Small business owners are warning that 2026 could be one of the most challenging years in recent memory, with many saying they feel overwhelmed by a convergence of rising costs, regulatory change and strategic uncertainty.
After a bruising 2025 marked by higher national insurance contributions, elevated borrowing costs and stubborn inflation squeezing consumer spending, SMEs say the outlook for the year ahead offers little respite. Business owners argue that policies announced in last November’s Budget, combined with new employment legislation, risk pushing firms to automate roles, adopt AI more aggressively or outsource work overseas rather than hire domestically.
The recently passed Employment Rights Act will widen access to family-friendly policies, including immediate entitlement to paternity leave for an estimated 32,000 additional fathers each year. From April, a new Bereaved Partner’s Paternity Leave will also provide up to 52 weeks of leave for partners who lose a spouse before their child’s first birthday. At the same time, statutory sick pay will apply from day one, unfair dismissal rights will move to a six-month qualifying period, and both the minimum wage and living wage are set to rise.
For many SME leaders, the cumulative effect is creating acute pressure.
Kate Allen, owner of holiday accommodation business Finest Stays, said her biggest concern for 2026 is uncertainty around artificial intelligence. She warned that while AI offers opportunities, it also creates anxiety for founders unsure when, or whether, to invest.
“There’s a real fear of missing the bandwagon,” she said. “But jumping too early can be just as dangerous as waiting too long. The hardest part isn’t adopting AI — it’s knowing what not to adopt and where not to sink serious money.”
Colin Crooks MBE, chief executive of Intentionality, said the dominant theme he sees across sectors is overwhelm. “Business owners are drowning in a perfect storm of pressures,” he said. “Recruitment challenges, cashflow squeezes, rising costs, regulation and new technology are all hitting at once. Leaders are struggling to prioritise and can’t see a clear path through the noise. The ability to focus isn’t a ‘nice to have’ anymore — it’s a survival skill.”
Tony Redondo, founder of Cosmos Currency Exchange, said many SMEs now view 2026 as a year of suppressed confidence and rising risk. He warned that changes to employment law have significantly increased the perceived cost of a poor hiring decision.
“With unfair dismissal rights kicking in after six months, many owners are paralysed by recruitment risk,” he said. “At the same time, removing statutory sick pay waiting days turns illness into a day-one financial hit. Add in frozen tax thresholds, Making Tax Digital and the de-banking crisis driven by automated compliance systems, and it’s no surprise many SMEs are now looking overseas for both talent and growth.”
Astrid Davies, chief executive of Astrid Davies Consulting, said she is seeing growing anxiety around sustainability commitments, with some firms tempted to deprioritise ESG efforts amid wider pressures.
“There’s a real ‘sustainability wobble’,” she said. “Businesses want to do the right thing, but don’t always know how — or feel that global attention has moved on. That’s a mistake. Doing the right thing well helps cut waste, retain talent and stand out in an unforgiving market. It’s also a marker of leadership quality.”
As small business owners look ahead to 2026, many say the challenge will be less about a single policy change and more about navigating the combined impact of regulation, technology and cost pressures — all while maintaining confidence in an increasingly fragile economic environment.
