The SME Confidence Paradox
A profound disconnect is shaping the UK's economic landscape as the nation's small and medium-sized enterprises display remarkable self-belief amidst growing scepticism towards Westminster. New data reveals that three-quarters of SME leaders are confident about their own growth prospects heading into 2026. However, this optimism sharply contrasts with their faith in government, where only 39 per cent trust the current administration to create the conditions for that growth to happen.
This confidence gap has widened significantly over the past year, with a worrying ten-point drop in business trust towards government. The figures emerge against a backdrop of rising unemployment since the Labour government came to power, creating a challenging environment for Britain's economic engine room.
Businesses Pivot to Technology as Costs Bite
According to Mike Hackett, Chief Commercial Officer at lender ThinCats, business owners are expressing considerable frustration despite recognising some positive policy developments behind the scenes. Improvements in trade, access to finance, infrastructure planning and industrial strategy are noted, yet businesses struggle to understand why much of the financial burden continues to fall on them.
The cumulative impact of Brexit, Covid, the Ukraine conflict, inflation and higher interest rates has pushed many companies to their limits. Following last year's Budget, which introduced tax increases, many businesses absorbed the costs without major disruption. However, among those significantly affected, the response has been stark: 40 per cent of affected businesses have frozen recruitment while 20 per cent have cut headcount directly in response to higher employment costs.
Rather than retreating completely, businesses are increasingly turning to technological solutions. When hiring becomes unaffordable, automation becomes essential. More mid-sized companies are exploring AI and automation for productivity gains, from basic Generative AI and cloud accounting software to advanced manufacturing automation and robotics. This strategic pivot sees companies pausing recruitment to free up capital for technology investment, potentially accelerating Britain's march toward AI-powered productivity.
What Businesses Want From Government
Looking ahead to the next Budget, business desires are clear though potentially unrealistic. The most significant demand is for the Chancellor to reverse recent National Insurance increases, though this appears unlikely. Beyond this, there's strong appetite for improved access to finance – an area where government is currently consulting – alongside better digital skills development and enhanced support for exporting.
The government faces difficult challenges in managing expectations. Before the current administration was elected, many businesses adopted a wait-and-see approach, anticipating new opportunities. Unfortunately, much of that expectation remains unfulfilled, with many companies now bracing for potential tax increases.
The fundamental question facing government, according to industry observers, is what concrete measures it will implement to actively help businesses grow. While SMEs continue to back themselves with remarkable resilience, their confidence in government support continues to erode, creating a potentially damaging drag on the UK's economic recovery and job creation prospects.
