Business owners know that success means you need to have grit, but you never know how much until you are actually at the heart of things.
Our SME sector, which supports over 27 million jobs and drives £4.5 trillion in annual turnover, has navigated pandemic recovery, persistent inflation, supply chain bottlenecks, and rising operational costs. That, friends, is a lot of grit.
As we approach the upcoming Budget, scheduled for 28 October, optimism among the many founders I speak with feels low. They feel that small business owners have been treated as a reliable tax base rather than the primary engine of national growth. While recent government moves such as expanding the British Business Bank’s Growth Guarantee Scheme have been a positive step in the right direction, fiscal policy still seems to have the map upside down when it comes to understanding of how small businesses actually operate.
If Chancellor John Healey wants to demonstrate true commitment to the small business community, this Budget needs to step back from the margins and fix structural policy flaws to unblock access to capital.
Here is what needs to change.
The VAT threshold stifles growth
The most glaring example of a policy actively holding back British ambition is the VAT registration threshold.
The recent increase in the VAT limit to £90,000 is a classic step in the right direction without full commitment to a positive structural change. For a sole trader, tradesperson, or independent consultant approaching £90k in turnover, taking on an extra client or launching a new line of work can actually leave them worse off once they step off the £90,000 cliff edge and hit the 20% tax penalty.
As a result, thousands of micro-businesses actively cap their growth, turn down extra shifts, or downsize their ambitions simply to stay below the threshold. We are literally incentivising small businesses not to grow.
My belief is that the threshold hurts businesses just when they are getting started. A smoothed, tiered VAT entry system for growing businesses would reward ambition, give founders room to absorb administrative costs and unlock millions of pounds in suppressed economic activity.
Remove friction from credit guarantees
Access to capital remains the single biggest bottleneck for UK SMEs, with the funding gap estimated between £1.6 billion and £4.1 billion annually.
The Chancellor deserves credit for expanding the Growth Guarantee Scheme (GGS), which scales up supported lending toward £3.35 billion a year, lengthening loan terms to 10 years and raising turnover eligibility to £54 million. This is a massive step forward for businesses looking to make long-term capital investments.
The missing piece is that a government guarantee is only as good as a business owner’s ability to access it. Too many viable SMEs are turned down by traditional high street banks simply because automated credit scoring models rely on backward-looking financial data rather than real-time performance.
I would like to see two initiatives: Fast-track Open Finance infrastructure to allow lenders to evaluate real-time cash flows rather than outdated historical accounts and ensure non-bank, digital and alternative lenders have equal, streamlined access to guarantee programs to deliver capital quickly directly to regional businesses.
The result would be that more capital could go to great businesses, whatever their background and wherever they are in the UK. For a government that is trying to escape the Westminster bubble, this feels like a golden opportunity.
Incentivise investment, do not just tax success
There is a reason why small businesses are such economic powerhouses: when they generate profits, their instinct is almost always to reinvest: in new machinery, staff training, green technology, or software automation. Yet, changes to employer costs, business rates, and capital write-down timings over recent years have made taking that risk significantly more expensive.
If this government wants a high-growth economy, it must reward risk-taking. Here’s how that could work:
- Permanently simplify business rates: The current system is antiquated and needs an overhaul to stop penalising high-street businesses and physical operations. Competition from the online world is not new any more.
- Expand Investment Incentives for SMEs: The full-expensing policies and R&D tax incentives have been impactful. It is time to make them more accessible to smaller, scaling firms so that founders are encouraged to automate and innovate.
It is time to make a shift
Small business owners do not expect government handouts. What we need is a stable, predictable, and logical framework that rewards hard work and makes accessing growth finance simple.
At Swoop, I see the transformative potential of UK small businesses every day: when you give an entrepreneur the right tools and access to capital, they create jobs, resuscitate communities, and power the economy forward. I can see this and it pains me that the government cannot.
It is time for the Treasury to turn the map up the right way when it comes to SMEs. This Budget is the Chancellor’s opportunity to show that the UK is open for business. The directions couldn’t be clearer.
Key takeaways
- The VAT registration threshold actively discourages growth – thousands of micro-businesses cap their revenue to avoid crossing into VAT liability, costing the economy productivity and jobs.
- The funding gap for UK SMEs is estimated at between £1.6 billion and £4.1 billion annually. The Growth Guarantee Scheme is a step in the right direction but too many viable SMEs still struggle to access it.
- Andrea Reynolds calls for Fast-track Open Finance infrastructure to allow lenders to evaluate real-time cash flows rather than backward-looking financial data, and for non-bank, digital and alternative lenders to have equal, streamlined access to guarantee programmes.
- Business rates remain antiquated and penalise physical presence – the Budget should permanently simplify the system and make full-expensing and R&D tax incentives more accessible to smaller, scaling firms.
- Small business owners do not want handouts – they want a stable, predictable and logical framework that rewards risk-taking and allows them to invest, hire and grow with confidence.
