SMEs warn goodwill at risk without Budget action, Paragon finds

New research suggests the Government risks losing the fragile support it currently enjoys from small and medium-sized enterprises (SMEs) unless the Chancellor acts decisively on rising costs and tax pressures in the Autumn Budget.

A survey of 1,000 SME leaders and decision makers, commissioned by FTSE 250-listed Paragon Bank, found that 42% want employee-related tax and cost pressures prioritised in the upcoming fiscal statement. Business tax reform (36%), business rates (35%), innovation and investment incentives (30%), skills and training (27%) and access to finance (26%) were also highlighted as urgent policy areas.

The findings come against a backdrop of widespread concern over measures introduced in the previous Budget. Nearly three-quarters of SMEs (73%) said the rise in Employer National Insurance Contributions had impacted their business, while 69% cited the corporation tax increase. The uplift in the national minimum wage (64%) and changes to capital gains tax (59%) were also widely felt.

Rising operational costs remain the most significant challenge facing SMEs, with 47% identifying it as their biggest pressure. Employment costs (36%) and access to finance (29%) followed.

Despite these strains, 45% of SME leaders rated the Government’s support in its first year as “good”, though sentiment varied sharply by sector. Only 15% of construction firms gave a positive rating, compared with 61% of respondents in farming and agriculture.

Confidence that ministers understand sector-specific needs also diverged. While 61% of SMEs overall reported feeling “very” or “somewhat” confident, fewer than a quarter (24%) of businesses in arts and entertainment shared that view. In education, the figure rose to 46%.

Yet SME optimism about their own prospects remains resilient: 65% said they expect their business to perform well over the next 12 months. Confidence in the broader UK economy was notably weaker, at 47%.

“SMEs are the backbone of UK business and when they fail, the economy fails,” he said. “This research reveals their clear message to Government: adding more cost and taxation will only hinder growth and innovation. We see firsthand the headwinds they face, and whilst they remain adaptable, ongoing Budget uncertainty only intensifies an already challenging operating environment.

“While SME sentiment towards Government is currently somewhat favourable, policymakers shouldn’t count on it for long. To earn long-term confidence the Chancellor urgently needs to give SMEs clarity on how the Government is going to kickstart this promised growth and ease the burden of increasing operational costs.”