Budget 2026: Stability today, opportunity tomorrow for healthcare

John Healey delivered his first budget against a difficult backdrop, with the conflict in Iran driving up energy costs, debt interest rising by £14bn this year and fiscal headroom of just £15bn by 2029-30. Energy bills, defence and devolution dominated the speech, and healthcare once again found itself further down the running order.

The good news for owners is what didn't happen. Leaving CGT, dividend tax and the 25% corporation tax rate untouched gives the stability the market has been asking for, and that is the budget's real gift to the sector today. The disappointment is that, beyond a handful of targeted measures, there was very little to ease the pressures healthcare businesses are facing now. The opportunity lies further out, in where policy is heading: a push for NHS productivity, a tilt towards UK suppliers and demand that continues to outstrip capacity.

CGT: stability where it counts

The most significant outcome for healthcare business owners is that capital gains tax rates have been left unchanged at 18% and 24%, and dividend tax rates are also untouched. Given the speculation over recent months that CGT might be aligned with income tax, this provides welcome stability for owners planning an exit over the next few years.

The new Founders' Relief offers qualifying founders and significant early investors a 10% CGT rate on up to £10m of lifetime gains from 6 April 2027. Its design is still under consultation, and the proposed conditions are deliberately narrow: a 25% shareholding from the start of trading, a five year holding period, and demanding company size, growth and innovation tests. A fast growing medtech or healthtech business may well qualify, but most management shareholders, care groups and dental chains will not.

At the same time, the Business Asset Disposal Relief lifetime limit halves from £1m to £500,000 for disposals from 6 April 2027. The government says three quarters of claimants will be unaffected, but those who are tend to be exactly the owner managed healthcare businesses we see coming to market. For anyone sitting on gains above £500,000, that creates a clear incentive to complete a sale before April 2027, and with special rules for earlier contracts and reorganisations, the distinction between BADR and Founders' Relief will matter when planning an exit.

There was also help further down the pipeline. The CSOP option limit doubles to £120,000 under its new EMI2 name, with a 15 year exercise period, and the EMI exercise window after a disqualifying event extends from 90 to 180 days. That should make it easier for growing healthtech and medtech businesses to attract and retain senior talent. R&D claims also get simpler, with the Claim Notification Form removed for claims made from April 2027, and SEIS, EIS and VCT will see technical improvements.

One change to watch closely is the reform of how company distributions and repayments of capital are taxed, from April 2028. The government says genuine changes of ownership and family successions will keep capital treatment, but the draft legislation, due in 2027, will need careful review for anyone planning an exit or reorganisation.

NHS: more scrutiny than new money

There was no big new number for the NHS. The day to day health and social care budget is already set to rise from £212.5bn this year to more than £220bn by 2028-29, and the budget added just £190m to help with winter pressures. The most interesting new money is £100m to accelerate robotic assisted surgery, with the aim of increasing procedures from 70,000 a year to 500,000 by 2035, which is a genuine opportunity for surgical device and servicing businesses.

The opportunity lies in the productivity agenda. Mark Bailie has been asked to lead an independent review of NHS productivity and AI, reporting in early 2027 and feeding directly into the next spending review. The message is that future funding will follow efficiency, which should support demand for independent sector providers that help the NHS do more with what it has. For businesses in outsourced and home diagnostics, community healthcare, supported living and home care, the direction of travel remains encouraging. The NHS continues to look for ways to deliver more care outside traditional acute settings, and providers that can improve outcomes while easing pressure on hospitals are likely to remain well positioned.

Social care, once again, has been pushed down the road. Baroness Casey's commission will not report until 2027, and the triple lock changes intended to fund a National Care Service only take effect in the next Parliament. In the meantime, the National Living Wage rises by 3.9% to £13.21 an hour from April 2027, putting further pressure on margins in residential and domiciliary care. For well run operators with scale, that pressure is also an opportunity, as smaller providers look for a partner or an exit and consolidation continues.

Life sciences: a gesture, not a strategy

The £1bn headline for life sciences needs reading carefully. It is not government money but three private investments, backed by around £70m of grants: Convatec's £500m R&D hub in Manchester, Vertex's £300m facility in Oxford and Kindeva's £200m expansion of respiratory medicines manufacturing in Loughborough. These are welcome wins, but other industrial sectors received far more attention, and it is hard to argue that pharma and medtech manufacturing were a priority.

