Half of UK SMEs consider replacing roles with AI

Paragon Bank research suggests artificial intelligence is rapidly reshaping the UK small business landscape, with half of SMEs considering replacing some staff roles with technology.

A survey of 1,000 SME leaders conducted by the FTSE 250 lender found that 50% of businesses say they are likely to replace certain roles with AI or other technology-driven solutions. However, the shift is far from universal: 24% of SME leaders said they have no plans to reduce headcount through AI, while the remainder remain uncertain about their approach.

The findings show significant differences across industries. SMEs most likely to reduce headcount due to AI adoption are in finance and insurance (62%), information and communication (68%) and manufacturing (53%). By contrast, businesses in transportation and storage (55%), arts and entertainment (47%), health and social care (42%) and education (40%) are among those least inclined to replace staff with technology.

Despite concerns around job displacement, AI adoption among SMEs is already widespread. The study found that 89% of small and medium-sized businesses have implemented some form of AI technology within their operations.

Businesses are deploying AI across a wide range of activities, including data analytics and decision-making (36%), operations and process automation (33%), customer engagement (32%), marketing (28%) and finance and risk management (27%).

Where AI has been introduced, companies report measurable benefits. Around 36% of SMEs using AI say it has boosted productivity, while 31% report improved data management and 30% say it has helped reduce operating costs. Other reported gains include improved customer service (27%), faster innovation (27%) and smarter procurement and inventory management (24%).

The increased adoption of AI comes as SMEs face continued economic pressures. Rising operational costs, higher employment costs and access to finance remain key challenges, prompting many firms to look to technology to maintain competitiveness.

Around 30% of SMEs say they are adopting new technologies or automation as a direct response to cost pressures, while others are exploring new markets, seeking alternative finance options or reshoring supply chains.

John Phillipou, managing director of SME lending at Paragon Bank and chair of the Finance & Leasing Association, said the research highlights how quickly AI has moved into everyday business use.

“Working with more than 16,000 UK SMEs gives Paragon a clear view of the resilience and adaptability that define Britain’s small and medium sized businesses. That spirit is evident in how quickly AI is moving from concept to practical application across the sector,” he said.

“What stands out from this research is the pace at which SMEs are embracing AI. It’s no longer seen as a ‘future technology’, but a practical, productivity-enhancing tool that is already helping firms cut costs, make smarter decisions and serve customers more effectively. Doing so amid ongoing cost and labour pressures is testament to their agility and responsiveness.”

He added that the bank would continue supporting businesses investing in technology. “As AI becomes more embedded in business activity, Paragon remains focused on providing the financial support businesses need to invest in the technologies that can drive the next phase of economic growth.”

The findings come as Paragon Bank marks the 10th anniversary of its SME lending division. Over the past decade, the division has quadrupled its loan book and delivered more than £3.6 billion in lending to support over 16,000 UK SMEs.