BUDGET 2026: More warm words on growth, but a missed opportunity for business and jobs

Today, Chancellor John Healey delivered the first Budget of Andy Burnham's Government. The headline announcement was a £100 winter energy payment for around 20 million households, alongside measures on business rates, investment, AI, devolution and defence spending.

Yet despite the Government's repeated focus on growth, this Budget is unlikely to do much to improve business confidence. There were some positive announcements for employers, but no action on the issues businesses say are holding back hiring and investment. The rumoured cuts on NICs for certain sectors were absent and there was no movement on restoring the NICs threshold.

Most notably, there was no meaningful recognition of the concerns businesses continue to raise about the implementation of the Employment Rights Act and the proposed guaranteed hours reforms. At a time when employers need confidence and flexibility to create jobs, the absence of any acknowledgement of the potential costs and administrative burdens of these measures was striking. Businesses continue to absorb higher employment costs while facing growing regulatory pressures.

Equally disappointing was the lack of any action to reverse the increase in employer National Insurance Contributions. Businesses continue to absorb higher employment costs while facing growing regulatory pressures.

The Budget also missed an opportunity to respond more decisively to the growing challenge of youth unemployment and economic inactivity. More is expected on that once the Milburn review into NEETs is published next month.

Welcome support for investment and enterprise

That is not to say the Chancellor didn’t do anything at all on business costs. The Government announced a 20% cut in business rates for retail, hospitality and leisure businesses, alongside an increase in the Small Business Rate Relief threshold from £12,000 to £18,000. Ministers say this will remove around 70,000 businesses from business rates altogether and result in around half of shops, restaurants and gyms paying no business rates at all.

The new British Industrial Competitiveness Scheme, which is designed to reduce electricity costs by around 25% for eligible firms but this doesn’t take away enough of the pain businesses face on rising energy costs as business groups around the manufacturing sector have made clear. Further support comes through £24 billion of investment via the British Business Bank and National Wealth Fund.

The Chancellor also announced a tripling of the tax-free trading allowance from £1,000 to £3,000, as well as enhanced support for entrepreneurs, founders, female entrepreneurs and high-growth firms.

Taken together, these measures demonstrate that Ministers understand the importance of investment, enterprise and innovation in driving economic growth but they have failed to piece together the right measures on growing the labour market.

The Employment Rights Act remains the elephant in the room

For the recruitment industry, one omission stood above all others. Despite repeated references to supporting business and reducing bureaucracy, including reforms to skilled worker visas and non-compete clauses, there was no acknowledgement of the costs, complexity and operational challenges associated with implementing the Employment Rights Act, particularly the proposed guaranteed hours reforms.

The REC has consistently argued that labour market flexibility is one of the UK's greatest strengths. Agency work enables employers to respond to changing demand while providing opportunities for people who actively choose flexible working arrangements. Any reforms must recognise and preserve these benefits, rather than inadvertently limiting flexibility for businesses and workers alike.

More action needed on youth employment

The decision to increase the National Minimum Wage and National Living Wage by 3.9% will benefit many workers but the failure to reduce employment costs make a higher than inflation increase on these wages harder to swallow.

At a time when too many young people remain outside education, employment or training, there was a missed opportunity to introduce bolder measures to help employers create more jobs.

Investing in AI and innovation

The Budget placed significant emphasis on artificial intelligence and innovation. Funding for the Sovereign AI Unit, the body responsible for coordinating and deploying the UK's strategic AI capabilities, was increased to help scale domestic AI development and reduce reliance on overseas technology providers.

It also launched a new AI Challenge Prize and committed additional investment through the National Wealth Fund and British Business Bank to support high-growth firms and emerging technologies. Measures to support AI adoption, innovation and business scaling were also prominent.

Devolution creates opportunities

The Government's commitment to devolution was a notable feature of the Budget. The Chancellor outlined plans for "fiscal devolution", with all business rates due to be retained locally by the end of the decade. From next year, 20% of business rates revenue will go directly to mayors, while mayoral authorities will also receive a share of income tax revenues from 2028.

The Government argues these reforms will give local leaders greater powers to support skills, infrastructure and economic development, while allowing economic decisions to be made closer to local communities and businesses.

Business confidence remains the missing piece

Support for investment, entrepreneurship, AI, defence, devolution and business rates relief are all positive steps. However, the central test of any growth Budget is whether it increases business confidence and creates the conditions for employers to hire, invest and expand. On that measure, this Budget falls short.

The challenge for Ministers is that the economic outlook remains uncertain. While the OBR expects GDP growth of 1.2% this year, growth is forecast to ease to 1.0% next year. Against that backdrop, policies that encourage private sector investment and job creation become even more important.

Business investment is driven by confidence and certainty. Employers need a policy environment that encourages expansion, rewards risk-taking and recognises the practical realities of creating jobs. Too often, the Government's growth ambitions appear to be pulling in a different direction from policies that increase costs and complexity for employers.

The REC will continue to press Government to address the issues holding back the jobs market and ensure that policy supports business confidence, investment and employment opportunities across the economy.