The decision by the UK government to make changes to the National Insurance (NI) system, announced in the Chancellor’s Autumn Statement, has presented businesses with serious challenges.

Rising cost of NI for employers means that companies across the country will need to adopt strategies that can balance and offset the potentially significant demands on cash resources. One effective route would be for companies to develop or enhance investments in green technologies and sustainable practices that can deliver substantial cost savings.

The Chancellor, Rachel Reeves, announced three main changes in November:

• Increasing employers NI rates from 13.8% to 15%

• Reducing the threshold on employee earnings at which NI applies from £9,100 to £5,000

• Increasing the Employment Allowance from £5,000 to £10,500 (1)

The 1.2% increase directly raises costs associated with employing staff, and the threshold reduction on when NI contributions are required adds further financial pressure.

Business concerns

Reaction and sentiments to the NI changes were captured by the British Chamber of Commerce’s Quarterly Economic Survey published in January. (2)

The survey indicated that 63% of businesses say tax, including NI, is a concern after the Chancellor’s Budget, compared with 48% in Q3, which is the highest level since 2017. The data was gathered from more than 4,800 businesses across the UK, 91% of which are SMEs with fewer than 250 employees.

Concerns over taxation rates including NI in some sectors are higher, with 72% of production and manufacturing firms, and 68% of construction and engineering businesses highlighting this area in the survey…

The BCC found that business confidence has slipped to its lowest level since the aftermath of the mini-Budget in Autumn 2022. Only 49% of firms say they expect their turnover to increase in the next twelve months, down from 56% in Q3. A fifth (21%) of businesses expect turnover to worsen, up from 15% in Q3, and 30% expect no change.  

Profitability confidence has also been hit, 40% of firms expect profits to increase over the next year (48% in Q3), while 32% of businesses expect them to fall.  

Labour costs continue to be the main pressure for firms, and the issue is now raised by 75% of businesses, up from 66% in Q3. It is most significant for the hospitality sector with 87% reporting it as a challenge, followed by 84% of firms in the transport and logistics sector.  

Investment plans

Only 20% of businesses say they have increased investment plans over the last quarter, down from 23% in Q3. 24% of firms say they have cut back investment plans, a steep rise from the Q3 figure of 18%. 56% of businesses say their plans have remained the same.  

The survey also found that the issue is more marked in certain sectors, with 42% of retail and hospitality firms reporting a scaling back of investment and 30% of manufacturers.  

The changes to NI contributions are forecast to raise £25.7bn a year by 2029/30 but the revenue-raising measures were partly offset by several tax reductions. These included:

• From 6 April 2025, the employment allowance for NICs will rise from £5,000 to £10,500 a year and the £100,000 threshold will be removed.

• Fuel duty will remain frozen and the temporary 5p cut in fuel duty announced by the previous government will be extended for one year to 2025/26.

• The current cash freeze in key income tax thresholds will end in 2028/29, at which point thresholds will rise in line with inflation. (3)

SaveMoneyCutCarbon’s view is that the NI changes clearly will impact business costs, and potentially affect hiring strategies as well as wage structures. The rise of employer contributions is likely to make a particular impact on SMEs as it will increase payroll expenses, despite the employment allowance rise.

Further labour-cost pressures will be seen in April, when the National Living Wage, payable to those aged 21 and over, will rise by 6.7% to £12.21 per hour, and the National Minimum Wage payable to those aged 18-20 will increase to £10 per hour – a 16-18% increase.

Cost-saving technologies

SaveMoneyCutCarbon’s advice is that as new green technologies become available over the next two years, there are solutions available now that can help companies to achieve significant savings in operating costs.

Solar PV: Businesses could benefit from commercial photovoltaic (PV) installations, such as roof and ground mount systems to custom solutions, including thermal and hybrid systems, that harness the most up to date technology.

By generating electricity, companies can reduce dependence on energy providers, and this should positively affect bills almost instantly after installation. With payback as little as 2-4 years, in SaveMoneyCutCarbon’s experience, investing in commercial solar is worthwhile. 

