Mat Westergreen-Thorne, CEO at Grantify, explains the impact of fiscal pressures on UK tech startups, particularly the unexpected rise in employers’ National Insurance contributions.
The tech sector drives real-world innovation that improves lives while generating significant economic growth for the country. Tech businesses in the UK are growing in market value every year, with recent estimates placing their combined enterprise value at $1.2 trillion. Much of this growth is driven by the ever-expanding startup scene, which grew by more than 20% last year. The Autumn Budget could have a significant impact on the ability of that sector to compete.
Passion and resilience drive this sector. Yet, progress can be easily slowed by fiscal pressures, particularly recent changes such as the rise in employers’ National Insurance contributions. Such measures have had critical consequences for the very innovators the UK depends on. What would help the sector?
The impact of rising National Insurance on tech SMEs
Tech startups are no longer just a bright spot in the economy; they have become its backbone for future growth. It’s estimated that there are over 191,000 tech SMEs in the UK, employing approximately 700,000 people. Many begin as solo ventures or lean teams of founders, developers, and engineers working tirelessly to turn ideas into scalable solutions. Very quickly, these small teams face pressure to expand, hiring new staff to continue R&D and scale operations in a short space of time.
Yet these teams operate within fragile ecosystems. Margins are tight, access to funding is competitive, investment cycles are unpredictable, and payroll costs are often the single largest expense. In such a high-stakes environment, fiscal stability is critical for survival, which means even modest increases in employers’ National Insurance contributions can feel seismic under these circumstances.
In the last Autumn Budget, the Chancellor announced an increase in Employers’ National Insurance (NI) contributions from 13.8% to 15%. Unlike established corporations, startups often lack the cash flow to absorb new costs. As a result, these adjustments can have far-reaching and hard-hitting effects, such as:
- Delayed recruitment at a time when attracting skilled talent is already challenging, but new hires are pivotal to the quickly advancing development roadmap.
- Reduced investment in research and development (R&D) — the lifeblood of innovation.
- Limited growth capacity – forcing some founders to scale back their ambitions or slow expansion into new markets.
While the government intends to ensure financial stability and protect essential public services, it’s vital to recognise that young, high-potential businesses experience these pressures differently. The cost of hiring one less engineer or postponing one product launch can mean missing a critical window of opportunity in fast-moving markets.
Despite these challenges, UK startups continue to achieve extraordinary breakthroughs in R&D, bringing us the solutions that save lives and drive progress in green energy. These successes demonstrate the enormous potential of small, agile teams when they are given the resources and support to innovate.
Forging a fiscal path that rewards tech innovation
The government’s commitment to supporting innovation through investment in digital infrastructure, R&D tax credits, and business grant programmes should not go unnoticed. These initiatives demonstrate that policymakers understand the importance of the tech ecosystem to Britain’s future.
However, to sustain momentum, fiscal and innovation policies must work in tandem, with a particular focus on reducing day-to-day operational taxes and costs for SMEs. In an ideal world, this would see enhanced reliefs for small employers, offsetting higher NI contributions for the first few hires or providing flexible payment schedules for new businesses to ease early cash-flow pressures.
The UK’s reputation as a global leader in technology has been hard-won. Entrepreneurs here compete not only locally but also with startups worldwide, some of which are based in regions where tax and investment environments are more favourable. Ensuring that the UK remains an attractive home for innovation is in everyone’s interest.
Author Bio
Mat Westergreen-Thorne is a former medical device doctor and co-founder of Grantify, a company that helps businesses find and successfully apply for government grants. Since launching with his brother, Mat has grown the business to a 75-person team with a turnover of £10 million last year, supporting thousands of innovators and entrepreneurs across the UK.