The UK’s entrepreneurial community is facing mounting challenges, with the economic climate increasingly challenging following changes announced in the Labour government’s first Autumn Statement. Business closures have hit a 20-year high, economic growth has stagnated and employers are having to make tough choices to navigate new tax burdens.
Many SME business leaders are calling for urgent policy changes, in particular around increases to employers’ National Insurance Contributions (NICs) and revisions to Capital Gains Tax (CGT). With the Spring Forecast from the Office for Budget Responsibility (OBR) approaching, there’s hope that the government will reconsider or adjust these policies to ease the burden on SMEs. While a complete reversal seems unlikely, there’s a strong case for targeted policy refinements for this vital business community.
SMEs: the backbone of the UK economy
SMEs play a crucial role in the UK economy, accounting for over 60% of private sector employment. However, rising costs and regulatory pressures are making it harder for them to operate – let alone grow and expand.
One of the biggest concerns is the planned increase in employers’ NICs from April 2025. This change is already directly impacting SMEs’ hiring decisions, with recruitment freezes, job cuts, and reduced wage growth all reported by many SMEs since the Autumn Statement announcement. While the government has introduced an increase in the Employment Allowance to help mitigate costs, many small businesses say that it is not enough.
Exempting SMEs from the NICs rise, or introducing further relief measures, could prevent unnecessary job losses and keep the UK’s small business ecosystem thriving.
Reducing barriers to business growth
For entrepreneurs to succeed, they need a stable policy environment that encourages investment and long-term planning. The government must focus on reducing barriers to business growth by simplifying regulation, enhancing accessibility to funding and creating incentives for private investment into UK SMEs.
Private equity and venture capital are essential drivers of business expansion for SMEs, helping to foster innovation and facilitate job creation. However, recent changes to tax policy risk discouraging investment at a time when businesses need it most. Strengthening initiatives like the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) would provide much-needed funding opportunities for growing businesses. These schemes can be enhanced at no cost to the taxpayer, but require proactive political engagement and legislative adjustments to make them more attractive to investors.
Supporting entrepreneurs through fair taxation
A fair and growth-oriented tax system is an essential foundation for a strong entrepreneurial environment in the UK. Entrepreneurs need policies that reward long-term investment and encourage reinvestment into new ventures.
A key issue facing SME leaders post-Autumn Statement is the increased CGT rates, which have made it more expensive for entrepreneurs to sell their businesses. Many founders rely on business sales to finance new projects, support their families, or plan for retirement. Higher tax rates on these exits not only penalise success but also discourage reinvestment into the UK economy.
Similarly, maintaining a competitive Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) is crucial. This relief helps entrepreneurs retain more of their earnings when they sell a business, making it easier for them to launch new ventures and drive further economic growth. If tax policies continue to discourage entrepreneurship, fewer founders will take the risk of starting and scaling businesses – which would ultimately stall innovation and investment in the UK.
Backing British entrepreneurs
For the UK economy to remain competitive, policymakers must recognise the critical role of entrepreneurs and SMEs. Rather than increasing financial and regulatory pressures, the government should actively support business growth through well-targeted reforms.
As the Spring Forecast approaches, there is an opportunity to revise the most damaging policies and introduce measures that encourage entrepreneurship, investment and kickstart job creation. By fostering a more business-friendly environment, the UK can strengthen its position as a global hub for innovation and economic progress.
But the question remains: will the government listen to the concerns of the business community and take action before more damage is done?
Authored by, Jamie Roberts, chief investment officer at YFM Equity Partners