LED lighting: Upgrading to commercial LED lighting is a quick and easy way to reduce energy bills. Energy savings of up to 80% can be achieved, when compared to traditional lighting technologies, with associated reductions in carbon emissions, with rapid ROI potentially between 1-3 years. How much LED lighting will save depends on the size and use of the premises, plus the number of lamps.

The financial and energy savings are potentially huge as LEDs can last up to 25 times longer than traditional incandescent bulbs. This means less money spent on replacing bulbs and lower maintenance. The energy savings can be even greater with smart controls.

And there are benefits for environmental, Social and Governance (ESG) policies, as upgrading lighting reduces Scope-2 emissions. 

E-mobility: Companies that move to electric vehicles (EV) could save up to 50% on fuel and operating costs over time. Electric fleet vehicles are more efficient, use more affordable fuel and cost less to maintain. The initial outlay on a new EV is approaching parity with conventional cars, and can often be offset by grants.

The government Workplace Charging Scheme provides support for organisations towards the cost of installing up to 40 electric vehicle chargepoint sockets at their sites., available until end of March 2025. (4)

The scheme covers up to 75% of the total costs of the purchase and installation of EV chargepoints (including VAT), capped at a maximum of:

• £350 per socket

• 40 sockets across all sites per applicant – for instance, if you want to install them at 40 sites, you will have 1 socket available per site

It is open to eligible: businesses, charities, public sector organisations, and small accommodation businesses.

There are also separate schemes with different grant amounts for state funded education institutions (5), for landlords (6), and for staff and fleets. (7)

Companies could also make use of the Plug-in Van Grant (PIVG), launched in 2012 to help bridge the price gap between the cost of ultra-low emission vans and diesel vans. It was extended to heavy goods vehicles (HGVs) in 2016. (8)

Water reduction: Millions of buildings across the UK use water inefficiently. With Net Zero legislation and rising utility rates, there is a need to reduce consumption.

A significant amount of business premises in the UK have old water management systems that use water inefficiently and cause waste. Research from Waterwise reports that between 5 – 8% of toilets in commercial buildings are leaking at any given time, with a leaking toilet wasting on average 300 litres of water a year. (9)

Taps - Eco taps deliver water savings of typically between 50 – 70%, with some specialist taps achieving up to 90%. Sensor taps are not only more hygienic, but also guard against water wastage which occurs when traditional taps are left running.

Toilets - Ultra-low flow toilets can reduce water usage by 75%. Low flow toilets and specialist valve solutions can reduce water by 50%. Mitigating water wastage caused by leaking cisterns is significant and getting this addressed can also deliver further efficiency savings.

Urinals - Controls added onto existing urinal cisterns can reduce water usage by up to 75%. For example, two urinals sharing a 5 litre cistern would see reductions of 164,000 litres per year, with savings from £400 – £600.

Waterless Urinals- Waterless urinals reduce water consumption by 100%. This can add savings in the region of £250 per urinal per year. Waterless urinals also prevent leaks and urinal floods.

Hand Dryers - Eco hand dryers Use 80% less energy than a standard 1.5 kW hand dryer. Paper towels in a busy workplace are more expensive to run than an eco-hand dryer and cannot be recycled, going straight into landfill.

On April 1st 2019, the Streamlined Energy and Carbon Reporting (SECR) policy came into effect in the UK, requiring business to annually disclose information on their carbon and energy usage. Water is classed as a Scope 3 emission. The heating of water inside a building via the use of purchased energy is classed as a Scope 2 emission. For example, gas or electric boilers that heat water and circulate around the building.

Next-gen heating: Air-source and ground-source heat pumps, together with infrared heat technologies can help to remove reliance on gas heating, using electricity from the national grid which is over 50% low-carbon sources. The government target is to achieve clean power generation by 2030.

Heat pumps are four times more efficient than gas generation. They capture and compress the ambient heat from outdoors, converting it into useful warmth that flows through your radiators. They operate at a startling 300% efficiency.

Heat pumps come in two flavours, ground-source and air-source. They both offer outstanding efficiency and suit different business circumstances.

Ground-source and air-source heat pumps have a seemingly expensive up-front cost. The fact is that they pay for themselves within a couple of years with their substantial energy savings.

