Budget 2026: What It Means for Tech Innovation, Skills, R&D and Small Business

For tech, John Healey’s first Budget on 28 October wasn’t about one big number. It was about lots of smaller ones: a new tax rate for founders, more finance for growing firms, a legal sandbox for testing new products, £1 billion for innovation clusters and around £700 million for AI. Here is what it means if you build, fund, hire or learn in tech.

In brief

• Founders pay a 10% Capital Gains Tax rate on up to £10 million of lifetime gains under a new Founders’ Relief, from April 2027.
• Growing firms get £5 billion more lending and investment capacity at the British Business Bank.
• Innovators get a proposed Regulating for Growth Bill to test new products under safeguards, and £1 billion from UKRI for innovation clusters.
• AI gets around £700 million, mostly for security, with smaller pots for UK AI companies.
• Young people get £100 million to expand local apprenticeship services and the Jobs Guarantee, but there is no dedicated budget for digital or AI skills.

Entrepreneurs and small businesses

This was the most interesting part of the Budget for tech founders.

• Founders’ Relief: a 10% Capital Gains Tax rate on up to £10 million of lifetime gains when founders sell, from 6 April 2027.
• Share options for staff: the limit on tax-advantaged options under EMI2, the expanded employee share scheme that replaces CSOP, doubles from £60,000 to £120,000 from April 2027. That helps startups compete for talent when they can’t match big-company salaries.
• Side projects: the Trading Allowance triples from £1,000 to £3,000 from April 2027, so more people can test a business idea before registering it.
• Finance: the British Business Bank gets £5 billion more capacity, bringing its total to £30.6 billion. That includes £1.4 billion for equity funds backing high-growth firms, £450 million for a new venture debt product and £165 million for community lenders. The Growth Guarantee Scheme expands to £6.5 billion.
• Support to grow: a Scale UK Connect pilot will give 200 high-growth firms across the UK expert advice, investor connections and international opportunities. A Young Entrepreneurs Allowance pilot will help with living costs in a business’s first year.
• Hiring: the government will legislate so non-compete clauses stop blocking people from joining startups and scaling firms, with details due in early 2027.
• Selling to government: bidding should get simpler for small firms, with a new definition of a “UK supplier” by January 2027 and a National Procurement Policy Statement in March 2027.

Innovation and R&D

• Clusters: UKRI will invest £1 billion over four years in priority innovation clusters, plus £16 million for proof-of-concept funding and £19.75 million for the Collaboration for a Sustainable Future programme.
• R&D tax relief: claims get simpler. The claim notification form goes from 1 April 2027, and the additional information form is simplified from autumn 2027.
• A sandbox for new products: the Regulating for Growth Bill, announced in the King’s Speech in May, would let businesses across the economy temporarily test and scale innovations under safeguards. If a trial proves safe and effective, it could lead to permanent rule changes. The bill would also strengthen regulators’ duty to support growth and let ministers issue them “strategic steers”.
• Around the UK: £20 million for creative technology in the Tay Cities, £7.5 million for a Cyber AI Hub at Queen’s University Belfast, and £30 million to pilot local AI partnerships in West, South, and York and North Yorkshire.

The open question is how defence is paid for. To fund the remaining £4.7 billion of the defence plan, departments will reduce their capital budgets by 1% from 2027-28 to 2029-30, raising £3 billion. The Budget does not say where those savings will fall, and nothing in it cuts R&D specifically. But much civilian research is funded from departmental capital, and research bodies quoted by Research Professional News warned that R&D could be disproportionately affected as departments look for savings.

AI and digital

The government called its AI package its most ambitious yet, at around £700 million. Most of it goes on security: £120 million more for the AI Security Institute, £165 million for a National AI Biosecurity Initiative, £154 million for cyber defences and £40 million for a National Agentic Security Unit.

For people building AI products, the relevant pots are smaller but real:

• £60 million from 2027-28 for the Sovereign AI Unit to invest directly in UK AI companies, with a new focus on physical AI such as robotics, autonomous systems and advanced manufacturing
• £80 million more for Sovereign AI’s R&D Procurement Scheme, which buys from innovative British AI companies
• £25 million for an AI and Cyber Security Challenge Fund, a £15 million AI Challenge Prize and a £60 million AI Pathfinder Fund
• £18 million for a Chip Design Academy led by the University of Edinburgh, and £23 million for an AI Economics Institute to study AI’s effect on jobs and living standards

