In the much-anticipated Spring Budget update, Rachel Reeves delivered a message of stability, growth and rebuilding. We have outlined how this may affect small and medium businesses in the UK.
Economic Stability
The Office for Budget Responsibility (OBR) has downgraded their predictions for UK economic growth in 2025 from 2% to 1%. In addition to this, inflation is forecast to average 3.2% in 2025, up from the previous estimate of 2.6%. It is then however forecast to drop to 2.1% in 2026 before reaching the targeted 2% in 2027.
For SME’s, slower growth forecasts will mean planning is very important. However, the Government’s pledge to work closely with the Bank of England on inflation control, and the interest cuts since Labour took office, should provide some reassurance for businesses struggling with borrowing costs.
Tax Avoidance and Personal Tax
No additional taxes were announced; however, it was made clear that the Government is increasing their efforts to reduce tax evasion, with an aim to increase tax fraud prosecutions by 20%. This move could level the playing field for compliant SME’s and could be a reminder to tighten up tax affairs as investigation tools improve.
Additionally, the government will expand the rollout of MTD (Making Tax Digital) for income tax Self-Assessment to sole traders and landlords with incomes over £20,000 from April 2028.
VAT, Corporation and Capital Allowances
There are no changes to the VAT threshold in the Spring Budget, which remains at £90,000. Corporation Tax stays at 25% for profits over £250,000/ Full expensing and the £1 million Annual Investment Allowance remain in place for qualifying businesses. These reliefs are very valuable for businesses looking to grow and invest.
Employment Skills Focus
The party have positioned themselves as ‘The Party of Work’, and the Government is committed to investing in additional employment, health and skills support from 2026-2027 to help people start or stay in work. This will then be scaled up to £1 billion a year in 2029-2030.
For SMEs in the construction, manufacturing and skilled trades sectors, this focus and investment on employment skills could easy long-term recruitment struggles.
Public Services Investment
One of the most business relevant announcements was the creation of the Transformation Fund, which is a £3.25 billion investment which will focus on vital public services and accelerate the modernisation of the state. It is a move towards a ‘leaner and more agile state’, which could reduce bureaucracy and friction for SME’s working with government departments. There is also a projected focus on the increased use of AI and technology within this investment to seize more opportunities and support the reform of public services. SMEs in the digital, AI and consulting spaces should look for increased opportunities.
Housing, Planning and Growth
One of the most prevalent growth pledges was planning reform. Changes to the National Planning Policy Framework would permanently increase GDP by 0.4%, with housebuilding expected to hit a 40-year high. The Government have also committed £2 billion for affordable homes.
This signals demand and potential new business for SMEs in construction, property and supply chains.
Business Rates
The Government will publish an ‘interim report’ in summer that will overview the ‘clear direction of travel for the business rates system’.
Defence
The defence budget will be increased by £2.2 billion in 2025-2026, making additional spending on defence to exceed £5 billion since the Autumn 2024 budget. SME’s in the technology, AI, engineering and manufacturing sectors could benefit from the commitment to spending 10% of the Ministry of Defences equipment budget on emerging technologies.
The growth figures may seem like a step backwards; however, the Government have implied a future of long-term commitment and investment into skills, infrastructure and innovation rather than quick fixes with minimal impact.
Key Points from the Spring Budget for SME’s:
- Expect stricter rules and investigation into tax compliance
- Investment into skills could reduce labour shortages
- Planning reform may unlock construction and development projects
The Spring Budget was closed by a promise that households will be £500 a year better off on average with the new Government, driven by falling inflation and substantial wage growth. For SME’s this could mean more consumer spending power and potentially better trading conditions ahead. The Spring Budget suggests a steadier playing field for small businesses and opportunities for those willing to engage and innovate.
If you’re worried about cash flow after the announcement of the Spring Budget, reach out to us. Moorgate Finance can walk you through a range of options to ease the pressure including Unsecured Business Loans to boost cash flow, Invoice Finance to get your Invoices paid faster, and Keyman Protection to ensure you retain valuable staff in your workforce.
Call us on 01908 92 62 62 to discuss your options or click here to schedule a call back with one of our specialists.