Foreword

Setting up and running a small business requires entrepreneurs to think outside the box, take on new challenges, and face issues that had not been apparent when scoping out the original business plan. Whilst small businesses have been asked to tackle a number of such challenges over the decades, none are more threatening than the impact of climate change. However, in the face of many competing priorities, taking action on sustainability has been a ‘nice to do’ challenge for small businesses, who often find themselves cash-, resource- and most importantly time-poor. Now, however, with increased levels of environmental awareness and the pressing need to reduce our impact on the environment before it’s too late, this is no longer a ‘nice to do’, but a ‘need to do’.

The consequences of not acting on climate change are well-documented, and meeting this challenge will require the efforts of every part of society, including small businesses. Governments across the UK have set the key target of achieving net zero by 2050, or 2045 in Scotland, as well as a number of milestones along the way, such as gas boiler and diesel vehicles bans in coming years.

Recognising their role in combating climate change, small businesses themselves are already taking action to mitigate their impact on the environment. From the installation of basic measures such as LED lighting, through to becoming fully self-sufficient microgenerators, small businesses are as varied and as creative as ever in their drive to reach net zero.

If the UK is to reach its net zero targets, then we must establish a net zero economy. However, to create a net zero economy across the UK, small businesses once again will have to go further and do more. Yet they will only be able to do this if they have adequate support from governments across the UK, and their local authorities. Too often, mixed and poorly-targeted messaging in an already confusing landscape has undermined both the environmental and economic benefits of some of these changes to small businesses. A “one size fits all” approach to messaging, or policy, will no longer suffice.

The policy framework must provide the necessary incentives, and overcome the barriers that small businesses face. We can no longer afford to be taxing businesses for making environmental improvements such as installing solar panels on their building though increased business rates, and we must enable them to invest in the environmental and economic improvements that most suit their business. Zero emission vehicles (ZEVs) and changing transport habits are also undoubtedly critical to achieving net zero, and while the uptake of these options is encouraging, upfront cost and infrastructure are still significant barriers to most day-to-day businesses.

Government must also face up to the reality that a total switch to ZEVs without changes to our taxation system with leave a huge hole in our public finances, and it must be honest with businesses and those switching as to how that will be met. Whilst we must do all we can to encourage businesses to switch to ZEVs by 2030, we must also have a frank conversation about the future of vehicle taxation and replacing the lost revenue from fuel and Vehicle Excise Duty.

There are many steps that governments across the UK can take and barriers that must be removed. Our report looks at the great strides business have already made in the net zero journey, and importantly identifies where policy makers must do their part to enable small business to reach net zero.

Martin McTague, OBE

Martin McTague, OBE

National Chair, FSB

Martin McTague was appointed as National Chair of FSB on 8 March 2022. Prior to this, he was FSB National Vice Chair, Policy and Advocacy (from 2021) and FSB Policy and Advocacy Chair, a role he was elected to in March 2016. 
 
Martin has served as a volunteer with FSB for more than 20 years, in a variety of roles including Chairman of the Local Government Policy Unit. 

As National Chair, Martin works closely with government and opposition leaders, attending ministerial meetings and representing FSB and its members at the most senior levels. He also works to ensure that members’ views are represented in international institutions. He works to ensure that FSB’s policy reports are used widely to help policy makers, and he champions FSB’s member survey programme, Big Voice. 

Martin started his own business 35 years ago and now currently owns and manage three businesses - offering public policy, engineering and IT consultancy services. Running businesses for more than three decades means that Martin has worked with institutional investors; operating sophisticated financial management systems, marketing complex IT systems and managing more than 60 employees. 

Martin’s business experience is invaluable to him in his role as FSB National Chair.  He believes that integrity and a cross-party approach are both vital preconditions for success. He is determined to protect and advance FSB’s current standing as the UK’s most influential business lobby – one that truly represents its grassroots members.  Martin has served on the Government’s Low Pay Commission since 2018 and was appointed to the ACAS Council in September 2023 by the Secretary of State for Business and Trade. 

Martin McTague was recognised with an OBE for Services to Small Businesses in the King’s New Years Honours 2024 List.

