The Chancellor says growth is her priority, but her Budget delivers only minor changes with major consequences for sentiment, writes Claire Madden.
On the eve of her Budget, Rachel Reeves promised to “push ahead with the biggest drive for growth in a generation.” It was a bold statement, designed to signal intent. Yet when she stood up in Parliament the following afternoon, that ambition was nowhere to be found. Instead of a programme that would encourage businesses to hire, invest and expand, the Chancellor delivered a collection of marginal adjustments that do little to alter the conditions facing the UK’s growth engine.
This Budget could have reassured SMEs and investors that the government understands the pressures they face, and it could have shown that the rhetoric about growth is finally being translated into policy. Instead, the measures aimed at entrepreneurship were confined to limited changes to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules. These refinements, which will allow EIS and VCT managers to support investee companies for longer by increasing the gross asset limits, are useful improvements; however, they touch only a tiny part of the market. What the UK requires is a genuine vision and a plan for a national growth strategy.
More consequential were the decisions that will make investment less attractive. Reducing VCT income tax relief from 30% to 20% weakens the incentive to deploy capital into high-growth companies. Halving capital allowances makes it less rewarding for firms to invest in the plant and equipment that drive productivity. Lowering the tax relief available under employee ownership arrangements, where gains that were previously exempt are now taxed at 50%, narrows the appeal of models that help staff share in growth. None of these changes raises meaningful revenue for the government, yet for the people affected by them, investment is becoming less attractive, not more.
Meanwhile, the most significant challenges facing SMEs remain entirely unaddressed. The National Living Wage will rise by 4.1% from April, with even larger increases for younger workers, and the looming Employment Rights Bill continues to create uncertainty about how day-one protections and new rules will operate in practice. These issues are not theoretical; they shape every hiring decision and every assessment of risk. When labour costs increase and flexibility decreases, the logical response is caution, and that caution is already visible in slowing recruitment and deferred expansion plans.
Each individual change seems small, yet together they erode the sentiment on which investment depends.
Taken one by one, the measures in this Budget may appear manageable. Looked at collectively, they form something more damaging: a steady accumulation of pressures that discourage the very behaviour the government says it wants to encourage. For those who feel their impact directly, the Budget resembles a death by a thousand cuts. Each individual change seems small, yet together they erode the sentiment on which investment depends.
I wrote earlier this week about the risks of inaction. This Budget does not signal inaction, but it does signal insufficient action. The Chancellor speaks about growth as her defining mission, yet the policies announced do not create an environment in which growth is likely to occur. They may be politically convenient, but they are not economically transformative.
Sentiment is the missing ingredient. Confidence is what prompts a business owner to hire their tenth employee rather than delay, and it is what prompts an investor to commit capital rather than wait. Sentiment cannot be legislated into existence, but it can be strengthened or weakened by policy choices, and this Budget weakens it. By focusing on incremental changes with limited revenue impact but wider implications for those affected, the government has made the environment more uncertain, not less. Instead of restoring confidence, the Budget leaves that uncertainty largely intact. There is a danger business will postpone decisions and investors will hold back. The gap between the government’s language and the lived reality of SMEs and investors has widened, and until that gap closes, the UK will not achieve the growth the Chancellor describes.
Reeves says she wants to begin the biggest drive for growth in a generation. To achieve that, she will need to recognise that sentiment is shaped by the cumulative effect of policy, not by headline commitments. This Budget did not offer the clarity or confidence required. Without that clarity, it is difficult to see how the UK moves from talking about growth to actually delivering it.