms not benefiting from the same protections as domestic consumers.
Both the Government and Ofgem recognise that, and we welcome the expansion of the Energy Ombudsman’s eligibility criteria to cover small businesses with up to 50 employees.
We are also pleased to support a recently-published open consultation on regulating third party intermediaries in the energy market – protecting SMEs from a small number of rogue brokers who misrepresent the market and pressure-sell to SMEs.
FSB has long campaigned for both policies, which could make a real difference for small businesses.
If Ofgem could introduce a cooling off period for micro-business customers it would help the smallest businesses get a fair deal, and we continue to call on the regulator to put in place this protection.
Lowering energy bills was among the top of Labour’s priorities during the General Election, but small businesses are still waiting to see how big policy announcements, such as the creation of GB Energy and the multi-billion pound carbon capture clusters in Merseyside and Teesside, will affect them.
We hope that the Secretary of State for Energy Security and Net Zero, Ed Miliband, will include small firms’ needs in his Department’s decision-making.
Ensuring small firms have the necessary funds to invest in net zero and energy efficiency measures means tackling the late payment crisis which affects millions of businesses, and makes investment much trickier than it needs to be.
FSB was very pleased to see the unveiling in mid-September of a package of proposals to tackle late payment, with big companies to be forced to report their payment terms in their annual reports, a consultation on making audit committees responsible for payment practices within a business, and replacing the Prompt Payment Code with the Fair Payment Code, to which companies will have to re-apply every two years to show their payment standards have not slipped.
We are looking forward to seeing more progress on this strong foundation, which should go a long way towards stamping out the unacceptable practice of late payment.
The Chancellor hinted at a shake-up of business rates in her speech at the Labour Party Conference; this is another long-running campaign area for FSB, as we want to see the burden of this day-one tax for any small firm with its own premises reduced or removed.
The threshold for the full measure of Small Business Rate Relief in England should be increased from its current level of £12,000 to £25,000 – this would take a quarter of a million small businesses out of the rates system altogether, mostly in more deprived areas in need of economic regeneration.
Freeing up funds to allow small businesses to invest in green improvements would be a very welcome side-effect of business rates reform, following on from the previous Government’s decision in the 2022 Spring Budget to exempt ‘green’ investments from valuations for business rates.
This protects small businesses from paying once for green investments – and from then being hit every year by an increased business rates bill for having made efforts to reduce their carbon footprint.
We hope the new Government will look for other ways to make green investment more accessible for small businesses, with a fifth of small businesses saying they had been put off from investing in energy-efficient technology due to a lack of capital or savings, according to our research, while around one in 12 said that they had not invested in energy-efficient technology as they could not access affordable finance – even if such technology would lower their bills in the long run.
The upcoming Budget is a good opportunity for the new Government to show that cutting bills and emissions for SMEs is more than just hot air.
Growth is rightfully at the heart of the Government’s thinking, and small firms must be likewise centred in policies to improve growth levels, so that sustainable and environmentally-conscious expansion can be the order of the day.
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