Turning Economic Uncertainty into Strategic Advantage.

In the wake of the latest UK Budget and the US election result, businesses and their shareholders are having to navigate a complex landscape of shifting tax policies, rising employment costs and evolving cross-border opportunities. As they prepare their growth plans and budget forecasts for 2025, leadership teams are seeking strategic corporate finance advice to turn economic uncertainty into strategic advantage.

Following the recent UK Budget announcement and the result of the US election, we brought together senior Midlands dealmakers to assess how these developments will impact business in the UK. The discussion provided an exchange of insights, drawn directly from the group’s own experiences as well as their interactions with private company owners, business execs and investors across the UK.

The discussion centred on how government policy shifts and the broader global economic climate will shape growth, strategic planning, investment and financing for British businesses. Participants outlined shared concerns over mounting challenges to corporate growth and stubbornly poor as well as opportunities for investment, the drag on productivity growth and emphasising the importance of innovation. Here, we summarise key issues raised during the discussion, as well as recommendations for the business community.

Diverging Strategies: UK and US Approaches to Stimulating Growth

The US election result points to an incoming administration that is highly pro-business with a robust focus on economic growth through lower corporate tax, deregulation and wholesale public sector efficiency improvements. This contrasts sharply with the UK’s current business policy framework of higher taxes, growing public sector spending (with very limited reform) and pushing ahead with growth dampening policies such as Net Zero. UK energy costs, for example, for industrial users in the UK (per KWh) are four times higher than they are in the US.  

The comparatively lower productivity in the UK, relative to the US, suggests that British companies and the public sector need to look beyond traditional staffing models to achieve growth. It was felt that with rising employment costs, businesses will find it increasingly attractive to invest in AI, technology and automation as routes to improving productivity and efficiency. 

There was consensus that successfully concluding a UK-US trade deal (with favourable tariffs) in the short term was a crucial opportunity for British business. The US is the UK’s largest single trading partner and we retain our status as a strategic stepping stone into Europe. It was felt that this could significantly enhance cross-border trade, affording British companies valuable access to a higher growth market and US capital. This access will be essential to stay competitive particularly given that growth projections at home remain uncertain.

Fiscal Policy and the Strain of Post-COVID Spending

The UK government’s approach to economic recovery post-COVID, now marked by increased taxation, has placed significant pressures on businesses. Heavy government spending during the pandemic necessitates tax recoupment, but the distribution of this tax burden is increasingly problematic. While many accept the need to fund the recovery, there is a deep concern about how the current tax approach disproportionately impacts businesses, especially those heavily dependent on a large workforce.

The Labour government’s recent tax policies, especially employment-related taxes, have sparked criticism as they risk dampening growth rather than stimulating it. This approach to taxation, particularly on employment, is seen as counterproductive for growth as it raises inflationary pressures without supporting business expansion. This is particularly problematic for industries with high staffing needs, such as hospitality and retail, which face escalating costs with little incentive for growth. Not only does this approach limit job creation, particularly for younger workers entering the workforce, but it also places upward pressure on wages that will eventually translate to higher costs for consumers.

Capital and Compliance: The Double Bind

The corporate finance landscape in the UK is increasingly characterised by complex regulatory and compliance challenges. The UK’s high levels of regulation, coupled with substantial compliance requirements, impose a heavy administrative and financial burden on businesses. The need for deregulation and more flexibility in compliance measures emerged as a strong theme in the discussion, underscoring the widespread sentiment that the UK has become one of the most regulated countries in Europe. This regulatory load is a formidable impediment to business agility, hampering the private sector’s ability to drive the growth needed to sustain the public sector.

For ambitious UK companies aiming for expansion, access to venture capital and other growth-oriented funding is essential. Participants agreed that venture capital, in particular, should be leveraged as a catalyst for growth, encouraging the innovation and entrepreneurship that can fuel economic revitalisation. Increased venture capital funding could drive a new wave of growth, enabling British businesses to develop and expand amidst an uncertain economic backdrop.

Strategic Finance and M&A Opportunities

Despite broader challenges, the roundtable discussion identified some positive aspects within the corporate finance landscape. While tax increases present obstacles, the recent Budget did not raise capital gains tax as high as anticipated, which has preserved scope for strategic mergers and acquisitions. With expert guidance, ambitious companies can navigate this environment effectively, seizing growth opportunities through acquisitions and investments in new technology.

Participants anticipate increased activity in mergers and acquisitions, with both an influx of US acquisitions of UK firms and UK firms seeking opportunities in the US. This trend underscores the importance of cross-border finance expertise for British companies seeking to capitalise on new opportunities. Additionally, the changing tax landscape is likely to spur a rise in management buyouts (MBOs) and a shift in ownership as business owners reconsider succession plans in favour of realising cash. This anticipated surge in M&A activity, coupled with the renowned resilience and innovation of UK entrepreneurs, could inject new energy into the economy, offering companies a chance to reposition and strengthen their market presence.

Supporting Innovation and Rebuilding Business Confidence

While the economic climate presents notable challenges, the UK’s tradition of entrepreneurial innovation offers a strong basis for optimism. British businesses, known for their resilience, will likely adapt and succeed given the right incentives and support. Panellists encouraged the government to focus on accessible grants for companies that drive employment, while urging businesses to embrace disruptive innovation and pursue a productivity-centred growth strategy.

Innovation is likely to be central to economic recovery, with UK entrepreneurs well-positioned to capture emerging opportunities in technology, AI, and sustainability. Policies that support investment in new technology and training will help companies pivot towards high-productivity, high-skill models. While this shift towards productivity-boosting technology may reduce employment in certain areas, it could ultimately strengthen the economy in a more sustainable manner, creating a robust foundation for future growth.

Leveraging Corporate Finance Expertise: The Path Forward

At a time of heightened uncertainty, corporate finance advisers play a critical role in helping businesses navigate an increasingly complex landscape. With expert advice, UK companies can not only manage the challenges presented by the current fiscal and regulatory environment but can also position themselves to thrive. Despite immediate pressures, the UK business community is supported by a strong network of finance professionals who are well-equipped to provide strategic guidance for effective decision-making.

The UK Budget and US election outcomes have undoubtedly created new pressures for British businesses. However, with a focus on strategic corporate finance advice, productivity gains, and a commitment to innovation, there remains a viable path to resilient growth. By promoting an environment that encourages investment, facilitating access to funding, and leveraging the inherent ingenuity of UK entrepreneurs, the British business sector can continue to drive progress even within a challenging landscape. The resilience and adaptability of UK businesses, underpinned by wise fiscal stewardship, will be crucial in reclaiming economic momentum in the years to come.

Headpoint invites business founders, entrepreneurs and management teams to explore their next strategic steps. For more information, contact Mark Wilson at 0845 544 0500.