2026 Autumn Budget delivered breathing space for some, but cost pressures remain for UK SMEs

This year’s Autumn Budget was delivered amid a challenging environment. As Kemi Badenoch put it, John Healey was handling something of a ‘hospital pass’, trying to balance protecting household bills and the cost of living with cutting costs and breathing life into the economy at the same time.

There was a lot of focus on SMEs, but many business owners could be scratching their heads when it comes to understanding how the measures will make a tangible impact on their business.

At a time when SMEs are grappling with persistent pressure on costs and supply chains at home, and geopolitical volatility and uncertainty abroad, the Chancellor opted for a Budget that offered the economy ‘breathing space’, as he named it, avoiding bolder initiatives to generate growth.    

First, the good news. There were several areas of meaningful support, including, perhaps most significantly, the expansion of Small Business Rate Relief, with around 70,000 additional retail, hospitality and leisure businesses expected to pay no business rates. However, this sector was expecting more with 250,000 businesses who had hoped for relief left disappointed.

The decision to freeze bills in real terms for other qualifying businesses in those sectors, for two years, should also provide some welcome certainty.

There were encouraging signals on investment too, with Healey reaffirming Government’s commitment to keeping Corporation Tax at 25%, providing some certainty for business planning. While the tax relief available on existing investments will become slightly less generous, businesses will be able to claim more tax relief upfront on new investment from January 2027. This could encourage some SMEs to bring forward spending on new equipment, machinery and other assets.

The Chancellor also announced measures aimed at supporting entrepreneurs and growing businesses. A new Founders’ Relief Fund will give eligible founders of high growth companies a 10% Capital Gains Tax rate on up to £10 million of lifetime gains, while the tax-free trading allowance will increase from £1,000 to £3,000. These measures should make it more attractive to start and grow a business.

When it came to access to finance, the Chancellor revealed the British Business Bank will receive additional £5 billion financial capacity to support a £6.5 billion expansion of the Growth Guarantee Scheme, helping businesses that might otherwise struggle to secure funding through standard lending routes.

We have seen the value of that first-hand at Paragon Bank. As an accredited lender, we have provided more than £90 million of Growth Guarantee Scheme-backed lending to over 300 UK SMEs, supporting businesses across manufacturing, transport, construction, engineering and agriculture.

The scheme gives lenders additional confidence to support viable businesses, helping them invest in new equipment, premises and people, improve productivity and pursue growth opportunities.

At a time when access to finance remains a barrier for many smaller businesses, expanding the scheme should help turn investment intentions into activity on the ground. The opportunity now is to ensure that finance reaches businesses across sectors and regions with credible plans to grow.

With employment costs already weighing heavily on SMEs, the 3.9% rise in the National Living Wage to £13.21 an hour from April will add further pressure to wage bills. Paragon Bank’s research previously found that 36% of SMEs identified employment costs as a significant challenge, with 22% already implementing hiring freezes – the wage increase is likely to exacerbate these pressures.

That’s why measures including the £3,000 Youth Jobs Grant and £2,000 apprenticeship hiring payment for non-levy-paying employers are valuable, aiming to support young people into career pathways whilst easing some of the cost pressures on businesses associated with recruitment.

The risk, however, will be that rising baseline employment costs outweigh targeted incentives, particularly for labour-intensive SMEs. That could leave businesses reluctant to add permanent headcount.

Fiscal devolution is perhaps the Budget’s most interesting longer-term experiment. The Chancellor revealed that, from 2028, Mayors will receive an assigned share of income tax, while local and regional government will retain 100% of business rates income by the end of the decade.

Giving regions greater financial control over local economic expansion could better enable them to attract investment and support businesses. The experiment’s success will hinge on whether Mayors use that additional revenue effectively to create the conditions that make it easier for SMEs to grow.

It’s clear the tone of the Budget sought to recognise the challenge facing businesses. Whilst measures on rates, finance and investment are constructive, the reality is Britain’s SMEs remain exposed to costs they cannot always pass on to customers, as well as international pressures they cannot control.

While too soon to make any firm conclusions, the success of this Budget will ultimately be judged on whether its support for SMEs were meaningful enough to outweigh the cost pressures that continue to constrain investment. For me, the jury remains out.