By Paul Shields, Partner and Head of Johnston Carmichael Newcastle
This year’s Autumn Budget sent a clear signal about where the Chancellor wants growth to come from: high-potential, high-growth companies. Expanded incentives through EMI, EIS and VCT are designed to accelerate scale-ups, attract investment and make the UK more competitive on a global stage. For some North East businesses, this creates genuine opportunity. For others, the benefits are less immediately obvious.
Our region’s economy is a distinctive mix of ambitious tech companies, advanced manufacturers, net-zero innovators and long-standing SMEs that underpin local employment. Because of that diversity, the impact of this Budget will not be uniform. As we look towards 2026, business leaders are navigating a landscape shaped by opportunity on one hand and mounting cost pressures on the other.
Opportunity for local businesses
The Budget’s most significant changes sit around growth incentives. Expanding EMI share option limits and eligibility thresholds allows scale-ups to remain within the regime for longer, which is particularly important for advanced manufacturing and engineering firms where growth takes time to materialise. Similarly, increased EIS and VCT investment limits reflect the reality that modern businesses, especially in clean energy, robotics, digital technology and precision manufacturing, require greater upfront capital to scale.
For the region, this direction of travel is encouraging. The North East has established strengths in advanced manufacturing, net zero and digital technology, supported by growing clusters across Newcastle, Sunderland, Teesside and Durham. For businesses operating in these sectors, the enhanced incentives offer a real chance to attract investment, retain talent and anchor long-term growth rather than relocating elsewhere as they scale.
However, these opportunities will favour those that act early. Businesses planning to raise finance, recruit senior staff or introduce equity-based incentives in 2026 should reassess their eligibility and structure now, rather than treating tax incentives as an afterthought.
Why these incentives don’t work for everyone
Schemes such as the Enterprise Management Incentive (EMI), the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) are deliberately targeted at higher-risk, growth-stage companies. That focus is understandable: early-stage and scaling businesses often struggle to access conventional finance, yet deliver long-term economic value when they succeed.
But the local economy does not run on scale-ups alone. Established manufacturers, supply chain businesses and family-owned firms continue to provide stability, employment and skills development across the region. For many of these businesses, the Budget’s emphasis on growth incentives feels removed from the day-to-day pressures they face.
The pressure on established employers
Many North East businesses operate with low margins and limited ability to absorb rising costs. ONS data shows that average business profitability sits below the UK average, reflecting its high concentration of SMEs operating in cost-sensitive sectors such as manufacturing, logistics, construction and hospitality.
This is reinforced by ICAEW’s Business Confidence Monitor, which consistently reports lower confidence levels in the region than the UK average, with rising labour costs, tax pressures and input prices cited as key concerns. More than 99% of businesses are small or medium-sized, so even modest increases in wage and tax costs can quickly undermine investment plans and force more cautious hiring decisions.
Increased employer National Insurance contributions, frozen income tax thresholds and increases in the National Living Wage all add to this pressure. While each change may be manageable in isolation, their combined impact is being felt most acutely by labour-intensive industries and long-established employers operating on tight margins.
Growth needs to go beyond start-ups
High-growth incentives alone will not deliver balanced regional growth. To strengthen our economy over the long term, policy must also support established firms to invest, modernise and improve productivity.
Capital allowances, simplified tax structures and targeted support for sustainability and digital transformation could help businesses rather than simply absorb rising costs. In the meantime, many firms may still qualify for reliefs that are often overlooked, including R&D tax relief, first-year allowances and full expensing on qualifying investment.
What businesses should focus on going into 2026
As leaders plan for the year ahead, a few priorities stand out. Businesses with growth ambitions should revisit their eligibility for EMI, EIS and VCT, particularly if fundraising or recruitment is on the horizon. At the same time, employers should model the full impact of rising wage costs, employer NICs and pensions on cashflow and margins, rather than relying on optimistic assumptions.
Investment plans also deserve a fresh look, particularly where changes to capital allowances may improve the case for upgrading equipment or technology. Workforce planning remains critical, and the introduction of free apprenticeships for SMEs offers a real opportunity to build long-term skills pipelines in a region where shortages persist. Finally, regulatory change around sustainability reporting, digital taxation and corporate governance continues to gather pace, making early preparation essential.
Looking ahead to 2026
The Budget sets the stage for a faster-growth, higher-risk future, but it does not fully address the pressures facing the established employers that underpin the region’s economy. For the North East to thrive, policy and practice must support both ambitious scale-ups and the stable businesses that provide resilience and long-term employment.
What matters now is how businesses respond. Businesses that take advice early, make use of available incentives and plan ahead for rising costs and regulatory change will be in a stronger position over the year ahead. With the right strategy, firms can make the most of the opportunities this Budget presents while navigating the challenges that lie ahead.