Why the Autumn Budget is Good News for SMEs

There has been a great deal of discussion since Chancellor Rachel Reeves unveiled her Autumn Budget last week, with many focusing on how it will impact both small businesses and the wider UK economy. The budget includes several key measures designed to support SMEs, alongside initiatives aimed at boosting overall economic growth.

Among the most notable changes are increases to both the national minimum wage and national living wage. From April 2025, the national minimum wage for workers aged 18-20 will rise by 16.3%, from ￡8.60 to ￡10 an hour. The national living wage for workers aged 21 and over will increase by 6.7%, from ￡11.44 to ￡12.21 per hour.

While some critics have raised concerns that these wage hikes may lead to job losses, I believe the impact will be less severe than anticipated. The Chancellor’s budget strikes a balance between raising wages and providing much-needed relief for small businesses.

Key Measures to Support SMEs

Alongside the wage increases, the Chancellor has introduced several provisions to ease the financial burden on employers. One of the most significant measures is an increase in the employer’s National Insurance (NIC) allowance. This change will exempt 865,000 smaller businesses from paying NICs on their first ￡5,000 of earnings, enabling SMEs to hire up to four full-time employees on the national living wage without incurring any NIC costs. This move will provide critical financial relief for many businesses struggling with rising costs.

I'm optimistic that this increase in the employer’s allowance will help "cushion the blow" of the wage hikes and the 1.2% rise in employer NICs, which will take the rate up to 15%. In addition, the government’s decision to reduce the secondary threshold—the point at which employers start paying NICs on employee earnings—from ￡9,100 to ￡5,000 is another key aspect of the reform. This should provide additional support to small businesses by reducing their overall tax burden.

Long-Term Growth and Sustainability

These budget changes come in response to the government’s pressing fiscal challenges, including a ￡25bn funding gap, as highlighted by the IMF. However, the broader impact on small businesses is expected to be more positive than negative.

As we all know, costs have been rising across the board in recent years, and the decision to increase wages is a step in the right direction to ensure workers’ pay keeps up with inflation. However, I recognise that these changes will inevitably impact employers. That said, the increases in the employer’s allowance provide a much-needed buffer against these rising costs.

The IMF has expressed confidence that the Chancellor’s budget—despite some tax increases—will foster sustainable economic growth. Their analysis suggests that these measures will not only address the fiscal shortfall but will also help lift living standards and provide long-term stability for businesses.

Looking Ahead

While the economic environment remains challenging, I’m confident that these budget measures will help small businesses navigate the storm. Of course, there are concerns about the potential unintended consequences of the NICs rise. Experts such as the Chartered Institute of Taxation (CIOT) have raised alarms about possible short-term impacts on employment and job creation. However, I believe that with careful adaptation, SMEs will be able to absorb these changes and continue to thrive in a more competitive and resilient economic landscape.

At the end of the day, small businesses remain the backbone of the UK economy, and the Chancellor’s budget contains several provisions that should help ensure their continued success.