Cutting training is a false economy

Why investing in people might be the smartest move in a tightening economy

As the Chancellor prepares to announce what many already predict will be an austere Budget, small business owners are holding their breath. Rumours of higher taxes, spending cuts, and yet another call for fiscal discipline are hanging over the UK like a grey cloud.

For SME leaders, there’s a sinking sense of déjà vu. We’ve heard that tightening our belts a little longer will see growth follow. But after years of rising costs, labour shortages, and exhausted margins, many business owners are quietly wondering how much tighter our belts can be pulled before they start cutting off the circulation of our businesses.

Among the decisions this climate forces is a deceptively simple one: is investing in our people—in their skills, resilience and development—still financially wise when every pound counts? Or, as many finance directors might phrase it, can we really afford training right now?

The austerity logic

Governments adopt austerity because, on paper, it restores balance. Less spending, more revenue, steadier debt. Investors breathe easier. The markets stop twitching.

The logic feels neat, but it rarely plays out neatly in real life. The last major wave of austerity, following the 2008 financial crisis, stabilised the books but hollowed out public services and left businesses facing a brittle domestic market. Consumer confidence took years to rebound (some people may argue that they never fully recovered).

If, as anticipated, the Chancellor’s Budget raises business taxes and trims public-sector investment, the short-term effect could be to dampen spending power yet again, amongst consumers and within the business community itself. SMEs will be asked to contribute more, whilst simultaneously being told to innovate and grow. Their first question will undoubtedly be ‘How?’.

Higher taxes may fill the Treasury’s coffers, but whether they can generate growth depends entirely on how those funds are reinvested, e.g. in infrastructure, technology, education and skills. If the spending is instead channelled into plugging deficits, the drag on growth could persist well into 2026 or 2027.

For the average small or medium-sized business, this translates into a slow, grinding recovery.

Training: the first cut or the best insurance?

Ask any HR manager what happens when budgets tighten, and they’ll tell you: training is almost always one of the first casualties.

It’s not that leaders don’t value learning; they just struggle to justify it when facing higher energy bills, payroll increases and shrinking margins. Development feels like a ‘nice-to-have’ when survival mode kicks in.

But is this a sound move?

The money you may save by cutting training may be far less than the value you may lose through disengagement, inefficiency and attrition.

It’s also worth noting that ‘training’ itself has changed. The days of costly residential courses and glossy team-building trips are largely gone. Today, learning can be delivered in smaller, smarter, more agile ways, from half-day coaching sessions to modular online programmes or group workshops focused on practical, behavioural change.

When margins tighten and uncertainty rises, the ability of a team to communicate clearly, manage conflict, stay motivated, and influence outcomes directly affects the bottom line.

According to research by the Institute for Fiscal Studies, a one-percentage-point increase in training in Britain is associated with a 0.6 % rise in labour productivity and a 0.3 % rise in hourly wages.

Human skills are business-critical in a crisis.

You can’t ‘austerity’ your way to better leadership. You can’t achieve greater trust, empathy or creativity with a spreadsheet. These capacities are developed, not demanded, and the organisations that treat them as optional extras often discover, too late, that they’ve starved themselves of the very qualities they need most.

Business growth is achieved through innovation and invention. It doesn’t come from a place of lack.

A plausible forecast for SMEs

Based on economic trends and commentary from institutions like the British Chambers of Commerce and the Institute for Fiscal Studies, the most probable near-term picture looks like this:

• Modest GDP growth in 2025 — probably around 0.5 to 0.7%, not enough to transform sentiment
• Higher business taxes, particularly for medium-sized enterprises and those with capital gains or property exposure
• Little to no relief on employer national insurance or energy costs
• Public-sector belt-tightening, likely to reduce contract opportunities and slow supply chains
• Interest rates remaining higher than the pre-pandemic average, which keeps borrowing expensive

Combined, these initiatives represent a cautious, low-confidence environment for the next 18 to 24 months. Most analysts suggest the ‘feel’ of recovery, i.e. when consumers spend freely and SMEs sense real momentum, won’t materialise until late 2026 or even 2027.

The paradox is that this timeline means that the businesses that do invest in their people now will be perfectly positioned to capitalise on the upswing when it does arrive. Those that cut too deeply may find they’ve lost both their talent and their internal energy to respond when the economy improves.

Let’s take a hypothetical example.

Two similar manufacturing SMEs face a £50,000 budget shortfall. One slashes its training spend entirely, saving £10,000. The other trims but keeps investing in quarterly team-coaching sessions focused on leadership, communication and continuous improvement.

By the end of the following year, the first company has lost two experienced employees, each costing £5,000 to replace in recruitment and onboarding. Productivity dips, and morale flatlines.

The second company, by contrast, identifies and removes inefficiencies worth £20,000 annually, thanks to ideas that surfaced during those coaching sessions. Staff stay longer, absenteeism drops, and a culture of problem-solving takes root.

The difference? The first business looked at training as a cost; the second saw it as a multiplier.

This isn’t idealism, it’s basic economics. If your human capital is what generates your product, service, and customer experience, cutting investment in these things is akin to skipping engine maintenance to save fuel. You may run cheaper, but you won’t run far.

Staff training and development is not a ‘nice to have’ or perk of the job, it’s a hard strategy that’s integral to productivity, engagement and innovation.

Growth is, at its core, a human process.

Investment in people leads directly to measurable business resilience. For example:

• Communication training reduces costly misunderstandings in hybrid teams
• Coaching strengthens leadership confidence, preventing paralysis under pressure
• Self-awareness and understanding others help teams to manage stress, decision fatigue, and customer conflict—all of which spike in economically volatile times

Can higher taxes create growth?

In theory, yes. As we mentioned above, if those taxes are reinvested intelligently into infrastructure, innovation, and workforce development, growth could occur. A society that taxes more but also invests in the workforce more can still grow, sustainably and inclusively.

But if higher taxation simply fills gaps without feeding future productivity, then we’re likely to see the same pattern repeated: temporary stabilisation and long-term stagnation. SMEs will continue to feel squeezed, whilst public trust in ‘shared sacrifice’ erodes.

The answer, therefore, depends less on the size of the tax rise, and more on where that money flows afterwards.

As the Chancellor stands at the despatch box, many of us will be watching the fiscal headlines. But the smart leaders will be watching something else: the temperature inside their teams. Are people still learning, collaborating, growing? Or are they quietly withdrawing, waiting for better times that might take years to arrive?

For every business owner staring down another year of tough choices, perhaps the most pragmatic question to ask is not ‘Can we afford to invest in training?’, but ‘Can we afford not to?’

If your organisation is rethinking its training approach, we can help. Get in touch to find out how Jigsaw Discovery can help you build skills and resilience in your team.