Far-infrared heaters are an alternative electrical heating solution, plugging into your mains and generating warmth at a 100% rated efficiency. Combined with smart controls, these electric heaters will slice through your heating bill.

Demand Controlled Ventilation: In commercial areas like kitchens, ventilation control systems can help to reduce energy usage, with lower GHG emissions, with fan operating speeds reducing energy consumption to 6% of a fan running at 100% normal capacity. Typically, there are energy savings of up to 80%, with return on investment in less than 2 years.

What financial help is available?

The previous UK government pledged almost £5 billion of funding to help UK businesses become greener as part of the commitment to reach net zero emissions by 2050. The funds are less focused directly on helping companies invest in green tech than on support for development of innovative green tech. (10)

The Industrial Energy Transformation Fund (IETF) is designed to help businesses with high energy use to cut their energy bills and carbon emissions through investing in energy efficiency and low carbon technologies. The IETF launched in 2020 and is in 3 phases with £500 million of funding available up until 2028.

Phase 3 launched in January 2024 and will provide up to £185 million in funding between 2024 and 2028. (11)

Recently announced 25 recipients include:

• Novelis - £14m to expand its aluminium recycling capacity.

• Hanson Cement in North Wales - £5.6 million grant to support carbon capture and storage project.

• Heinz - £2.5m to upgrade its Wigan factory with heat pumps.

• Britvic - £304,000 to help decarbonise its Rugby factory.

• Dale Farm Limited - £997,000 to install a heat pump system at its Magherafelt site. (12)

The Department for Energy Security and Net Zero manages the IETF for England, Wales and Northern Ireland. There is a separate scheme for Scotland, which is currently under review. In September 2020, the Programme for Government announced that £34 million would be made available for capital projects in Scotland over the next 5 years, an additional £8 million to the budget transfer from UK Government. (13)

Bibliography

1 ‘Autumn budget 2024: Key announcements and analysis’ (Accessed January 2025) https://lordslibrary.parliament.uk/autumn-budget-2024-key-announcements-and-analysis/

2 Budget hike bursts business confidence’ (Accessed January 2025) https://www.britishchambers.org.uk/news/2025/01/budget-tax-hike-bursts-business-confidence/

3 ‘Autumn budget 2024: Key announcements and analysis’ (Accessed January 2025) https://lordslibrary.parliament.uk/autumn-budget-2024-key-announcements-and-analysis/

4Workplace Charging Scheme’ (Accessed January 2025)  https://www.find-government-grants.service.gov.uk/grants/workplace-charging-scheme-2

5‘Workplace Charging Scheme for state-funded education institutions’ (Accessed January 2025) https://www.gov.uk/guidance/workplace-charging-scheme-for-state-funded-education-institutions

6‘Electric vehicle chargepoint and infrastructure grants for landlords’ (Accessed January 2025) https://www.find-government-grants.service.gov.uk/grants/electric-vehicle-chargepoint-and-infrastructure-grants-for-landlords-1

7‘Electric vehicle infrastructure grant for staff and fleets’ (Accessed January 2025) https://www.find-government-grants.service.gov.uk/grants/electric-vehicle-infrastructure-grant-for-staff-and-fleets-1

8’Plug-in van and truck grant: eligibility and applications’ (Accessed January 2025) https://www.gov.uk/government/publications/plug-in-van-grant

9 ‘Waterwise Guide for Offices’ (Accessed January 2025) https://www.waterwise.org.uk/wp-content/uploads/2023/10/Waterwise-Guide-for-Offices-AND-POSTERS-FINAL.pdf

10 ‘Find funding to help your business become greener’(Accessed January 2025) https://www.gov.uk/guidance/find-funding-to-help-your-business-become-greener

11‘Industrial Energy Transformation Fund’ (Accessed January 2025) https://www.gov.uk/government/collections/industrial-energy-transformation-fund 

12’Government backs businesses cutting carbon emissions’ (Accessed January 2025) https://www.gov.uk/government/news/government-backs-businesses-cutting-carbon-emissions

13’Scottish Industrial Energy Transformation Fund’ (Accessed January 2025) https://www.gov.scot/policies/energy-efficiency/scottish-industrial-energy-transformation-fund/