What should be in your 2026 tech budget: a comprehensive UK planning guide

As we head into 2026, UK businesses face a technology landscape that's evolving faster than ever. Global IT spending is set to reach $6.08 trillion, with artificial intelligence, cybersecurity, and cloud infrastructure dominating investment priorities. But with economic headwinds, rising software costs, and an intensifying skills gap, getting your technology budget right has never been more important.

This guide cuts through the noise to help you plan your 2026 technology investments strategically. We'll cover the essential budget categories, emerging trends worth watching, and practical frameworks for prioritising your spending. Whether you're a small business owner or leading IT strategy at a larger organisation, you'll find actionable advice tailored to the UK market.

UK tech spending landscape 2026

Before diving into specific budget categories, it's worth understanding the broader context. According to Gartner's latest projections, worldwide IT spending will grow 9.8% year-on-year in 2026. But this headline figure masks some important shifts in where that money is actually going.

The UK cloud computing market alone is expected to grow at an 18.4% compound annual growth rate through to 2030, driven largely by AI workload requirements. Software-as-a-Service accounts for nearly two-thirds of cloud revenue, while Infrastructure-as-a-Service is the fastest-growing segment.

What UK businesses are spending

Research from SAP and Oxford Economics reveals that UK businesses are spending an average of £15.94 million on AI currently, with companies expecting to increase their AI investments by 40% over the next two years. Early adopters are already seeing returns of 17%, with projections suggesting this could nearly double to 32% by 2027.

For SMEs, the picture is equally encouraging. The British Chambers of Commerce reports that 35% of UK SMEs are now actively using AI technology, up from 25% in 2024. Among those firms, 82% report increased productivity and 76% say profitability has improved.

Where the money is going

According to Gartner's survey of government CIOs, the top four technologies attracting increased investment in 2026 are:

• Cybersecurity (85% of respondents planning increases)
• Artificial Intelligence (80%)
• Generative AI (80%)
• Cloud platforms (76%)

This ordering reflects the reality that security has become non-negotiable, while AI and cloud capabilities are now seen as competitive necessities rather than optional extras.

The hidden cost: software price inflation

One trend that every budget planner needs to understand is the "AI tax" now embedded in software licensing costs. Enterprise software spending is projected to grow 15.2% globally in 2026, but Gartner analysts report that approximately 9% of IT budgets are simply covering price increases on existing subscriptions. That means nominal budget growth may not actually deliver new capabilities if you're not accounting for vendor price rises.

Essential investments for 2026

With that context in mind, let's look at the must-have investments that should be at the top of your 2026 budget:

1. Cybersecurity (priority one)

If there's one budget line that deserves protection above all others, it's cybersecurity. The UK faces an average of four "nationally significant" cyberattacks every week according to the National Cyber Security Centre. And 2025's high-profile breaches of Marks & Spencer, Co-op, Harrods and Jaguar Land Rover should serve as a wake-up call for businesses of all sizes.

The M&S incident alone resulted in estimated losses of £300 million and six weeks of disrupted online shopping. Meanwhile, the JLR attack caused over £1.9 billion in economic damage across 5,000+ supply chain organisations. These aren't isolated incidents; they represent a fundamental shift in threat sophistication.

New regulatory requirements

The Cyber Security and Resilience Bill, introduced to Parliament in November 2025, significantly expands the UK's cybersecurity regulatory landscape. Key changes include:

• Faster incident reporting: 24 hours to notify authorities, 72 hours for a comprehensive report
• Expanded scope: Data centres, managed service providers, and "critical suppliers" now fall under regulation
• Increased penalties: Up to £17 million or 4% of worldwide turnover for serious breaches

AI-powered threats

2026 will be remembered as the year cybercrime became fully automated. AI-powered attacks can now discover vulnerabilities, exploit weaknesses, and negotiate ransoms with minimal human involvement. Deepfake-as-a-service platforms make sophisticated impersonation attacks accessible to criminals of all skill levels.

