UK Budget 2026: what it means for business and hiring
Today John Healey delivered his first Budget as Chancellor. Here’s what stood out:
1. For the economy in general
2. For the sectors we specifically advise & recruit
Overview:
UK stock and bond markets reacted positively as both gilts and bank stocks rallied after the Chancellor’s speech, a relief as the Government’s debt interest payments are already high.
The Office for Budget Responsibility (OBR) upgraded its 2026 growth forecast to 1.2% but downgraded 2027 growth from 1.6% down to 1.0% due to energy costs and the geopolitical situation. Growth is projected to pick up to an average of 1.7% per year from 2028 to 2031.
The OBR raised its 2027 inflation forecast from 2.0% to 3.4%, Driven largely by higher energy costs linked to the Iran war, before expecting it to ease back to 2% from 2028.
Overall investment is up 6.9% and business investment is up 7.5% since the beginning of the parliament, though low structural investment remains a problem.
Small businesses will benefit from an increase in the small business rate relief threshold which will result in a further 70,000 retail, hospitality and leisure businesses paying no business rates. The Budget also includes an additional 20% reduction in business rates for pubs, music venues and social clubs. This is a boost for the high street and may offset some of the increases in employment costs for this sector.
Announcements supporting entrepreneurs included an increase in the trading allowance from £1,000 to £3,000; a young entrepreneurs’ allowance to fund a year of living costs for eligible young founders while they turn their ideas into businesses to reduce the financial barriers to starting a business.
Innovation – Government investment of £1bn over four years in priority innovation clusters, alongside £25m for UKRI Venture Doctorates and up to £16m of proof-of-concept funding to support researchers through prototyping, market validation and spinout creation.
Capital availability – The British Business Bank will receive a £5bn increase in financial capacity, including £1.4bn to invest in equity funds backing high-growth businesses and £450m for a new venture debt product. In addition, a new scale-up programme to help women founders overcome barriers to fundraising and growth amongst other measures to combat the lack of home grown investment in start-ups and scale ups.
Finally we turn to energy costs which affect the majority of businesses large and small. The British Industrial Competitiveness Scheme (BICS) has been expanded to provide a 20% to 25% electricity discount for around 10,000 energy-intensive manufacturing businesses starting April 1, 2027, complete with backdated payments for eligible firms. In addition, as expected, the 5p-per-litre fuel duty cut has been extended, and the red diesel 3.7p-per-litre duty reduction continues until July 1, 2027.
Sectors:
🛡️ Defence: The defence investment plan is fully funded, with a target of 3% of GDP by 2030 and 3.5% by 2035. The National Wealth Fund and British Business Bank will also invest up to £5bn in defence over four years. Demand for engineering, programme and supply chain talent should stay strong.
🏗️ Construction: An extra £1.5bn goes into social and affordable housing. Land sold to social housing providers will be VAT-free, councils get cheaper borrowing, and biodiversity requirements on brownfield sites are removed. It’s a clear push to get spades in the ground.
⚡ Power and energy: Gas standing charges are being scrapped and the hydrogen levy removed. Older renewables move to fixed-price contracts, and a new datacentre covenant promises faster grid connections.
💡 Emerging technologies: £20.4bn extra goes to the National Wealth Fund and British Business Bank to back growing companies, and £18m goes to advanced chip design at the University of Edinburgh.
💻 Software: Government is a growing buyer of software and AI. The Budget includes £500m for AI safety and security, targets £600m of savings from using AI in civil service back offices, and puts £7.5m into AI and cyber in Belfast. The procurement definition of “British” is also being updated to favour firms that create real jobs and investment in the UK. That’s good news for UK software houses bidding for public sector work, and it should keep demand high for developers, data engineers and cyber specialists.
👥 For employers:
The National Living Wage rises 3.9% to £13.21
No changes to tax on employment income
£100m for a local apprenticeship service matching young people with local firms.
In summary, this budget is being described as a small budget designed to keep the markets calm in a time of geopolitical uncertainty, but the myriad of measures announced in the Chancellor’s one hour speech deserve close scrutiny.
If you have any questions about the budget and its implications for your recruitment strategy, please feel free to contact us for an informal discussion.