Businesses price in a year of political turbulence – round table with Crowe

Prime Minister Rishi Sunak said he was operating on the assumption there will be an election in the Autumn of 2024. We gathered together a group of leaders from mostly owner managed businesses, some family owned, some employee owned, but all strongly commercial and focused on the challenges ahead.

We invited political consultant Declan McHugh to set the scene for the political year ahead, and to give guests the context for the year ahead.  

He said the latest date would be the 25th of January 2025, but ran through the realistic possibilities of an autumn poll. 

“The announcement that there would be a Budget on the 6th of March led to speculation that a number of tax cuts would be announced in order to go for a spring election in May, maybe at the same time as the local elections. I think, really, that’s a case of over analysing things. I think the Tories have left themselves the possibility of going for an early election, but the bottom line is you would be suicidal to attempt an election when you’re 20 points behind in the polls.”

He added: “I heard George Osborne the other day, saying, apparently within Whitehall, the date that has been pencilled in the various civil service diaries is the 14th of November.”

He said the themes for the year would be from the Conservatives: “We turned it around, don’t let Labour wreck it. The Labour line will be they broke it, now it’s time for a change, you can trust us to fix it.”

On tax issues he said the message from Conservatives will be that under Labour you will get wasteful, there will be unproductive spending, which they will fuel with higher borrowing. And that will mean you’ll pay high taxes. Meanwhile the Labour Party is desperate to avoid falling into that trap, hence all the emphasis on fiscal responsibility. The result: “Labour will make sure that they don’t get caught out with any commitments to raise taxes or to kind of engage in promises on spending in advance of an election.”

As to the result of the election, he pointed to the electoral mountain Labour have to navigate between the poor result in 2019 and the number of seats it needs to win a majority: “Labour has to do 124 seats better to get a majority of one”, he said.

But a number of factors have smoothed that path for Keir Starmer to reach Downing Street: the unpopularity of the Conservatives in all parts of the country to the point where some polls predict a meltdown in their support; the decline of the SNP in Scotland, which favours Labour; the recovery of the Liberal Democrats in the South, which only hurts the Conservatives.  

How do you see the year shaping up with all of this volatility, uncertainty and division?

Rebecca Durrant from Crowe: “In our circles and the discussions that we’re having with clients, everybody is expecting change and considering what policies a Labour government might introduce. Obviously, our area of focus is tax and VAT. But it’s not just about the tax. It’s all the other costs to business, such as energy, rental costs, they’re actually probably more important than the tax in a lot of ways. Because until we get that part of the economy under control, a couple of points on the tax rates one way or another won’t make any difference. Ultimately, it’s the overall cost of doing business. That is the bigger issue.” 

Nicola Hodkinson from construction group Seddon said labour market pressures, particular difficulties in the housebuilding sector and the planning system all make things tougher at the moment.

“I think it’s also about funding and interest rates, everything has a knock on effect. 

“We’re seeing more and more people move into private renting. And they really have had the rug pulled out from underneath, if you’ve got a lot of people now who own lots of different properties, but the model isn’t working for them because of rising interest rates. The whole thing is just broken.”

For Jason McKnight, Recom, the skills shortages in construction and allied trades is a major challenge.

For Declan McGoff and his family construction business it’s the uncertainty that he feels is the crunch.

Recruiter Richard Gahagan agreed: “I think for us, stability is actually a bigger problem, a recession doesn’t hurt us, because people have made their decisions. They’ve got plans in place that could be transformational investment, whatever that might look like.” 

He added: “No matter what your political allegiances are, it’s not going to be stable, however many years we are away, so I think people have built up a lot of resilience, not just in the psyche, but in terms of actual economic resilience. 

He also urged political discussion amongst businesses and the general public to be more visionary. “I feel passionately that the next 20 years needs a government that will actually go and deal with education, deal with health, education, transport, deal with everything and have a plan.”

Sam Gregory from Tangerine focused on how the current climate has affected the young people who work in the business she runs: “We employ lots of young people, but we have 100 of us in our agency, and the majority of them I’d say, are 30 or under. From a skills perspective, from a resilience perspective, they’re just not there,” she said. 

“It’s quite unclear, but actually what’s happened with salary expectations, I’d say probably entry level to mid level have gone up but our clients don’t want to accept us just putting up our rates.

“Then look at the corporation tax, income tax and all these other things. And suddenly, it becomes really difficult to run a business and do it profitably, particularly when you’re growing as we are because we need to invest and we want to encourage them to grow. We’re a very aspirational business, we’ve grown very quickly in a short space of time.

“So we need some of that thought in government policy, but then we also need a workforce that buys into that,” she said. 

Vic Johnston from Enjoy Benefits speaks to businesses who are continually looking to find ways to motivate and reward their teams with smart use of the tax system.

“One of the things that we found is that actually, the minimum wage keeps going up and is actually causing a kind of absurd pressure. Because in a way, our skilled staff who we pay, you know, reasonably well we keep inflating their wages without necessarily inflating the cost we pass on to our clients. 

He also pointed to the pastoral role of an employer, “almost like a replacement for the state, in that we provide more benefits to the employees, caring more for them than you would expect an employer to do traditionally.” 

He said that while the desire is there to give the teams more salary, there’s a recognition that “we’re contributing to the inflationary cycle by increasing wages and then increasing the cost so that we can afford to pay.”

He also pushed against the tendency for politicians to woo people with “short termism solutions” based on empty promises and “absolute lies”. He said: “I don’t know if it’s even possible to, but just to have some kind of honesty and politics that would say, we’re going to do this for you over a long term. And it’s not necessarily going to be really pleasing for you now, but it’s going to give the country the different infrastructure that needs to be in place to get to where we need to go, not where we want to go, not kind of the short termism of, you know, saying that migrants are to blame.” 

Anthony Hughes agreed on the expectations of staff, especially he said the entry level is a big issue, as is the ability for senior managers to manage the expectations of younger people.

“They couldn’t get to grips with managing their expectations, managing that increase in skill set, because they couldn’t identify the roles they had when they joined the business. Now, that’s not necessarily the fault of individuals.”

Nicola Hodkinson spoke about the importance of trusted relationships in work, understanding the whole person so you can help them out if things happen, but that also needs to start with the employee being the kind of person who looks out for colleagues and puts the effort in.

As a wrap up Rebecca Durrant reflected on the experiences of dealing with entrants into her profession from different backgrounds and those who had educational and social advantages. She reflected not only on the expectations of younger entrants into the working world, but also how their preferred ways of working might be different to ours – more WhatsApp, Messenger and digital tools – but that in doing so they are shaping the future too.