FSB Committees:
  • Nominations Committee (Chair) 
  • Board Commercial Group (Member) 
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Key Findings

Climate change and small businesses

  • 56 per cent of small businesses believe our planet is facing a climate crisis
  • 28 per cent of small businesses said it will be extremely difficult to transition to a net zero economy
  • 36 per cent of small businesses have a plan to combat climate change, but only 30 per cent have made changes to their business as a result of that plan.
  • 69 per cent of small businesses don’t know how to measure how much carbon emissions their business produces.
Climate change and small business

 

Energy

  • 67 per cent of small businesses have taken steps to address their energy usage, some of which include:
    • Installing a smart meter (22%)
    • Installing energy efficient appliances (37%)
    • Switching to a renewable energy provider/tariff (26%)
  • 18 per cent of small businesses have invested in microgeneration.
    • 14 per cent have installed solar panels
    • 4 per cent have installed a heat pump
  • Of those that have not yet taken steps to address their energy usage, 29 per cent of small businesses say energy is not a significant cost, 24 per cent say that the return on investment takes too long or is too uncertain, and 22 per cent highlight the lack of capital (savings) as a reason why they are unable to invest.
Energy consumption

 

Actions to reduce waste and increase recycling

  • Small businesses have taken a number of steps to increase recycling and to reduce waste, including:
    • 64 per cent have increased recycling in their business
    • 50 per cent have taken steps to eliminate waste wherever possible
    • 47 per cent are avoiding plastic products if an alternative is available
Climate change and small business

 

Changing small business transport habits

  • 36 per cent of small businesses in accommodation and food services state they have switched or plan to switch all or some of their fleet to zero emission vehicles
  • 29 per cent of small businesses in the construction sector state they have installed a workplace charging point for electric vehicles
  • Of those small businesses which have not yet taken steps on their transport habits, some of the key barriers are:
    • Inefficient or unavailable public transport due to location (45%)
    • Zero emission vehicles are currently too expensive (57%)
    • Lack of infrastructure to support electric vehicles (43%)
Climate change and small business

 

 

Recommendations

Supporting businesses to make a plan

LEPs and Combined Authorities in England should be required to set out Net Zero engagement plans by the end of 2022, and plan a sector-specific messaging campaign until 2025. LEPs and Combined Authorities could pool resources when designing and delivering these plans, but the LEPs must act as important signposting stations and as hubs of relevant communication for their local businesses. This would also include circulating key pieces of information on deadlines and changes in Government policies. The UK Government should issue £5,000 vouchers for businesses to spend on qualifying environmental products and services under a Help To Green initiative. This would be in a similar vein to vouchers issued via the Help To Grow Digital scheme. The voucher could, for example, be used to fund an audit to measure a firm’s carbon footprint with relevant advice on how to reduce greenhouse gas emissions, or to enable firms to replace equipment and materials to become more energy-efficient.

In England, the UK Government should expand the scope of the lifetime skills guarantee to support green skills. Currently the guarantee is only available to those who do not have a Level 3 qualification. Allowing those who do have a Level 3 qualification to retrain in new, green skills will help improve employment as well as environmental outcomes.

The Northern Ireland Assembly should ensure Climate Change Legislation is passed within the current electoral mandate to avoid further delay and uncertainty. This legislation should include a statutory duty on officials to engage with small business by carrying out a Small and Micro Business Impact Test (SAMBIT) when developing future environmental policy across Northern Ireland.

In Northern Ireland, the Department of Agriculture, Environment and Rural Affairs should establish a Climate Change Stakeholder Group. This group would help Northern Ireland business representatives to maximise dialogue and joint working and help to address the limiting patchwork effect of current Northern Ireland environment policy.

Energy

UK Government and Ofgem should establish a taskforce of suppliers, small business landlords and business groups to agree how to cut energy use in rented premises. The split of incentives between landlords and tenants is a longstanding barrier to low carbon improvements. This taskforce can learn from examples where landlords and tenants have cooperated to green their premises, and consider further interventions to allow small businesses to take ownership of their own energy use.

