Kirstin Roberts FCIWM, Director of law firm Freeths LLP, and Martin Smith, a corporate partner at Freeths, examine how changes in the UK’s economic language could impact the resources & wastes industry.
As the saying goes, all men are created equally, but the same is not true of businesses in the waste industry.
The economic factors either enabling businesses’ success or causing their Boards sleepless nights will depend on their current economic robustness, the area of waste management they specialise in, and where the business is located.
To find out more, we went out to our clients and asked them what economic factors are their main areas of current focus.
As expected, we found the increase in employers’ NICs and change in the National Minimum Wage and the Living Wage are affecting all businesses. However, some of the other factors expressed to us are more relevant to some businesses than others, such as recruitment difficulties exacerbated by Brexit and the early stages of AI adoption.
Increase in employers’ NICs
From April 2025, employers will see an increase in the rate of Secondary Class 1 NICs from 13.8% to 15%. Additionally, the threshold at which employers become liable to pay these contributions will be reduced from £9,100 to £5,000.
This change is expected to generate significant additional revenue for the government but will also increase the financial burden on businesses.
To mitigate these costs, employers can take advantage of the increased Employment Allowance, which will rise from £5,000 to £10,500. This allowance can help offset some of the additional NIC liabilities, particularly for smaller businesses.
However, larger employers may need to explore other cost-saving measures, such as reviewing their workforce structure or considering salary sacrifice arrangements.
Even smaller waste management companies are reporting to us that these changes are going to cost them several hundred thousand pounds a year and that to avoid this hitting their bottom lines, this increased cost is being passed onto customers.
National minimum wage increase
The National Minimum Wage (NMW) will see a substantial increase in April 2025. The National Living Wage for those aged 21 and over will rise to £12.21 per hour, representing a 6.7% increase, and rates for other categories also increase.
This increase to provide a fair wage for the lowest-paid workers is already leading to higher expectations across the workforce.
Additionally, those employers who are voluntarily signed up to the Real Living Wage (RLW) have until 1 May 2025 to implement the 2024/25 rates. These are the rates that the Living Wage Foundation consider represent the real living wage based on living costs (and is therefore higher within London).
Employers should prepare for potential demands for wage increases from employees who feel their value has increased in line with the NMW and RLW rises. It is essential to communicate clearly with staff about the reasons for wage structures and to consider performance-based pay adjustments where appropriate.
Additionally, businesses may need to review their pricing strategies to accommodate the increased wage costs.
Recruitment challenges post-Brexit
Brexit has significantly impacted the availability of workers in the UK, particularly in sectors that relied heavily on EU nationals.
While some waste management companies in and around London tell us that post-Covid, the labour market has eased particularly for the recruitment of HGV drivers and workers on MRFs, those outside London miss the free of movement for workers from EU member states.
To address these challenges, businesses should consider how to make jobs that British workers don’t want to do more attractive – be it shorter shifts, tea breaks or training so that such jobs don’t remain entry-level positions.
Additionally, employers should stay informed about changes in immigration policies that may affect their ability to attract skilled workers from abroad.
Non-employment-related economic factors
Debt
Debt has become more expensive due to rising interest rates and stricter lending criteria from financial institutions. The increase in borrowing costs has created barriers to funding infrastructure projects, which in turn has reduced the demand for recycled aggregates commonly used in construction.
The economic pressures are felt particularly in the Midlands, where house building has slowed significantly since the boom years of 2021 and early 2022.
During those years, a substantial amount of recycled material was utilised in construction projects, but the recent stagnation has led to a significant decrease in demolition activities, such as tearing down old factories to make way for new housing developments.
Haulage Costs
While fuel costs have reduced compared to the end of 2022, the overall cost of transportation remains high.
Haulage prices have not decreased in tandem with fuel prices, making the logistics of moving materials more expensive, which is why one of the main costs of waste management, transport, remains expensive.
Regulatory Controls
There has been a notable increase in regulatory controls, adding a bureaucratic burden to businesses. While these regulations may not directly translate to economic costs, they present significant administrative challenges that can disrupt operations and increase compliance costs.
These regulatory hurdles, though intended to ensure safety and environmental standards, often complicate processes and can be perceived as a significant inconvenience by those in the industry.
Recyclate Prices
Plastic prices are “through the floor” and Packaging Recovery Notes (PRNs) for glass are low, both of which impact waste management companies’ revenue streams and directly affect the bottom line. Those waste businesses reliant on selling recyclates are finding their margins squeezed as market prices drop.
This necessitates a reassessment of their business models, including exploring alternative markets for recyclates, investing in technology to improve the quality of recycled materials, or diversifying their services to reduce dependence on fluctuating recyclate prices.
EfWs and Softening Waste Disposal Prices
While ETS will put up prices, the feeling amongst waste management companies is that the increased number of EfW facilities is leading to a softening of waste disposal prices. This presents both challenges and opportunities.
Lower disposal prices can ease some financial burdens for waste management companies, but they also mean EfW operators must stay competitive in an evolving market.
Waste businesses face numerous challenges in today’s economic landscape, but there are strategies available to navigate these difficulties, such as:
- Adjusting pricing strategies to remain competitive.
- Enhancing service offerings to differentiate from competitors and attract more clients. One way we see this happening is the selling of waste services as “Sustainability Solutions”, such as a repackaging of the contribution to the environment that waste companies have been offering for decades. The additional benefit of this approach is the ability to use this business model to leverage value on exit for those who want to realise the value of their business.
- Investing in marketing and public relations to highlight the company’s commitment to environmental sustainability while being careful not to fall foul of rules on greenwashing.
- Regularly reviewing financial and operational performance to identify areas for cost savings and optimisation.
In conclusion
Ultimately, the key lies in staying informed, proactive, and innovative in addressing the various economic factors impacting the industry.
The workforce landscape in 2025 presents several challenges for UK employers. By staying informed and proactive, businesses can navigate these issues and continue to thrive in a changing environment.
Embracing new technologies and adapting recruitment strategies will be crucial in maintaining a competitive edge and ensuring a resilient workforce.
