What a change in the UK’s leadership means for small businesses

For small business owners, moments like this rarely feel abstract. They affect confidence, hiring decisions, and how safe it feels to invest in the future. 

And right now, there’s one word that sums it up: uncertainty. 

Small businesses have already been through a period of significant change. The past two years have seen shifts in taxation, payments, and, most significantly, employment rights legislation.  

The Employment Rights Act 2025 represents one of the biggest overhauls of UK employment law in decades, introducing new day-one rights, stronger dismissal protections, and tighter rules around contracts and workplace practices. 

And crucially, many of these changes are still being rolled out through 2026 and 2027. 

Short-term impact: proceed with caution 

In the immediate term, the biggest impact on SMEs is likely to be behavioural rather than legislative. 

Periods of political transition typically lead to delayed hiring decisions, pauses to expansion plans and increased caution around business plans.  

For small businesses, that can feed through into higher costs for imports or products and less predictable borrowing conditions. This can cause a general dip in confidence. 

This is especially true if the leadership contest becomes prolonged. While there looks to be a clear frontrunner in Andy Burnham, the Labour party is still looking at holding a leadership contest.  

Nominations are being held between 9th and 16th July. If Burnham goes unchallenged, he could become Prime Minister as soon as 17th July.  

A smooth, quick handover would limit disruption. But a drawn-out race or competing visions for the economy could keep uncertainty in place for longer. Let’s hope Starmer’s vision of getting a new leader in place by 1st September goes to plan. 

Tax and cost pressures could shift again 

One of the biggest unknowns for SMEs is what happens next on tax and public spending. 

A new leader may revisit what we’ve seen on national insurance, taxation and government borrowing and spending priorities.  

For small business owners, this creates a familiar problem: planning without clarity. 

Your exposure will depend on your structure and sector. But across the board, the risk is the same: changing costs and unpredictable financial planning. 

Employment law: changes are already here 

One area where businesses are likely to see less dramatic change, but still plenty of risk, is employment law. 

As things stand, the direction of travel has already been set with The Employment Rights Act 2025.  

Changes like day-one rights to statutory sick pay and family leave are already here. The Fair Work Agency has already been established. But a leadership change could still affect what is yet to come.  

As reforms under the Act are planned until 2027, we will be watching the new leader with interest to see whether the plans change. 

Sector-by-sector impacts will vary 

Not all SMEs will feel this equally. Businesses most exposed include: 

• Labour-intensive sectors like hospitality, care and retail 

• Import-heavy businesses affected by currency shifts 

• Firms relying on contracts, outsourcing, or public funding 

At the same time, there may be an upside. A new leadership direction focused on regional growth, infrastructure, or skills, as Andy Burnham has suggested, could bring opportunities for these businesses. 

What should small businesses do now? 

At times like this, your business should focus on what you can control. 

Double down on compliance 

Employment law is already tightening. Make sure your policies, contracts, and records are up to date, especially with phased changes still coming. 

Keep a close eye on announcements 

While the leadership contest is likely to get the full attention of the UK, look out for other announcements that might impact your business. Whether that is how you operate, or changes to proposed employment legislation. 

We’ll be keeping a close eye on what could impact your business.  

More change for small businesses on the way 

Small businesses are no strangers to uncertainty. We’ve seen it through Brexit, the pandemic, and the cost-of-living crisis. And once again, SMEs are being asked to adapt quickly to political and economic change. 

The difference this time isn’t just about who leads the country next. It’s about how ongoing reforms, especially around employment law, are delivered in practice. 

Stay focused on running your business 

Keeping up with employment law changes is a full-time job in itself. 

That’s why the UK-based advice team is constantly tracking the latest legislation and updates. So you can stay compliant without losing focus on growth. 

Get expert support, stay protected, and get back to what matters: running your business.  

Book a demo now to see how BrightHR can support your business.