Bold moves needed: Why business confidence is key to UK growth

Written by Jonathan Dudley from Crowe UK

The Chancellor, Rachel Reeves, is well known from wanting to drive economic growth to fund the Government’s programme for change, that they were elected upon.

I really think that the Chancellor now needs to be bold and seek to take the nation with her, even to the point of making u turns, to get our country investing and growing in the future.

The importance and priority for growth was embodied in the forward to ‘Invest 2035’, the Industrial Strategy ‘Green paper’ published back in autumn 2024.

Much of what was included resonated with the Crowe UK ‘Manifesto for Manufacturing’ (M4M) published back in May 2024 and where it didn’t, we made sure that we included that in our comprehensive feedback document, a summary of which, as well as our M4M, can be seen at Manufacturing | Crowe UK.

So, excellent consultation; and the promise of a co-ordinated Industrial Strategy for the future. Some more work to do, of course, but reasons to be positive, nonetheless.

My view before the election; and now, remains clear; that growth requires, funding, market demand and Investment. Hence, the Crowe UK M4M, was called ‘Inspire, innovate, invest’.

Away from that process, however, ‘rhetoric’ from senior government figures, and in some cases, actions have, to date, seemed to drive quite the opposite behaviours both to the growth agenda and the spirit of the Industrial Strategy.

Back in October 2024, the Chancellor delivered a Budget which, although billed as a ‘’budget for growth’’, seemed to typify the above dichotomy. There was a real need to address a financial shortfall in the country’s ‘cashflow’.

Apparent political need drove ‘creative’ thinking which unfortunately, even before the measures take effect, has had already, what I am sure are unintended consequences.

The Budget outlined fundamental changes in the way that business assets would be taxed in the event of death; and also imposed, two employers NIC changes, inflicting significant costs of employment rises that for many businesses run to significant sums of money.

Moreover, provisions intended to ‘shelter’ smaller businesses, disincentivise businesses from growing their workforce as the NIC rebate increase to £10,000 presents a big ‘’cliff face’’ when you lose it.

Talking as I do, to many businesses in a variety of sectors, there is a general disinclination for owner managers to invest and/or borrow, at the moment; they weren’t keen before, due to the business risks that have existed since the pandemic and the geopolitical situation, and the inherent uncertainty caused by the Budget proposals haven’t helped.

They see risk and success as being taxed as well as increased cost of employment and are reacting accordingly.

In some cases, the NI increases now challenge the very viability (and therefore value) of businesses; we are already seeing businesses, at best, cutting back on recruitment and making job cuts in an effort to afford the increased costs, in what is already a price pressured economy.

In some other cases, much more terminal measures are in plan, as businesses lose risk appetite and confidence.

My colleagues and I at Crowe are on hand to advise businesses on a way to navigate and re-set a cost base and trade profitably in the future - something I call ‘Thrival’.

If you want to know more, take a look at the various free diagnostics.

There is currently an appetite (and an ability), for banks and financial institutions to lend to and/or invest in businesses that are both viable and where the management have clear plans for, success and a desire to lend money, take commercial risk and grow their business and workforce.

But that’s rather a limited market, in an environment where businesses are just concentrating on meeting the cost of their working capital short term tactics are currently taking precedence over forward strategy.

In my day job most of the last few months, I have been focused more on helping business owners to take steps to shelter their wealth rather than helping them to plan for growth. Sadly, this latter, isn’t a priority for them, right now.

If the economy doesn’t positively see a move forward, we risk a continuing ‘flat growth economy’ and a real challenge for the Chancellor, as she prepares for her Spring Statement.

There is potentially even less money around now than there was back in October; but if we don’t achieve growth the tax take will fall and there will be an even bigger ‘hole’ by the end of the year.

To achieve growth, the Chancellor needs to inspire our entrepreneurs to innovate and invest, and this needs real incentives for businesses and their owners to invest, embrace the latest technology, innovate, skill themselves up and improve productivity.

100 per cent tax relief isn’t sufficient where there are fears that there won’t be profits around to use the relief as a shelter. More is needed..

This may well need a pragmatic rethink and maybe even a manifesto pledge break or two; but most people, for example, could prefer to pay a bit more in income tax and have secure employment with good prospects than no job at all.

The recent events between Trump and Zelensky have brought into sharp focus,  the need, in the interest of our nations security and our way of life, for us to be as self sufficient as possible which of course embraces defence but also our food and energy supplies.

It's a credit to the prime minister that he has immediately responded and acted on such events, backed by further action by the Chancellor, too.

This could be indicative of the 'bold action' that I have recently called for; time will tell.