UK Government should review the law on commercial tenancies to prevent commercial leases from blocking low-carbon improvements. Tenants in commercial properties should have the primary decision-making power with regards to choice of energy supply and installation of smart meters. Landlord and tenant law should be updated to preclude overly-restrictive lease clauses which allow commercial landlords to unreasonably stop a tenant switching energy supplies, installing smart meters, or installing other reasonable energy efficiency improvements.

UK Government should utilise its new powers, having left the EU, and alter (lower) the capital requirements banks must adhere to when lending to businesses for green improvements. Currently, the capital requirements set out under Basel III and implemented under EU Regulation 575/2013, on prudential requirements for credit institutions and investment firms, act as a brake on banks releasing funds in the form of loans to small businesses looking to invest in green technologies and improvements. Current margins can be too low, and risk profiles too high. Reviewing these requirements is not something that would have been possible as a member of the EU; however, the impact of lowering these requirements in respect of green investments should be considered now that the UK has left the EU.

Waste

Local authorities (in England, Wales and Northern Ireland) should incorporate small business waste collection services into their domestic collection services with the costs for these waste collection services included in business rate charges. This would only apply to businesses currently under the Small Business Multiplier, so as not to be used by larger businesses which generate far more waste and could not be incorporated into the domestic schedule.

Small businesses should have access to refuse and recycling centres operated by councils – building on a permit system that operates for tradespeople in some local authorities. Currently, these facilities are only available to individual residents, but by expanding access to small businesses and sole traders, it would boost the incentive to recycle.

Transport

Governments across the UK should ensure that businesses operating in and around Clean Air Zones or Low Emission Zones receive their charges back in form of grants for the purchase of a zero emission vehicle. The drive to zero emission vehicles may result in a two-tier society, with those that have made the switch exempt from clean air charges, while those who cannot afford the switch still paying penalties. Funds generated by Clean Air Zones should be packaged into grants available for businesses operating in and around Clean Air Zones towards the purchase of zero emission vehicles.

Governments across the UK must publish a coherent set of target-based infrastructure strategies to deliver the necessary charging and rapid charging infrastructure by 2030. The number of ZEVs being purchased is outstripping the number of charging and rapid charging points on motorways and highways across the UK. Encouraging more businesses to switch to ZEVs by 2030 will require a redoubling of infrastructure efforts to ensure that businesses do not suffer from ‘charge anxiety’. In addition, the UK Government should liaise with the executives in Wales, Scotland and Northern Ireland to ensure the system is coherent for motorists who travel across borders.

The Plug-in Car Grant should be extended and funded beyond March 2023, to give small businesses confidence in planning their transition to zero emission vehicles until 2030. The adequacy of the grants for small vans (currently £3,000) and large vans (currently £6,000) should be kept under review.

Introduce a scrappage scheme where diesel commercial vehicles can be recycled in exchange for grants towards cleaner hybrids and zero emission vehicles. This would pay businesses £2,000 which could then only be used to purchase a zero emission vehicle for the business.

Tax and finance

The UK Government should establish a commission of industry experts to begin consultation on a future road charging system. The rollout of zero emission vehicles and the phasing out of diesel and petrol vehicles will have far-reaching implications for the UK Government’s revenue generated from Vehicle Excise Duty and fuel tax. The backbone of any future road charging system for zero emission vehicles could be based on mileage; however, an allowance (for example, 5,000 miles) should be given to small businesses using zero emission vehicles.

The UK Government should exempt green investments and improvements in premises, such as installing ventilation or solar panels, from inclusion in a business rates assessment. This will incentivise greater investment in improving premises in line with the Government’s net zero and Covid strategy. Under the current system, any and all improvements are counted towards a business rateable value. This can include the installation of air conditioning, CCTV, fire safety equipment, solar panels, and even printers. The introduction of an exempt list of items which businesses could introduce without fear of increasing their business rates valuation would unlock investment which would otherwise not take place, as well as making workplaces safer, greener, and healthier.

The UK Government should encourage investment and R&D by allowing businesses to write off losses at a similar rate at which gains are taxed. Small businesses would be more likely to engage in investment and R&D if they knew they could write off losses at a similar rate at which gains are taxed, producing a more symmetrical and equal system. The ability to write off losses means that investments that do not yield expected results may not be as devastating to a business as they may otherwise be.

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