The sector will benefit indirectly from some of the wider measures. The First Year Allowance rises from 40% to 50%, although this is partly offset by a cut in the main writing down allowance to 12%. The National Wealth Fund and British Business Bank will deploy an additional £20.4bn, and the Regulating for Growth Bill is intended to help regulation keep pace with innovative medicines and medical devices.

Of more direct interest is a new definition of a "UK supplier" in public procurement, due by January 2027, aimed at stopping firms with little more than a UK post box from benefiting. If this gives UK manufacturers of medical devices and consumables a genuine advantage in NHS tenders, it could be significant, although much will depend on how it is applied in practice.

These procurement reforms could prove more significant than they first appear. UK manufacturing capability, supply chain resilience and established NHS relationships are already highly valued by strategic buyers, and for UK based manufacturers of medical devices, consumables and surgical products, any meaningful preference for domestic suppliers would strengthen an already attractive investment proposition.

UK manufacturing capability is one of the attributes buyers of medtech businesses value most, and as we noted in our recent piece on the rarity of UK medical device businesses, the supply of quality assets remains limited. Direct support today may be thin, but with procurement rules potentially tilting towards UK suppliers, the opportunity for well run UK manufacturers is intact, and we expect them to continue to attract strong interest and premium valuations.

AI: plenty of headlines, little to move the dial

AI featured more prominently than healthcare. Much of the detail was trailed a few days before the speech in a Treasury package worth more than £600m, focused on AI security, home grown capability and adoption across public services. The budget added a new Data Centre Covenant, setting the tests strategic datacentres must meet, including their contribution to local communities, in return for faster grid connections and the ability to generate power on site.

Several elements are directly relevant to healthcare. A new Chancellor's AI Challenge Prize, backed by £15m, will focus its first competition on the NHS, with a top award of up to £2.5m for the best solution to a priority healthcare challenge. Sovereign AI's R&D Procurement Scheme, which funds AI solutions to challenges across the health and care system, receives an additional £80m, and the Sovereign AI Fund gets a further £60m to invest directly in UK AI companies. All of this is welcome, but at these sums none of it will materially change the funding picture or valuations for healthtech businesses. The challenge prize and procurement scheme are useful routes into the NHS for early stage firms rather than a source of meaningful growth capital.

The most relevant point for healthcare was the Chancellor's stated aim that NHS data used for AI driven treatment should be held in the UK. For healthtech businesses, this points to data sovereignty becoming a more important factor in NHS procurement. Businesses providing AI diagnostics, clinical software or remote monitoring from UK hosted infrastructure should be well placed, and we would expect acquirers to look closely at data location as part of due diligence.

For all the attention AI attracts, much of healthcare remains fundamentally dependent on human expertise and patient interaction. Technology will continue to improve productivity and support clinical decision making, but in most healthcare settings it is more likely to complement clinicians and carers than replace them.

The verdict: resilience over reform

This was a budget that avoided doing damage rather than one that set out to help. Holding CGT and dividend tax steady was the right decision, and with the BADR limit halving from April 2027, the next six months are an attractive window for owner managers considering a sale. Founders' Relief will help some, but most traditional healthcare businesses should not plan around it.

Beyond that, healthcare received little it can call its own. The NHS got a productivity review rather than new money, care providers face another rise in wage costs with no support, life sciences got private investment announcements rather than a plan, and the AI package is too small to move the dial.

However, nothing announced in this budget materially changes the long term outlook for healthcare. Demand continues to be driven by an ageing population, rising levels of chronic illness and persistent capacity constraints across both health and social care.

The more interesting message is not what healthcare received, but where policy continues to point. The NHS productivity agenda, procurement reforms and ongoing pressure on capacity all favour businesses that can help deliver care more efficiently, particularly in diagnostics, community healthcare, supported living, home care and medical technology.

Healthcare also remains one of the few sectors where the investment case is supported by both structural growth and a degree of protection from automation. Technology will continue to reshape the industry, but many healthcare services still depend on expertise, trust and direct patient interaction.

For investors and acquirers, that combination remains attractive. Capital targeting healthcare remains plentiful, the supply of quality assets remains limited, and we continue to see strong demand for well-positioned businesses across healthcare services, medical technology and healthtech.

The budget may not have provided a major boost for the sector, but nor has it weakened the fundamental investment case. It offers stability today, and with favourable demographics, continued demand and a policy direction that rewards efficiency, the opportunity tomorrow remains significant. Healthcare continues to be one of the most attractive areas of the UK economy for investment and M&A activity.

Healthcare is one of the core sectors we focus on at Heligan Corporate Finance. If you would like to discuss what the budget means for your business, please get in touch.