UK SMEs ready to hire if Budget eases cost pressures

UK small and medium-sized businesses are ready to invest, hire and grow if the Chancellor eases financial pressures. Research commissioned by Flagstone found that 38% of SMEs would recruit more staff if those pressures were reduced.

The survey of 1,000 senior decision-makers at UK SMEs identified tax, energy and labour costs as the main constraints on expansion. It found that 43% want a lower tax burden in the Budget, while 30% want help with energy bills, 29% want employers' National Insurance contributions reduced or frozen, and 27% want changes to business rates.

Many firms said existing pressures had already changed their plans. Nearly a third, or 32%, said financial strains had forced them to reduce hiring or cut headcount, while 31% had changed or delayed growth plans and 30% had postponed strategic decisions.

Energy emerged as a central concern for smaller companies. Some 37% of SMEs ranked meeting energy costs among their top three financial challenges, ahead of economic uncertainty at 30%, the cost of labour at 28%, high operating costs at 26%, and the cost of materials and stock at 25%.

The findings suggest many businesses see scope to expand if conditions improve. Alongside the 38% that said they would hire more staff, 36% said they would invest in equipment, premises and technology, while 33% said they would expand into new markets, products and services.

Improving pay and conditions also featured in responses. A third of SMEs said they would increase wages or improve employee benefits if financial pressures eased, while 29% said they would focus on winning new clients and contracts and invest more in staff training and skills development.

Growth on hold

The figures add to evidence that smaller businesses remain cautious even as they say they are prepared to expand. One in three SMEs has put growth on hold, according to the research, suggesting confidence to invest remains closely tied to tax policy and day-to-day cost pressures.

That matters because SMEs account for a large share of UK employment. Three in five working adults are employed by SMEs, according to Flagstone, making the sector important not only for business investment but also for job creation, wages and local economic activity.

Katie Horne, Savings Expert at Flagstone, linked the pressure on smaller firms to wider shifts in energy markets and domestic policy choices.

"The government can't control what happens in the Strait of Hormuz, but it can look at how it might help smaller firms weather these shocks. Leaders of SMEs are brimming with workable ideas to solve the problems they face. Whether that means new measures to bring down energy costs or reshaping business rates to be more responsive, Labour's Business Day is an opportunity for MPs to lean in and take action before October's Budget.

"In the same week that the consumer energy price cap is on the news agenda, we're reminded that no such cap exists for UK businesses. The impact of high energy costs on SMEs goes well beyond keeping offices lit and vans topped up with fuel. Energy costs eat into businesses' ability to pay for essential logistics, manufacturing and packaging, as well as increasingly expensive stock and materials.

"Currently, three in five working adults work for UK SMEs. Hiring new staff, upskilling your team, investing in kit, winning business and expanding into new markets - these are all ambitions that don't just make SMEs successful on their own, but also contribute hugely to social and economic prosperity in their local communities and the success of UK PLC as a whole. When SMEs are buoyant, the UK thrives," Horne said.

Policy focus

The survey highlights the balancing act facing ministers as they weigh demands for revenue against calls to support smaller companies. Tax was the most frequently cited area for action, but the prominence of energy costs and employers' National Insurance suggests many firms are focused as much on immediate cash flow as on longer-term reform.

Business rates also remain a live issue for a substantial minority of SMEs, particularly those with physical premises and location-based overheads. For those firms, changes to rates can directly affect whether they invest in sites, staff and stock.

Flagstone, a London-based financial technology company, said the research was conducted by Opinium among senior decision-makers at 1,000 UK SMEs. While its business centres on cash savings services, the survey offers a broader view of sentiment among smaller businesses as they assess whether costs and tax policy will allow them to move ahead with expansion.

The responses show a sector that is not ruling out growth, but waiting for greater certainty on the cost of employing people, heating premises and meeting tax demands. With 36% saying they would invest in equipment, premises and technology if those burdens were lighter, the data points to pent-up spending that remains contingent on policy and market conditions.

For ministers, the message from smaller firms is clear: many are willing to hire and invest, but only if the financial pressures they face become more manageable.