Author Archives: GK Strategy

What does the ongoing conflict in Ukraine mean for private equity investment in UK defence?

GK Senior Adviser Hugo Tuckett analyses the historical challenges for private equity investment into the defence sector, and takes a look at investment landscape in the years ahead. 

Defence has historically been a challenging area for private equity. The nature of contracts, cash flow models and high barriers to entry have often been cited as reasons for a lack of investment. This is alongside the perception that the industry is dominated by a relatively closed shop of actors.

However, has the Russian invasion of Ukraine changed the outlook for private equity in this space? Does an on-going war in the Europe open the door to investment in technologies with an offensive application?

ESG considerations have certainly softened. While private equity houses have traditionally steered away from investing in defence due to ethical considerations, public attitudes in the UK indicate a continued desire to provide military support to Ukraine. YouGov polling, conducted in February 2023 on the one-year anniversary of the Russian invasion, found that 65% of Britons supported sending additional weaponry and supplies to the country. There was also more support (45%) than opposition (25%) for cyber-attacks against Russian military capabilities.

Furthermore, the Government’s continued desire to financially back UK defence points to a healthy procurement environment in the years ahead. The Defence Secretary’s very public lobbying efforts to secure additional funding on top of the multi-year settlement agreed in 2020 have certainly been fruitful. At the recent Budget, the Chancellor, Jeremy Hunt, announced that the Government will commit an extra £11bn to the defence budget over the next five years and confirmed the decision to increase investment by £5bn over the next two.

Where, therefore, does private equity most stand to gain in the industry? KPMG analysis from 2021 highlights two possible areas private equity houses might look to explore. Firstly, supply chain consolidation. Liquidity issues amongst the supply base lends itself to lower-tier suppliers joining together to create economies of scale and gain access to more capital. Secondly, in innovation. For growth-orientated investors, cutting-edge assets that become available to the market via divestments from parent companies presents an opportunity for private equity houses to bring their expertise to assets that could go onto become extremely successful businesses.

While, of course, some parts of the defence industry remain outside the scope of private equity, shifting public attitudes to offensive military technology and growing Government financial backing certainly point to a welcoming investment landscape in the years ahead.

GK consultants are on hand to offer investment professionals our expertise helping to assess the UK’s political and regulatory outlook. Please get in touch at hugo@gkstrategy.com for more information.

Could carbon capture be the silver bullet in our push for net zero?

GK consultant Hugo Tuckett takes a look at the potential of Carbon Capture Usage and Storage, assessing the UK’s credentials as a leader for a sector in its infancy. 

It is abundantly clear that the Paris Climate Agreement’s aim of limiting global warming to 1.5C above pre-industrial levels is under serious threat. The recently published report by the Intergovernmental Panel on Climate Change (IPCC) makes clear that there is very little chance of keeping the world from warming by more than 1.5C (which would substantially reduce the effects of climate change). Indeed, the world has already warmed by 1.1C and experts now expect to breach 1.5C in the 2030s.

While significant progress has been made towards developing methods of clean energy generation – such as wind, solar and hydro – innovative new technologies continue to come forward which balance the other side of the equation, removing carbon directly from the atmosphere. A vital tool in our arsenal to hit the 2050 net zero target. Technology such as this not only buys us time to develop effective solutions to some of the most intractable challenges we face decarbonising our economy, but also provides us with a route to the eventual return to pre-industrial global temperatures.

In step Carbon Capture Usage and Storage (CCUS). Exciting research has identified a new method of sucking carbon dioxide out of the air and storing it in the sea, which promises to be three times more efficient that current approaches. The stored CO2 can be transformed into bicarbonate of soda and stored safely and cheaply in seawater. The development, although in early stages, has been welcomed by many in the field.

In the public policy world this begs the question; how can Ministers foster an innovative green economy and help bring these solutions to market?

The Government is undoubtedly moving in the right direction. The recent Budget allocated £20 billion of funding for early development of CCUS, far exceeding the reconfirmation of the £1 billion CCUS Infrastructure Fund at the 2021 Spending Review. Given the publication of the Third Climate Change Risk Assessment in January 2023 showed that for eight individual risks economic damages could exceed £1 billion per year each by 2050 with a temperature rise of 2C, those in industry will be relieved that Ministers are finally grasping the problem.

With a general election on the horizon, attention has inevitably turned to Labour and its approach to CCUS. Positive rumblings have certainly been forthcoming, not least the proposed National Wealth Fund which would seek to invest in and grow green industries. Moreover, Keir Starmer’s keynote New Year’s speech specifically cited investment in carbon capture as a central element of his ambition to hit 100 percent clean power generation by 2030.