What to budget for

The NCSC recommends multi-factor authentication as the single highest-impact control you can implement. Beyond that, consider:

• Multi-factor authentication (£500-£2,000/year for cloud solutions)
• Endpoint detection and response (£2,000-£10,000/year depending on size)
• Offline/air-gapped backups with tested restoration procedures
• Security awareness training (£500-£2,000/year, or use free NCSC resources)
• Cyber Essentials certification (£320-£600 basic, £1,499-£2,999 Plus)
• Cyber insurance (£2,000-£10,000/year for SMEs)

The average cyber attack on a small UK business costs £3,398, but the average insurance claim is £40,000 when you factor in business disruption. Prevention is significantly cheaper than recovery.

For more guidance on current threats, see our cybersecurity threats guide.

2. Cloud and infrastructure

The UK public cloud market is worth £35.83 billion and growing, with 56% of small businesses now using cloud services. But there's a significant problem: 78% of organisations estimate that 21-50% of their annual cloud spend is wasted on idle resources and inefficient architectures. That's potentially £75,000+ per month going down the drain.

Getting cloud costs under control

Cloud cost optimisation (often called FinOps) has become a board-level priority, with 61% of CFOs listing it in their top three concerns. Done well, it typically delivers 20-40% cost reduction. Key strategies include:

• Visibility first: You can't optimise what you can't see. Implement tagging and cost allocation across all cloud resources
• Rightsizing: Match compute resources to actual workload requirements (26% of organisations cut costs by 20%+ this way)
• Reserved capacity: For predictable workloads, reserved instances deliver 28% lower average bills
• Non-production shutdowns: Development environments don't need to run 24/7

Hybrid and multi-cloud strategies

89% of UK enterprises now operate multi-cloud strategies, using an average of 3.4 different providers. The main drivers are cost efficiency (62%) and business continuity (58%). The key insight: public cloud works best for variable workloads, while stable workloads often make more economic sense on private or hybrid infrastructure.

Windows 10 end of life

Windows 10 support ended in October 2025. If you're still running Windows 10 systems, you're facing a choice: migrate to Windows 11 (many older machines don't meet the hardware requirements), pay for Extended Security Updates (starting at £50/device in year one, rising each year), or accept significant security and compliance risks.

For a typical 50-person organisation, Windows migration costs often range from £60,000 to £100,000 including hardware replacement, licensing, testing and training. If you haven't budgeted for this yet, it needs to be a 2026 priority.

Disaster recovery

Cloud-based disaster recovery has become far more accessible than traditional approaches. Solutions like Azure Site Recovery can deliver recovery times measured in minutes rather than days, and you only pay for full computing power when actually performing failover. For SMEs, managed backup and DR services typically cost around £3-5 per user per month.

For more on addressing infrastructure debt, see our guide to the true cost of technical debt.

3. AI and automation

UK businesses are expected to increase their AI investments by 40% over the next two years, with early adopters already seeing returns of 17% (projected to reach 32% by 2027). But there's a significant gap between investment and strategy: only 7% of UK organisations pursue AI through an enterprise-wide plan. The rest describe their approach as piecemeal, department-led, or ad hoc.

Microsoft 365 Copilot: pricing changes ahead

From July 2026, Microsoft is bundling Copilot into premium Microsoft 365 licences rather than offering it as a standalone add-on. This means significant price increases for some plans (Business Premium rising from around £20 to £35-40/user/month). The UK government's pilot of 20,000 users found Copilot saved over 25 minutes per day per employee, and 80% said they wouldn't want to give it up.

Business automation ROI

The numbers for business automation are compelling: £3.70 return for every £1 invested, with productivity gains between 27% and 133% depending on use case. A Birmingham engineering firm saved £100,000 annually through predictive maintenance AI. But here's the reality check: 70% of digital transformations fail, with 71% citing change management as the reason.

What to budget for

For a typical SME, AI implementation costs break down as:

• Year 1 implementation: £40,000-£80,000 (including development, infrastructure, security)
• Platform licensing: £8,000-£12,000/year
• Training and change management: £6,400-£16,000 (Year 1)
• Ongoing maintenance: £12,000-£20,000/year

The critical insight: 60% of AI costs come from maintenance, training and scaling rather than initial development. Budget accordingly.

