Banking – but fairer, more rewarding, and for the good of society

Spring is here and while gardens across the country may be starting to grow, finding signs of green shoots of economic growth is somewhat tougher, says Gareth Jones, head of strategic finance – Midlands, at Virgin Money.

Back in January, I flagged the challenging economic outlook with uncertainties and modest growth expectations. While the UK economy grew more strongly than expected in February according to recent data, the general picture has worsened since the start of April due to the impact of US tariff policy, making planning harder for businesses that export or import. Businesses have also had to deal with the increased employment costs from the last budget coming into effect recently.

Leading a business in this tough environment is far from easy. Despite the challenges, resilient and well led businesses continue to grow and find investment opportunities.

At Virgin Money, we believe businesses need the support of strong bankers when it’s needed most, and we’ve seen the results of that with ongoing growth in our lending.

Alongside our new owners Nationwide, we’ve launched a shared purpose: ‘Banking – but fairer, more rewarding, and for the good of society.’ This mission drives us to deliver banking services differently. As a mutually-owned business bank, we feel a strong responsibility to support the businesses that are the heartbeat of our regional economies. We’ve also committed to reinvesting 1% of our profits into good causes across the country.

Trade Tariffs

Expanding a business domestically and internationally takes time. The UK Export Finance (UKEF) General Export Facility is a flexible government-supported scheme that helps UK export businesses access facilities to improve cash flow or accelerate trade growth. Virgin Money proudly participates in UKEF’s General Export Facility Scheme, Export Working Capital Scheme, and Bond Support Scheme. These facilities can assist with funding for any purpose in a business with a minimum of 5% of their sales from export in each of the last three years, or more than 20% in any of the last three years.

UK exporters also face a challenging and changing tariff landscape and often manage currency risk when invoicing overseas customers in non-GBP currencies. Virgin Money can help by providing foreign currency forward contracts to lock in the GBP value of invoices, securing profits and minimising currency losses.

Increasing Employment Costs

The impact of increased employment costs this month is still uncertain. Businesses we speak to are considering several options:

• Increasing prices, which may present challenges.
• Accepting lower margins, though this may not be sustainable.
• Negotiating lower wage increases with employees, despite tight labour markets.
• Employing fewer people or not replacing leavers.

None of these options are easy or palatable. The alternative is to increase productivity, which usually requires investment in learning and development. However, businesses are operating in tough economic conditions with hard-earned growth and profits, and many simply don’t have the cash to invest.

Recent trends are discouraging, with employer investment in training falling 28% in real terms since 2005. EU firms invest double what UK firms spend on training¹. 80%² of the workforce in 2030 are already in the labour market today, but the skills required will be different, partly due to AI developments. There will be a surplus of 3 million low-skilled workers and a shortfall of 2.5 million high-skilled workers in the UK workforce.

At the CBI Conference in November, CEO Rain Newton-Smith highlighted how extra costs are causing business owners to question investing in new people and training. Two-thirds of members believe they will invest less after the budget. Newton-Smith stated, ‘When you hit profits, you hit competitiveness, you hit investment. You hit growth.’

People and skills have been a top challenge for businesses for some time. These are strong headwinds to navigate. It’s hard to see how businesses can drive growth and increase productivity without investing more in training and development. We are committed to working with businesses to support investment, strengthen their capacity and capability for the future, improve productivity, and deliver growth.

The economic headwinds which businesses are facing into are tough, but business leaders shouldn’t feel alone and should talk to their bank. There are banking facilities designed to help mitigate the risk caused by uncertainty, and assist with the funding of the right investment opportunities, adding strength to businesses and allowing better navigation of the challenges we face into and more successful outcomes.  At Virgin Money we’re keen to help.

1  PWC – Framework For Growth

2 Industrial Strategy Council