New £2m Government Fund for SMEs Risks Boosting Landlords, Not Tenants

📋 The Government Announcement

According to the official government announcement, the funding is delivered through the Made Smarter Adoption Programme and aims to help small businesses invest in sustainability measures such as:

• Funding delivered through the Made Smarter Adoption Programme
• Aims to support SMEs investing in sustainability measures such as solar panels, insulation, and heating upgrades
• Announced as part of the Government’s response to the Willow Review, which found that 67% of SMEs adopting sustainable practices reduced costs

Blair McDougall, Minister for Small Business: “Sustainability is good for growth, cutting costs, and saving SMEs money to spend on growing their business.”

Katie White, Minister for Climate: “Clean energy is the economic opportunity of the 21st century… helping SMEs unlock financial benefits as we accelerate towards net zero.”

This £2m package sits within a wider £5bn government commitment to support businesses on their net zero journey, alongside schemes such as the Industrial Energy Transformation Fund for high energy users.

🏢 Commercial Property Context

Understanding the potential impact of this funding requires examining the structure of UK commercial property markets and how SMEs typically occupy business premises.

SME Property Arrangements

Research by business organizations indicates that:

• A majority of SMEs rent rather than own their business premises
• Commercial leases vary in length, affecting investment incentives
• Different sectors have different property occupation patterns
• Regional variations exist in rental vs ownership rates

The Split Incentive Question

When tenants make improvements to rented properties, several dynamics come into play:

The Willow Review itself noted that SMEs often lack control over their premises, limiting their ability to benefit fully from sustainability investments.

🌍 International Examples

Other countries have addressed similar challenges in different ways:

European Approaches

🔑 Wider Measures

The announcement also highlighted:

• Zero Carbon Services Hospitality Trial: 600 small hospitality businesses receiving free energy assessments, projected to save £3m and prevent 2,700 tonnes of carbon pollution.
• Smart meter rollout: Nationwide deployment to help SMEs manage energy use.
• Private sector alignment: Barclays’ Green Loans for Business and National Climate Tech Accelerator cited as complementary initiatives.

🎯 Questions for Consideration

As this funding scheme develops, several questions merit consideration:

Implementation Questions

• Will funding conditions address tenant-landlord benefit sharing?
• How will the scheme measure success in supporting actual SMEs versus property values?
• What happens if energy savings are offset by rent increases?
• Are there mechanisms to ensure benefits reach intended recipients?

Monitoring and Evaluation

• Will the government track rent changes in properties receiving funding?
• How will actual energy cost savings for SMEs be measured?
• What data will be collected on lease renewal outcomes?
• Will there be feedback mechanisms from participating businesses?

Conclusion: Design Matters

The £2m SME funding scheme is a positive step, but its effectiveness depends on design. Without safeguards, public money intended to support small businesses could flow disproportionately to landlords.

International experience shows this challenge can be addressed through green leases, shared savings models, and rent adjustment transparency. The key is recognising that commercial property structures shape how benefits are distributed.

Success will be measured not just by the number of improvements implemented, but by whether those improvements deliver lasting benefits to SMEs, the businesses the scheme is meant to support.