With a select group of business leaders eagerly awaiting the outcome of Ms Reeves budget, there was an inquisitive air and a lot of readiness to discuss the potential ramifications as we started the second annual FRP question time. A discussion on pre-budget predictions and the ripple effects that might be felt.

We were fortunate to be joined by an exceptional panel drawn from the Private Equity, Retail, Construction and Hospitality, which made for an effortless task for me as moderator. The panel consisted of Allen Simpson, Deputy Chief Executive at UK Hospitality London, Julia Court, Partner at Addleshaw Goddard, Karim Palant, Director of External Affairs at BVCA, Mark Gifford, Chairman at Radley and Geoff Rowley, CEO and Restructuring Partner at FRP.

Whilst what was discussed may not have solved all the economic obstacles ahead of us, it was a supremely interesting conversation. 

So, what are the issues and what did we hear? 

Investment

With the backdrop of the investment summit last week the government have a big focus on economic growth, does their rhetoric on growth match reality? 

It was pointed out that there are severe economic gaps in the UK’s current investment and growth strategy (not least hindered by proposed tax reforms) and there is a real need for the government to address growth-related issues. 

It was suggested that small, incremental changes to address these gaps are needed, but the landscape is complex. So, this is really not an overnight matter. Growth is always important, but at the right pace, and in the right way. 

The need for a conducive environment for investment is critical, including further investment in infrastructure (noting the collapse of ICG and the hole left in government projects), planning, and capital deployment (more on this point later). Growth was considered vital but difficult to achieve immediately.

On regulatory issues 

At the investment summit Keir Starmer talked about the regulatory burden on business and investment, and a need for reduction in bureaucratic ‘red-tape’ as a way of unlocking more growth. 

He stated there would be a reduction in the regulatory burden to investors by asking the likes of the Competition and Markets authority to prioritise growth and investment and then encourage other authorities to do the same. 

The major concern raised by the panel on deregulation, especially in financial services, was the potential negative impact on corporate governance. So, whilst the principle is welcome one, and the general idea of streamlined processes to encourage investment in the UK markets and infrastructure are hugely welcome, how it is monitored and governed is another question all together.

In general, there was support for more focus on unblocking planning for physical infrastructure. But it was pointed out that inefficiencies in construction, such as regulatory delays, and the need for government resources to support policy changes are barriers to success. 

On how to unlock the ‘dry powder’

The panel discussed what the right environment is to help unlock the investment potential and the £178bn of committed but not yet deployed capital, also known as ‘dry powder’, in the private equity space?

Unsurprisingly, the panel highlighted the need for a competitive tax environment to stimulate investment  alongside the need for quick, agile decision-making if investors are going to start deploying again. One would assume that previous themes discussed around certainty of tax and investment policies, as well as ongoing reduction in red tape, would also assist. 

The issue of having a competitive tax environment to unlock the dry powder is of course somewhat contrary to the overarching theme of the night, the star of the show, tax reform. More on that in a minute.

It was further highlighted that businesses were holding off on investment due to high inflation and expensive debt, making it difficult for private equity funds to deploy capital their capital. That said, we know the landscape is changing, so this can only be used as a reason for so long, surely? 

Like many issues in politics, without consistent action, the words and theories are nothing more than just that. So, it remains to be seen how the investment strategy will unfold.

On tax reform 

One thing is for certain, without the correct tax incentives in place, no one will want to be doing business, investing, and transacting in the UK market. We know that tax reform was a big part of the labour manifesto using phrases to describe the upcoming budget such as ‘tough’ and ‘painful’ to plug a potential £40bn black hole identified by Ms Reeves.

The panel’s overarching view was that Truss’ budget should be telling a story to the markets about how we are investing in growth - not an argument against doing it at all.

As part of the governments proposed combination of austerity and economic growth (in many ways two opposing concepts) Keir Starmer has not ruled out employers NI tax increases, and there has been much talk around increases in capital gains, amongst other tax increases – the panel discussed how concerned we should be. 

It was highlighted that consumers, in general, are riding low on confidence but the one positive is there should be no real surprises. Everyone has been aware of the sentiment behind the governments tax plans for several months and consumer attitudes are already low as a result. 

There was some emphasis over the unclear approach to planning by the government– leaving people in a void of uncertainty. 

There are few things that us humans dislike more than ongoing and perpetual uncertainty in life. It creates fear, and with that, a lack of trust which then leads to negative downward spirals in any context. So, it was put to the room, that it is time for the government to be clear on the way forward and stop pontifications. 

There was specific concern for the high street and the hospitality sector. Whilst the government has talked about a levelling out of business rates through reform that would see everyone pay an even percent, there is speculation that the business rates relief scheme may come to end, in March 2025. Increasing rates by three to four times and creating £866m in tax revenue (to be replaced with a new scheme).

This could impact a local pub by £11k a year, a town centre restaurant to £30k a year and a seasonal hotel to £40k. Like so many other potential reforms – small business owners will be waiting with bated breath to understand what will happen here. 

On carried interest 

Carried interest (a share of profits from a private equity, venture capital, or hedge fund paid as incentive compensation to the fund's general partner) was the final big feature. The government are planning on tightening the rules surrounding the scheme as a tax ‘loophole’ which in turn is creating some anxiety around how incentivised fund managers will be to continue to fundraise and invest in the UK.

The panel stressed the need for a clearer narrative to attract international investors. They also pointed out that tax treatment of carried interest could be managed in a more pragmatic way to encourage investment. The UK does not need to re-invent the wheel as there are practical examples in Europe for us to focus on in order to maximise attracting investment and being fair.

I don’t often see such genuinely interesting engagement in panel discussions, but this could have gone on long into the night. I was personally hugely impressed with the quality of insight we heard from our panel, and I know from speaking to business leaders after the event, they were too. We are planning on realising a webinar immediately after the spring budget – so what this space for more updates.