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  Published in Travel and Leisure on Monday, September 1st 2025 at 12:38 GMT by BBC
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UK Government Unveils £2.5 billion Plan to Rescue Small Businesses Amid Cost‑of‑Living Crisis

In a landmark announcement on Tuesday, the UK Treasury unveiled a £2.5 billion package aimed at rescuing thousands of small businesses that are struggling to stay afloat in the wake of soaring energy costs, inflation and a slowdown in consumer spending. The package, which will be rolled out over the next two years, is part of the government’s broader “Recovery and Resilience” strategy that also includes tax relief for families and an overhaul of the national energy grid.

Key Components of the Plan

1. Energy‑Efficiency Grants
   Up to £1.0 billion will be allocated to a new Energy Efficiency Grants scheme. SMEs will receive a one‑off grant of up to £5,000 to pay for energy‑saving upgrades such as better insulation, smart meters and efficient lighting. The scheme will be administered by the Department for Business, Energy & Industrial Strategy (BEIS) and will be open to businesses across the UK, with a focus on those in high‑energy‑intensity sectors such as manufacturing, food processing and hospitality.

2. Loan Guarantees for High‑Interest Borrowing
   The Treasury will provide a £500 million guarantee fund for banks to lend to SMEs at a reduced rate of interest. According to BEIS, this will allow up to 20 000 businesses to secure loans of between £50 000 and £250 000, helping them to refinance existing debt or to invest in growth opportunities. The guarantees will be subject to a review after 12 months to ensure they are delivering the intended outcomes.

3. Tax Relief and Incentives
   A new “Small Business Relief” tax credit will be introduced, allowing businesses with annual revenues under £5 million to claim back up to 15 % of eligible operating costs, including staff wages, rent and utilities. This credit will be available for the fiscal year 2025‑26 and will be managed by HM Revenue & Customs (HMRC).

4. Digital Transformation Fund
   Recognising the importance of digital resilience, the government will provide £300 million to help SMEs adopt cloud services, e‑commerce platforms and cybersecurity measures. The fund will target businesses that have not yet made a digital transition and will be managed by the UK Digital Service (UKDS).

Government Rationale

In the accompanying statement, Chancellor Rishi Sunak said: “Our nation’s small businesses are the backbone of the economy, and they are feeling the heat of high inflation and energy prices. This package will give them the tools they need to modernise, survive and thrive. We are committed to ensuring that businesses of all sizes can contribute to the UK’s recovery and future growth.”

The Treasury report cited data from the Office for National Statistics (ONS), which showed that in 2023, 18 % of all businesses reported “considerable difficulty” in meeting their energy bills, a sharp increase from 12 % in 2022. It also highlighted that 10 % of small firms had closed within the last six months due to financial pressures.

Industry Response

The Federation of Small Businesses (FSB) welcomed the announcement, stating: “This package provides much‑needed relief and signals that the government is listening to the challenges our members face. We urge the Treasury to ensure rapid and transparent rollout of the grants and to keep the focus on long‑term sustainability.”

Conversely, some economists warned that the package could add to the national debt if the loans are not repaid on time. Dr. Laura James of the University of Oxford’s Department of Economics noted, “While the intention is sound, the government must monitor the impact on public finances and ensure that the guarantees are not creating moral hazard for banks.”

Future Outlook

The plan will be subject to a parliamentary vote next month, where the opposition Labour Party will demand that the Treasury also addresses the rising cost of utilities through a national price cap. Meanwhile, the UK’s independent regulator, Ofgem, will review the proposed energy‑efficiency grants to ensure they comply with environmental and safety standards.

For those who wish to apply for the Energy Efficiency Grants or learn more about the loan guarantee scheme, the government has set up a dedicated portal on the BEIS website, featuring a step‑by‑step guide, eligibility criteria and an FAQ section.

With this comprehensive package, the UK government aims to safeguard the lifeblood of its economy—small businesses—while also setting the stage for a more energy‑efficient, digitally inclusive future. Whether the measures will deliver lasting resilience remains to be seen, but the policy shift signals a strong commitment to supporting the sector most vulnerable to economic shocks.