The Budget must help SMEs turn AI ambition into action

There is no shortage of discussion about how AI could transform the UK economy. The more pressing challenge is turning that ambition into practical action and helping businesses realise its potential.

For many small and medium-sized businesses, that is easier said than done. They can see the opportunities, but face real barriers when it comes to implementation: the cost of investment, a lack of specialist skills and the complexity of making new technology work with existing systems.

Next week’s Budget is an opportunity for the Chancellor to address these barriers and give SMEs the support they need to adopt AI effectively.

SMEs account for 99.85% of UK private-sector businesses, employ 16.9 million people and generate £2.8 trillion in annual turnover, according to the Department for Business and Trade.¹ If AI is to improve productivity across the economy, smaller businesses need to be part of that story.

Moving beyond experimentation

There are encouraging signs that businesses are embracing AI, but adoption does not automatically translate into meaningful productivity gains.

The Office for National Statistics found that AI use among UK businesses with 10 or more employees had almost tripled since late 2023, reaching around 35% in June 2026. However, the average number of AI technologies used by adopting businesses had increased only modestly, from 1.4 to 1.6.²

This suggests there is still considerable scope for businesses to move beyond using individual tools and start embedding AI into their operations.

Agentic AI, which enables systems to carry out defined tasks and coordinate workflows, presents an opportunity to do just that. But making it work requires more than buying another software subscription. Businesses need to connect systems, rethink processes and ensure employees can manage and oversee AI-enabled workflows.

The economic prize is significant. Research published this month by the Social Market Foundation estimates that greater AI adoption could generate an additional £38 billion to £47 billion in SME revenue across Great Britain.³ Realising that potential will require businesses to overcome the practical barriers to implementation.

Four priorities for the Budget

1) First, introduce targeted AI adoption grants for SMEs. These should help cover the costs of implementation, integrating technology with existing business systems and redesigning workflows, rather than focusing solely on developing new technology. Businesses need support putting AI into practice.

2) Second, make tax incentives more effective at encouraging investment in AI and automation. The costs extend beyond software licences to include integration and the work required to change established processes. SMEs need a stronger financial case for making these investments.

3) Third, fund practical implementation support and training. Business owners need help identifying where AI can make a difference, choosing suitable solutions and measuring results. Employees also need the skills to manage AI-enabled processes, not simply use individual tools.

4) Finally, provide clear guidance on the governance of agentic AI. The UK Government’s Business Data Survey 2026 found that just 21% of businesses using AI had integrated their tools into existing business systems. Only 17% reported having formal or informal AI policies or guidance.⁴ As AI agents take on more responsibility, businesses need to understand how to manage access to information, establish accountability and determine when human approval is required.

Making AI work for smaller businesses

This is not about encouraging businesses to automate for the sake of it. It is about helping them make sensible investments that solve real problems, whether that means reducing time spent on administration, improving customer service or enabling a small team to manage more work.

The Government has already recognised the barriers to digital adoption through its SME Digital Adoption Taskforce. The Budget should build on that work with tangible support to help businesses take the next step.

AI will not improve the UK’s productivity simply because more businesses experiment with it. The gains will come when companies can integrate the technology into their everyday operations and see a meaningful return.

The Chancellor has an opportunity to help make that happen and the priority should be giving SMEs the means to act on their AI ambitions, rather than leaving them to work it out alone.

Footnotes

1. Department for Business and Trade, Business population estimates for the UK and regions 2025. GOV.UK.
2. Office for National Statistics, Artificial intelligence in UK businesses, 2023 to 2026. Published 2026. ONS.
3. Social Market Foundation, Byte-sized growth: Supporting SMEs to get more from AI. Published 19 October 2026. Estimates the potential additional SME revenue from greater AI adoption and examines the barriers businesses face. SMF.
4. Department for Science, Innovation and Technology, UK Business Data Survey 2026. Data covers 2025–2026 and examines AI adoption, integration with existing systems and business governance. GOV.UK.