In the absence of substantive detail, businesses involved in CCUS have the opportunity to shape Labour’s policy development to its advantage at a vital period in the pre-election cycle. Furthermore, given the significant uplift in funding announced at the 2023 Budget, chances to shape Government priorities in the rollout of CCUS will be abundant in the months and years ahead.

Positive advances in CCUS should grab everyone’s attention given the scale of the challenges we face decarbonising our economy and possibly one day returning to pre-industrial global temperatures. It is vital that Ministers work to create an environment in which green technologies such as CCUS can thrive in the UK.

GK consultants are on hand to offer our expertise helping companies navigate the UK’s political and policy landscape. Please get in touch hugo@gkstrategy.com for more information.

From National Standards to Digital EHCPs: the future of SEND in England

GK associate, Monica Thompson, provides an insightful analysis of the UK government’s recently published SEND and Alternative Provision Improvement Plan for the future of Special Educational Needs and Disabilities (SEND) in England. The plan proposes a range of policies aimed at fixing a broken system, including several key policies that promise to improve inclusivity among mainstream schools and introduce digital solutions for Education, Health and Care Plans (EHCPs). Despite criticism from experts and campaigners over delays and setbacks in the government’s review, Monica discusses how the proposed policies are a step in the right direction to address the urgent need for reform.

On March 2, 2023, the UK government finally published its Special Educational Needs and Disabilities (SEND) and Alternative Provision (AP) Improvement Plan, aimed at fixing the SEND system in England. However, the UK government’s review of the SEND system has been beset by delays and setbacks, prompting criticism from experts and campaigners. This plan proposes a range of policies, including the creation of new national SEND standards and the introduction of digital EHCPs. However, the government’s timeline for rolling out these policies is expected to take several years.

The government will be piloting the new national SEND standards and funding tariffs, along with digital EHCPs and tailored school lists for parents, for two to three years under a £70 million “change programme,” with nine regional expert partnerships taking part in the trial. By the end of 2025, the Department for Education will decide whether to go ahead with the changes nationally, which means that a national rollout might not happen until 2026.

The government’s plan includes a range of proposals to improve inclusivity among mainstream schools, but concerns have been raised over the timeline of the changes. Last year’s SEND Green Paper plans to consult on giving councils powers to direct academy trusts to admit pupils as part of a drive toward a more inclusive system, does not appear in the government’s plan. Instead, the plan focuses on making the process of applying to the secretary of state for a direction to admit a pupil “as effective as possible”.

The upcoming Academies Regulation and Commissioning Review will set out plans to incentivise improvement for all children in all parts of the country, including support for children and young people with SEND who attend mainstream settings.

It is widely acknowledged that the SEND system in England is in need of reform, and while the government’s new national standards promise to improve inclusivity among mainstream schools, many believe that the proposed changes are not happening soon enough.

The following key policies are highlighted in the review:

  1. National Standards: The government will pilot new SEND standards before legislating for them. The standards will be tested in 2022 and will focus on the most deliverable elements of the current system. Legislation will be introduced at the earliest opportunity to facilitate intervention in education settings if standards are not met.
  2. Accountability: Ministers will design accountability mechanisms to ensure government expectations are met. The standards could set out how schools must adapt physical and sensory environments to enable pupils with SEND to learn alongside their peers.
  3. Digital EHCPs: The government plans to standardize Education, Health and Care Plan (EHCP) templates and introduce digital solutions to improve experiences for councils, suppliers, and families. The digital EHCPs will be piloted in 2023 before being rolled out in 2025.
  4. Local Inclusion Plans: Local inclusion plans created by local SEND and AP partnerships will be introduced. Tailored lists of settings for children will be tested before legislation is introduced at the next available opportunity to make partnerships statutory.
  5. Mandatory Mediation: Mediation between councils and families will be reviewed. Professional standards for mediators and advice will be reviewed in 2022.
  6. New SENCO National Professional Qualification: The government will procure providers for a new leadership level SENCO National Professional Qualification.
  7. New Special Schools: The government has promised 33 new free schools and is currently assessing applications for new AP schools.
  8. National SEND Tariffs: The government will introduce a national system of funding bands and tariffs to ensure consistent funding.
  9. Alternative Provision Funding: The government will introduce a new funding approach for alternative provision aligned to its focus on preventive work with, and reintegration of pupils into, mainstream schools.
  10. Inclusion Dashboard: The government plans to introduce new inclusion dashboards for 0-25 provision to offer a timely, transparent picture of how the system is performing at local and national levels.
  11. Ladder of Intervention: The government will introduce a new ladder of intervention this year to strengthen accountabilities across all parts of the system.
  12. Alternative Provision Performance Framework: An expert group will support the development of a bespoke national alternative provision performance framework.
  13. Fair Access Panels Review: The government will review processes and develop options for ensuring transparent and effective movement of pupils without EHCPs.
  14. Independent Schools: The government will re-examine the state’s relationship with independent special schools to ensure comparable expectations for all state-funded specialist providers.
  15. Joined-Up Work with NHS England: Integrated care boards will be required to have a named executive board member lead accountable for SEND.
  16. National SEND and Alternative Provision Implementation Board: The government will introduce a new implementation board to hold partners accountable for the timely development and improvement of the system.

