Budget’s growth ambitions face test as businesses warn of rising costs and uncertainty

Entrepreneurs welcome new tax incentives and £20.4bn in additional funding capacity, but warn that established SMEs must not be overlooked as employment costs rise and business owners face uncertainty over tax relief.

The government has pledged to support British entrepreneurs and drive economic growth, but business leaders have warned that the Budget’s success will depend on whether its measures reach the companies that need them most.

The package includes a new tax relief for qualifying founders, additional funding capacity for the British Business Bank and National Wealth Fund, and changes to the tax treatment of business sales. However, a reduction in Business Asset Disposal Relief (BADR) and a rise in the National Living Wage will also influence decisions on investment, recruitment and business exits. For entrepreneurs considering selling their businesses, the changes to capital gains tax relief could prove particularly significant.

Freddie Pattenden, independent financial adviser at Oury Clark, said halving the BADR lifetime limit from £1m to £500,000 from April 2027 could add £30,000 to a higher-rate taxpayer’s bill on a £1m gain, assuming the full previous relief was available and the remaining gain was taxed at 24%. “For anyone planning an exit, timing matters, but so does how money is taken out of the business beforehand and what happens to the proceeds afterwards,” he said. “That planning needs to start well before a deal completes, not after.” The government has sought to balance the reduction with Founders’ Relief, which will offer a 10% capital gains tax rate on up to £10m of lifetime gains for qualifying founders from April 2027. However, the detailed eligibility requirements will determine how widely the relief can be used. “Founders’ Relief is a big headline, with 10% on up to £10 million of lifetime gains,” Pattenden said. “From the consultation detail, though, it looks tough to qualify for. We’ll have to wait and see.”

Steve Berry, chairman and corporate senior partner at Acuity Law, said the new relief could influence entrepreneurs considering a sale, management buyout or private equity investment. “A 10% rate on lifetime gains of up to £10 million could materially change the economics of selling a business, so owners considering an exit, management buyout or private equity investment will want to know exactly when it takes effect and what conditions apply,” he said. Until the details are clear, some sellers may reconsider the timing and structure of transactions, Berry said. Those already negotiating deals should seek advice before committing.

But while the Budget places considerable emphasis on entrepreneurship and high-growth businesses, there are concerns that established small and medium-sized enterprises (SMEs) risk being overlooked. John Nelson, managing director of eCapital UK, welcomed support for small retailers, hospitality businesses and entrepreneurs, but argued that the government must also recognise the contribution of established companies that employ people and sustain regional economies. “If the government’s ambition is growth in every postcode, it is a mistake to overlook the established SMEs that employ people and keep the economy moving,” he said.

Manufacturers, hauliers, wholesalers and suppliers form a vital network supporting businesses across the country, Nelson said. Yet many are being squeezed by uncertainty and the rising cost of doing business. He called for further action to reduce energy and employment costs while improving access to finance, arguing that businesses need funding not only to manage payment delays and rising costs but also to invest, take on new contracts and create jobs.

The government’s additional £20.4bn in funding capacity for the British Business Bank and National Wealth Fund is a significant commitment. However, Nelson said its effectiveness would depend on whether the money reached businesses that struggle to secure finance through traditional lending channels. “Many viable, growing businesses still find it difficult to access finance through traditional lending channels,” he said. “We would like to see access simplified and eligibility broadened so more SMEs can benefit.” Berry also welcomed the additional funding, but said companies accessing it should examine the conditions attached, including investor rights, security and reporting obligations, to ensure that finance intended to support growth did not ultimately constrain it.

Tim Mills, managing partner at ACF Investors, welcomed the government’s emphasis on entrepreneurship, particularly measures intended to reduce the administrative and regulatory burdens facing early-stage and high-growth businesses. He warned, however, that reducing BADR could weaken the cycle through which successful entrepreneurs reinvest their money and experience in new ventures. “Successful entrepreneurs play a vital role in the UK’s startup ecosystem, not only by building high-growth businesses, but by reinvesting their capital and experience into the next generation of founders,” he said. “While reducing the BADR limit risks dampening this cycle of investment, balancing these changes with proactive incentives like Founders’ Relief will be key to maintaining access to early-stage funding.” For Mills, the challenge is to create an environment in which businesses can grow and entrepreneurs have the confidence to reinvest, supported by policies that provide long-term certainty.

The cost of employing people remains another immediate concern for businesses. The National Living Wage will rise by 3.9% to £13.21 an hour from April 2027, increasing pay for eligible workers while adding to employers’ wage bills and associated employment costs. Pattenden said the increase would mean higher pay, national insurance and pension costs for employers, adding to the financial decisions facing landlords, savers and business owners. Taken together, the measures present businesses with both opportunities and challenges. New incentives could encourage some founders to establish and grow companies, while additional funding could help firms invest and expand. But the benefits will depend on the accessibility of the schemes, the detail of the tax rules and the extent to which established businesses can secure the finance they need.

The Budget’s ambition is to encourage innovation, support entrepreneurs and strengthen economic growth. Business leaders have broadly welcomed that direction, while warning that the costs of employing people, uncertainty over business-sale taxation and difficulties accessing finance remain significant concerns. The ultimate test will be whether the measures translate into investment, jobs and sustainable growth across the economy – not only among the next generation of start-ups, but also among the established businesses that already underpin Britain’s regional economies.