In October 2024, Chancellor of the Exchequer Rachel Reeves delivered the first Labour budget in 14 years, introducing measures designed to restore financial stability to the UK. With a £40 billion tax increase at its core, the budget outlined seven key priorities, including fostering economic growth through clean energy initiatives.
While these policies impact a wide range of stakeholders, this article examines their implications for small and medium-sized enterprises (SMEs) in the facilities management (FM) sector, focusing on the challenges and opportunities for cleaning businesses.
Business Taxes: The NIC Impact
One of the most notable changes in the Autumn Budget relates to National Insurance Contributions (NIC). NIC is a direct tax paid by employers and employees once earnings surpass a specific threshold, funding social security benefits like pensions.
Starting from April 2025, employers will pay NIC at 15% on salaries above £5,000—up from the current 13.8% rate and a threshold of £9,100. While this change is expected to generate an additional £25 billion annually for the economy, it places significant pressure on SMEs, particularly in sectors like cleaning, where profit margins are already being cut.
However, the Chancellor has planned to alleviate some of this burden by increasing the Employment Allowance from £5,000 to £10,500. This change will enable around 86,5000 employers to avoid paying NIC entirely, and a further 1 million businesses will see no increase in their contributions. For cleaning SMEs, this allowance could provide a much-needed buffer, but the rise in NIC rates still represents a considerable challenge, particularly for companies operating on tight budgets and those who aren’t eligible for Employment Allowance.
National Living Wage: Balancing Costs and Opportunities
The budget confirmed an increase in the National Living Wage to £12.21 per hour for workers aged 21 and over, effective from April 2025. While this policy will benefit approximately 3 million workers, it also introduces significant cost pressures for employers, particularly in the FM sector.
For cleaning businesses, this wage rise compounds existing challenges such as rising energy costs and inflation. Many industries may attempt to offset increased employment costs by reducing hours or limiting recruitment. However, such measures are particularly difficult for cleaning companies, which are already grappling with resource constraints. Reports indicate that 50-60% of cleaning businesses struggle to fulfil contracted hours due to staff shortages, while overworked employees face burnout rates as high as 40%. Reducing staff or hours further risks exacerbating these issues, creating operational challenges that could undermine service delivery.
Conversely, a more strategic approach could transform this challenge into an opportunity. Higher wages have the potential to improve staff retention and attract new talent, addressing chronic labour shortages and high turnover rates. While initial costs will rise, businesses that embrace this change as a chance to build a more stable and motivated workforce could strengthen their operational resilience and gain a competitive advantage
Domino Effect on the Supply Chain
The impact of the Autumn Budget extends beyond FM businesses themselves, creating a domino effect throughout their supply chains. Manufacturers of cleaning supplies, for instance, will face similar pressures to absorb increased costs driven by changes such as higher NIC and adjustments to Capital Gains Tax. These additional financial burdens may force suppliers to raise prices, which, in turn, affect the FM companies that are reliant on these products to deliver their services.
At the same time, FM customers—spanning sectors from retail to healthcare—are also contending with higher operating costs due to wage increases, inflation, and other financial pressures. This dual squeeze on both ends of the supply chain could force FM businesses to raise their own service prices to maintain viability. However, this presents a challenge in an industry already characterised by competitive pricing and tight budgets.
So, How Can FM businesses Better Balance their Budget?
The Autumn Budget poses significant challenges for FM businesses, affecting labour costs, supplier pricing, and client retention. However, proactive measures can help mitigate these pressures while building resilience and maintaining service quality. Here are key strategies FM businesses can adopt:
Adopt Long-Lasting Residual Cleaning Solutions
Residual cleaning technologies, like biotechnology, use proprietary bacteria to create biofilms, which offer long-term cleaning action that reduces the need for frequent reapplication. This approach not only cuts labour costs but also alleviates staff shortages and burnout by decreasing workloads. Also, deeper cleaning capabilities improve customer satisfaction, helping FM businesses retain contracts despite tightened budgets and rising costs.
Streamline Product Portfolios
Simplifying cleaning product ranges through broad-spectrum solutions can help FM businesses reduce storage and transport costs, improve efficiency, and adapt to supply chain pressures. Concentrated products with versatile applications minimise the need for multiple specialised cleaners, enabling businesses to rationalise their inventory while maintaining effectiveness. This approach addresses FM cost concerns and strengthens operational resilience.
Invest in Sustainable Eco-Technology
Sustainable cleaning technologies can help FM businesses navigate rising costs while addressing increasing government and client demands for environmental responsibility. Eco-technologies, such as concentrated solutions with low environmental impact, reduce resource consumption and operational expenses. These innovations also strengthen client relationships by aligning with shared sustainability goals, helping businesses balance financial and environmental pressures.
If you are interested in how biotechnology could help your business overcome some of the forecasted challenges associated with the latest UK budget, please speak to one of our experts here.