Made Smarter grants

If you're a manufacturing SME in England, the Made Smarter programme offers match-funded grants of up to £20,000 (covering 50% of project costs) plus free expert advice and digital roadmapping. Since 2021, the programme has engaged over 1,200 manufacturers and created 700 digital roadmaps.

For more on automation approaches, see our guide to business automation and introduction to low-code platforms.

4. Productivity and collaboration

With 93% of companies now using cloud-based collaboration tools, the question isn't whether to invest but how to optimise what you already have. Microsoft Teams alone has 360 million monthly active users. Key considerations for 2026:

• Consolidation over expansion: Most organisations use too many overlapping tools. Focus on getting more value from existing platforms
• Integration with AI: Tools like Teams and Slack are embedding AI assistants. Evaluate whether these deliver genuine value for your workflows
• Training investment: Most staff use only a fraction of their tools' capabilities. Training often delivers better ROI than new software

Budget prioritisation framework

Not every technology investment deserves equal priority. Here's a practical framework for allocating your 2026 budget:

Priority 1: Non-negotiable foundations

These should be protected regardless of budget pressure:

• Cybersecurity (target 12-15% of IT budget)
• Business-critical system maintenance
• Compliance requirements
• Backup and disaster recovery

Priority 2: Strategic enablers

Investments with clear business case and measurable ROI:

• Cloud cost optimisation (potential 20-40% savings)
• Automation with proven productivity gains
• Staff training and upskilling
• Hardware refresh for underperforming devices

Priority 3: Exploratory investments

Smaller bets on emerging technology, evaluated as a portfolio:

• AI pilots with defined success criteria
• IoT for specific use cases with clear productivity targets
• Innovation initiatives with metered funding

Common budgeting mistakes to avoid

Research on UK businesses reveals several recurring mistakes:

1. Treating cybersecurity as optional: 87% of businesses hold sensitive customer data, yet many still underinvest. The average cost of a ransomware attack for UK organisations is now £2.58 million.
2. Poor cloud implementation: 30% of cloud spend is wasted on unused resources. One in twelve organisations ends up spending 40% more than budgeted. FinOps practices can reduce this waste by 20-30%.
3. Underbudgeting change management: Typical allocations are 90% technology, 10% people. This should be closer to 80/20. Training often delivers better ROI than new software.
4. Ignoring total cost of ownership: That £1,000 server becomes £35,000+ over five years when you factor in electricity, maintenance, staff time and downtime costs.
5. Software licensing audit exposure: 62% of UK organisations were audited by a major software vendor in the past year. 32% incurred liabilities over £1 million. Proactive software asset management pays for itself.

What should you spend?

IT budget benchmarks vary significantly by industry. Technology companies typically spend 13% of revenue on IT, professional services around 11-12%, while manufacturing and retail average 6%. For most UK SMEs, a practical benchmark is around £2,500 per employee per year.

When finalising your tech budget, look beyond the initial purchase price. Consider the total cost of ownership, including implementation, training, ongoing maintenance and future upgrades. If you're considering custom software development, our guide to bespoke software costs can help you understand realistic pricing. And don't forget to budget for addressing technical debt, as many businesses underestimate how much outdated systems are actually costing them.

Frequently asked questions

Summary and next steps

Planning your technology budget for 2026 requires balancing multiple competing priorities: cybersecurity threats that aren't going away, AI capabilities that are genuinely transformative but require careful implementation, cloud costs that need active management, and infrastructure that's reaching end of life. The organisations that will thrive aren't necessarily those spending the most, but those spending strategically, connecting every investment to measurable business outcomes.

Start with your non-negotiables, build a clear business case for strategic investments, and treat exploratory technology as a portfolio where some bets will pay off and others won't. Most importantly, budget for people and change management alongside technology, as that's where most digital transformation projects fail or succeed.

Need help making the right technology decisions for your business? Our Technology Governance team can provide expert guidance on creating a technology roadmap that aligns with your business goals.