Skills and talent

• Young people: £100 million over two years to expand local apprenticeship services, which match young people with employers, to all current mayors in England; the Jobs Guarantee for eligible 18 to 24-year-olds on Universal Credit; and a White Paper early next year on the almost one million young people not in education, employment or training.
• Apprenticeships: at least 3% apprentices on large government infrastructure and construction projects, and paid apprenticeships into AI and digital jobs promised under a new Data Centre Covenant.
• Global talent: the Graduate visa extends to two years for graduates of high-compliance universities, and the High Potential Individual visa opens to graduates of the top 150 institutions.
• Women in tech: the Budget notes that women make up just 21% of the digital workforce. The British Business Bank has more than £100 million lined up for women-led funds, the Women in Tech Taskforce is introducing voluntary Tech Forward and Inclusive Investment Standards, building on the Investing in Women Code, and a new scale-up programme will support women founders.

Funding skills is only half the job. There is also an awareness gap. Tech now runs through every sector, from health, finance and construction to fashion, sport and the creative industries. Yet young people are still mostly shown tech as a job title, rather than as a way to innovate in the sectors they already care about, or have never thought about. And the routes in are opaque: once someone has a qualification, a bootcamp or an apprenticeship, it is often unclear where they fit, or who is hiring at their level.

Defence technology

Defence remains the fastest-growing source of public money for new technology. The Budget set 2030 as the target date for spending 3% of GDP on defence. The National Wealth Fund and British Business Bank will deploy up to £5 billion over four years in defence and dual-use technology, meaning technology with both civilian and military uses. UK Defence Innovation keeps a ringfenced £400 million a year, and £400 million will equip the Army with new drone technology. For what that means for drones, read Are We Ready for the Drone Future?

What was missing

• A digital skills plan. We found no dedicated funding for AI or digital skills, and nothing that maps clear routes from a qualification into a first tech role, even as the Budget spends heavily on AI.
• A safeguard for civilian R&D. Nothing says where the 1% capital reprioritisation across departments will fall.
• Ethnicity. The Budget includes five measures for women in tech, but nothing equivalent for Black and ethnic minority founders and talent. Extend Ventures found that Black founders raised 0.95% of UK venture capital in 2023, against 2.5% of the population. BCS figures show Black people make up 3% of UK IT specialists, against 4% of all workers, and Black women just 0.7% of the tech workforce, against 1.8% of all workers. The gap is in funding and talent, but first it is in the conversation.

Robert Croll, founder and director of Epiphiny Flow, which works to grow investment into diasporic communities across the UK, makes the case for closing that gap.

“1 in 5 people on our shores are from diasporic communities,” he says. “Yet, too many diasporic founders and young people still face barriers to accessing the finance, networks and opportunities they need to thrive.” Epiphiny Flow’s answer is to connect diasporic entrepreneurs with investment and help young people build digital, technology and entrepreneurial skills, “opening doors to capital, technology and opportunity”.

Our take

There is a lot here for founders and small tech firms, especially on tax, finance and hiring. The question is who gets to use it. At the UKBT Institute, we would like to see four things:

1. Make the new finance reach every founder. The British Business Bank has already begun asking the funds it works with to report the gender and ethnicity of the founders they back and those who apply. It should publish that data for its new £1.4 billion of equity, its venture debt product and its share of the £5 billion dual-use funding, and the new Inclusive Investment Standards should cover ethnicity as well as gender.
2. Lead with sectors, not just skills. Use the expanded mayoral apprenticeship services and the Jobs Guarantee to show young people where tech fits in the sectors they care about, and broker placements there, not only in tech companies. Next year’s Spending Review should fund a dedicated digital skills line with clear routes from qualification to first role.
3. Make room for new talent. Industry cannot rely only on experienced hires. If entry-level roles are the bottleneck, employers need structured ways to make new hires valuable quickly, through mentoring and real project work from day one, and to give them space to share their insights and creativity rather than just learning the ropes.
4. Safeguard civilian R&D, and open up the sandboxes. Ensure the 1% capital reprioritisation across departments does not fall on civilian research budgets, and make sure trials under the Regulating for Growth Bill include the practitioners and communities who will use and live with new technology.

What we’ll watch

• Early 2027: the government’s position on non-compete clauses, and details of the Young Entrepreneurs Allowance and Scale UK pilots
• March 2027: the National Procurement Policy Statement, and whether it opens government contracts to small tech firms
• April 2027: Founders’ Relief, the higher EMI2 limit and the new Trading Allowance take effect
• Next year’s Spending Review: whether civilian R&D and digital skills are protected as defence spending rises