As Britain prepares for the Labour government’s autumn budget on 26 November, attention is turning to one of the UK economy’s most vital engines: small and medium-sized enterprises (SMEs).
Accounting for 99% of businesses, over half of all private sector employment, and more than half of private sector turnover, SMEs are widely recognised as the backbone of the nation’s economy. Yet many remain constrained by limited access to funding, a challenge that threatens to stifle growth just as policymakers aim to accelerate it.
Labour, which has made growth its central economic mission, faces a delicate balancing act. Chancellor Rachel Reeves is expected to outline tax and spending measures designed to close a significant fiscal gap.
For small businesses, the impact could be mixed. Labour’s previous budgets have already increased the National Living Wage and employer NICs, raising the cost of labour. SMEs continue to face a structural funding shortfall.
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“If we take a step back and look at the bigger picture, there has been a development over decades which has been detrimental to the SME community. Small businesses need funding to grow, whether it’s a farmer needing new machinery or a builder investing in equipment,” Simply Asset Finance COO Ylva Oertengren told Yahoo Finance UK.
“Over the past decades, funding to this sector has shrunk to a very low level, pushing UK business investment to the bottom of the G7. To get back on a growth track, this needs to be reversed, and overhauled.”
Richard Davies, CEO of Allica Bank, echoed the urgency. He cited a recent report estimating a £65bn gap in SME credit, particularly in productive lending for business investment.
“Four in five business owners would rather not grow or borrow because of a ‘fear factor’ around borrowing,” Davies told Yahoo Finance UK. “In the short term, improving the supply of capital requires regulatory attention. Over the last decade, there hasn’t been enough focus on ensuring a flow of productive credit to businesses.”
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Reinald de Monchy, chief banking officer of the British Business Bank, highlighted another challenge -demand-side awareness.
“Many small businesses, when turned down by major high street lenders, stop looking for funding,” he said on Yahoo Finance Future Focus. “But there are alternatives. Through the Business Bank, our finance finder tool connects businesses with products and lenders suited to their needs. We want to grow specialized banks, non-bank financial institutions, and community development lenders so that more SMEs can access the funding they need.”