There are definite up-ramps for small firms in the spending plans – but potholes too

The government announced their latest Spending Review which contains some positive changes to help small businesses navigate the current economic climate by driving growth. 

The headlines focus on a series of specific changes aimed at bolstering small business owners and directors with a focus on innovation, easing tax burdens and improving funding opportunities. 

These include:-

  • Increased access to Finance and Investment for small businesses – The British Business Bank’s financial capacity is being increased to £25.6 billion. This is a two thirds increase on the 2025/26 period and will enable the bank to increase its investments and lending to approximately £2.5 billion annually. This is intended to improve the flow of funding to smaller businesses including Start Up Loans. 
  • Innovation and R&D – £22.6 billion per year will be given to R&D by 2029/30. A key initiative for small firms will be a £410 million Local Innovation Partnership Fund. This sees £30 million given to each of the mayoral strategic authorities and equivalent regions in the developed nations. This local-led approach aims to ensure that R&D funding is tailored to the specific needs and strengths of regional economies benefiting local SMEs wherever they are based. A further £500 million R&D Missions Accelerator Programme will work to create opportunities for innovative small businesses to participate in national projects and support the government’s strategic missions. 
  • Skills and Training – £1.2 billion per year by 2028/29 will be allocated to address skills gaps through providing funding to approximately 1.3 million 16 to 19 year olds in accessing training and is expected to support an additional 65,000 learners annually by 2028/29. This investment aims to create a more skilled workforce for small businesses to draw from. 
  • Digitalisation and AI – A £2 billion AI Action Plan was announced including initiatives to improve the adoption of AI by small businesses. This includes the creation of “AI growth zones” to expedite planning for AI-related proposals such as data centres. Additionally £500 million has been allocated from 2026/27 and 2028/29 to streamline tax interactions for businesses with HMRC.
  • Business Rates – Some relief for small businesses through the business rates multiplier remaining frozen for the 2025/26 financial year at 49.9p. This is designed to protect over a million properties from inflationary increases. However the Retail, Hospitality and Leisure (RHL) relief scheme will be adjusted from 75% to 40% in the same period with a cash cap of £110,000 per business. While still providing some support, this is a reduction on the previous level of relief for firms in those sectors. 
  • International Trade – The Department for Business and Trade will be optimising its overseas presence to maximise opportunities in high-potential markets which will create new avenues for small businesses looking to export.

While the announcements contain several clear pieces of good news, reaction is mixed depending on the sector your business operates in. 

Tina McKenzie, Policy Chair of the Federation of Small Businesses (FSB) said: “Small businesses will be wondering when they will feel the benefits of the Spending Review. It was not the business-focused day they had hoped for.

“As spending allocations were announced, decisions over how that money would support small businesses were not included. Increased Statutory Sick Pay came without help for small businesses to afford it; extra money for housing and defence came without a commitment to include small firms in the supply chain; new energy efficiency funding for households came without equivalent help for small business premises.

“The one major bright spot for small firms today was the significant increase in resources to the British Business Bank, which we campaigned for and welcomed. This should see far more finance flowing to local businesses up and down the country.”

Anna Leach, Chief Economist at the Institute for Directors (IoD) said: “Security, health and defence rightly take centre stage in this Spending Review. Security and stability are fundamental pillars for growth so IoD members will be keen to see a focus on addressing waste and inefficiency. 

“It was good to see confirmation of a minimum 16% real terms reduction in administrative budgets by 2029/30 and 5% efficiency targets for 2028/29. Given the pressures on public services, it makes sense for these savings initially to be earmarked for delivery. We would expect over time for savings to be used to bring down the tax burden. 

“Infrastructure investment has been rightly prioritised. The allocations to regional transport, nuclear energy and R&D from the capital spending budget are sensible and largely aligned with the priorities of business leaders. But public sector net capital investment is set to fall by 0.6% per year in real terms over the Spending Review period. 

“If the private sector is to be ultimately responsible for delivering the renewal of the UK economy, a strong and coherent plan to drive business investment is needed. Increasing the capacity of the British Business Bank is an important step and the forthcoming Infrastructure and Industrial strategies will enhance policy stability and enable businesses to plan. 

Above all other things, businesses desire certainty so Spending Reviews help put meat on the bones of general promises by spelling out how and when they will be paid for. 

Now directors and business owners have a clearer view of how they will (or will not) be supported by the central government over the next four years and can plug in these calculations to their own forecasts and see where they can take advantage or seek support themselves. 

Whether you can now move forward with your own ambitious future plans or need to make some adjustments – we’ll be able to help. 

Get in touch to arrange a free initial consultation with one of our advisors at the most convenient time for you and we’ll help you understand what the new lie of the land means for you and your business and what you can do to take advantage in the rest of 2025 and beyond.