In conclusion, the UK government’s new SEND and Alternative Provision Improvement Plan proposes several policies that aim to reform a challenged system. While the timeline for rolling out these policies may be slow, it is hoped that the trialling of the changes will avoid repeating mistakes made in the past. The upcoming Academies Regulation and Commissioning Review also provides an opportunity to improve support for children and young people with SEND across the country.

The Green Deal Industrial Plan, the Inflation Reduction Act, and what they mean for the UK

GK consultant Milo Boyd takes a look at the significance of both the EU’s Green Industrial Plan and the USA’s Inflation Reduction Act, and assesses what these mean for the UK’s climate competitiveness. 

It’s no secret that the Inflation Reduction Act (IRA) has been framed by the incumbent Democrat administration in the United States as one of their big successes (or failures, depending on who you ask). To make it this far, the Act has battled internal Democrat opposition, as well as big-spending averse, influential Republicans who have sought to rein in spending commitments from central government. Despite this, the IRA has put the US on a path to meet its Nationally Determined Contribution (NDC) as set out in the 2016 Paris Agreement and achieve a 50-52% reduction in its carbon emissions by 2030. Of importance to European nations, the Act also contains provisions to benefit US domestic industries. Fearful of the influence that the IRA could wield over the clean tech and net-zero sectors, the European Commission has recently published its own strategy to avoid European industry marching into the welcoming arms of the US – the Green Deal Industrial Plan.

The net-zero transition, the acceleration of which has been stimulated by the ongoing energy crisis due to the conflict in Ukraine, has resulted in considerable shifts in economic, industrial and geopolitical planning throughout both the UK and the EU. With the release of the Green Industrial Plan, the EU has made clear its intentions as to how it aims to take advantage of the accelerated transition to net-zero and strengthen its industrial footing. Fronted by the EU Commission President Ursula von der Leyen, the Plan confirms that the EU will propose a Net Zero Industry Act, which promises to provide a regulatory framework to enhance the competitiveness of the EU’s low-carbon and net-zero industries, including the provision of tax-breaks for companies that support those ambitions.

The plan aims to build on ongoing initiatives, such as REPowerEU – released in May 2022 – and at its centre provides a more predictable and streamlined regulatory environment for clean teach by loosening the limits on subsidies provided by EU member governments to struggling businesses. The hope by the EU is that this will help ensure that Member States are able to provide more ‘state aid’ to prop up businesses that are lagging behind. The Plan has received mixed responses in EU circles, with some figures going as far as describing the plan as ‘Marx on steroids’, amid fears that the stronger EU economies will be able to spend their way to internal economic dominance, and subsequently influence. As described by Von der Leyen, “the next decades will see the greatest industrial transformation of our times”, clearly setting out how the EU views the scale of the opportunity. Evidently, both the Green Deal Industrial Plan and the Inflation Reduction Act will be cornerstones of decision-making on both sides of the Atlantic, with clear transparent efforts to tempt businesses to invest and take root in each respective economy.

So what do both of these plans mean for the United Kingdom? The UK cannot afford to lag behind and lose out to international big hitters, especially now that green industries are understood to be critically important to the UK economy. Lacking the pure economic firepower of both the EU and the US, it is vital that the UK remains agile enough – Brexit benefit anyone? – to spot opportunities as they emerge and quickly take advantage of them, optimising its regulatory and planning landscape to do so. Restrictive planning policies and a 13-year backlog of grid connections for renewable projects have been the Achilles heel of the UK economy throughout the 2010’s, and to date remain overly drawn out and cumbersome, rightly being identified by the Skidmore Review as some of the UK’s biggest weaknesses. Despite generally performing quite well on low-carbon energy, the UK should prioritise speeding up the planning and consent processes to ensure a steady stream of new green projects in the pipeline. Doing so would encourage external investment into the UK economy and secure the continuation of the UK’s position as a global climate leader.

GK Strategy are experts at helping companies navigate the UK’s changing policy landscape, get in touch with milo@gkstrategy.com for more information.