Spring Budget 2024_GK Strategy
The GK team react to the Chancellor’s Spring Budget, with GK Strategic Advisers offering their insight into what this means for the Conservative Party in the run up to the General Election, what the budget means for individuals, as well as the announcement’s wider impact on key British industries.
To read our briefing please use the link above or click here.
GK Associate Hugo Tuckett reviews GK Strategy’s Private Equity Breakfast, where the Spring Budget and the general election were key discussion topics.
Will Jeremy Hunt use the Budget to put Labour on the back foot?
On Tuesday 27 February, GK Strategy was delighted to host professionals across private equity, corporate finance and wider deal advisory at a panel event to discuss what we can expect in politics over the next 12 months. The panel included The Rt Hon. David Laws, former Chief Secretary to the Treasury, and Chris Giles, Economics Commentator at The Financial Times. The discussion was chaired by GK’s CEO, Louise Allen.
A key theme of the discussion was the Government’s priorities for the upcoming Budget. The panellists agreed that challenges within the UK’s public finances would limit the Chancellor’s flexibility to implement wide-ranging tax cuts in the months leading up to the General Election.
Instead, they argued that the Government would prioritise smaller, targeted tax cuts that would create a dividing line with Labour. A reduction or phasing out of inheritance tax was touted as the one area where the main opposition party would struggle to match the Conservatives.
Labour’s immediate fiscal priorities, should it win the upcoming General Election, were also addressed by the panel. David Laws suggested that the Shadow Chancellor, Rachel Reeves, would have to decide whether to follow Gordon Brown’s approach post-1997 and commit to a Conservative government’s tight spending plans, or as was the case post-2010, label the previous administration financially irresponsible and introduce a series of tax rises and spending cuts to balance the books.
He later suggested that the Chancellor, Jeremy Hunt, might try to use the next few months to lay a series of traps for Labour, such as a commitment to reduce income tax in April 2025, in an attempt to create some separation between the two parties ahead of polling day.
Please get in touch via (hugo@gkstrategy.com) if you are interested in attending future events or would like to set up a call to discuss the year ahead in politics.
On Wednesday 22nd November, Jeremy Hunt MP unveiled his Autumn Statement, setting out the Government’s tax and spending commitments for the next year. The backdrop to this year’s Autumn Statement presents a number of challenges for a government with likely less than a year until the next General Election. The UK’s inflation rate stands at 4.6%, more than double the Bank of England’s target of 2%. Growth rates have stalled, and the Bank of England is predicting that the UK will see zero growth until 2025.
To better understand the true impact of the decisions in the Autumn Statement and how they will impact both the wider economy, and specific sectors, GK Strategy have developed a briefing containing sector specific insight and analysis from our Senior and Strategic Advisers.
Find GK’s briefing here: Autumn Statement 2023
Conservative Party shapes political battlegrounds in bid to turn around polling deficit
The first King’s Speech by Charles III and the last before a General Election was noteworthy not for the 21 Bills announced, which will shape the upcoming legislative agenda, but what it revealed politically. Whilst in the short-term today’s ceremony is unlikely to move the dial, it did reveal the foundations upon which the Prime Minister and the Conservative Party will seek to fight the election upon.
The overarching theme was the Government’s commitment to reducing inflation and bringing down the cost of living. The language that accompanied this was ‘making decisions in the long-term interest.’ This is fundamental to the Conservative Party strategy. By next Autumn (the most likely timing for the General Election) household costs will have stabilised and the Party will say to the electorate that they are on the right track and now is not the time to change course. Expect the phrase ‘long term interest’ to feature even more prominently as we look ahead to the Autumn Statement later this month. In the most recent YouGov poll of the most important issues facing the country unsurprisingly the economy is far out in front of the public’s most pressing concerns.
Within the King’s Speech were numerous Bills related to law and order. This is an area of traditional strength for the Conservative Party, however, in recent times the Party has fallen behind Labour on the issue. The recent demonstrations in London and the potential for further action ahead of Armistice Day, the Conservative political machine may see this as an opportunity to push for a hard line approach that they believe will sit well with the majority of voters. The Economic Activities of Public Bodies Bill, which is designed to give ministers the powers to ban public bodies from imposing their own boycotts, divestment or sanctions campaigns against foreign countries is likely to be a focal point in this debate designed to further expose divisions within the Labour Party on conflicts such as Israel-Palestine.
The other major focus area, which wasn’t included as a Bill but was referenced by The King as a priority area for the Government is on the topic of immigration. The King said the Government would continue to crackdown on criminal gangs and control the boats crossing the Channel with the powers conferred to ministers in the previous Parliament. With almost 4 in 10 voters citing immigration as a top three issue the Government is determined that its efforts remain front of mind of voters.
So, with the pitfalls for Labour clear, how can the Party respond? Under the Shadow Chancellor Rachel Reeves we will continue to ensure fiscal discipline is the priority. By demonstrating a firm grip on public spending and fully costed policies, Reeves will hope to build up enough credibility that when she asks voters ‘do you feel better off after a Conservative government’ the reply will not only be ‘no’, but an electorate confident in voting for a reformed Labour Party. The Party will also feel they are on the right side of the argument when it comes to the transition to Net Zero with regards to the forthcoming Offshore Petroleum Licensing Bill, claiming the Government is failing to show leadership and is presiding over a period of ‘dither and delay’.
Labour are also likely to capitalise on the lack of health announcements in the speech despite the policy area trailing only behind the economy in voters concerns. Despite a bill promising to ban the sale of smoking to anyone born on or after 1st January 2009, there were no mentions of NHS reforms or bringing down waiting lists. Perhaps an acknowledgement that the Conservative Party have for now conceded on the issue.
The battle lines have been drawn. Today is the firing gun on the debates in Parliament and the media that are likely to play out between now and the election as the parties vie for your vote.
What can organisations looking to engage in the political process take from this? It is far less about the potential impact of these measures, which may or may not pass, but a guide to how you can align your organisation with the political agenda to ensure your voice is heard and to begin to positively influence the shape of the next Parliamentary session.
For more details on the State Opening of Parliament and the new session, speak to GK Associate Director, David Mitchell david.mitchell@gkstrategy.com
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.
With an increasing number of deals being conducted in this space, GK consultant Milo Boyd takes a look at the potential of the circular economy for investors.
The circular economy – a system of trade which aims to increase the efficiency of resource use and reduce environmental impact, while developing the wellbeing of individuals – is increasingly being looked upon as an area that warrants attention from investors, and it seems that the concept is here to stay. A 2021 report published by BDO showed that the concept has been attracting a growing amount of investments – more than £1.5bn of capital has been directed into the circular economy since 2018. Of this funding, 33% of the deals have been conducted in manufacturing and industrial sectors and a further 33% has been directed to the food and drink sector, giving an indication of the breadth of opportunities available for investors. The upward trend in investment would indicate that these opportunities are only going to become more numerous as the UK continues to march towards a more sustainable future, and increasing numbers of organisations place ESG at the front and centre of their business operations.
Fundamental to this shift is the growing understanding of the economic returns that the concept of a circular economy can achieve across a variety of industries, notwithstanding the more obvious environmental benefits. For example, 2021 research from the Ellen MacArthur Foundation and Material Economics found that an adoption of circular economy principles into a system that addresses material use, shifting the focus to retaining and reusing resources and reforming our food system, can help to tackle 45% of Co2 equivalent emissions around the world, and found that profitability of investments can be significantly increased compared with non-circular investments.
Finance has rightly begun to seize on these findings, and this is reflected in the overall trajectory of investment into the concept, as investors strike away from the ‘take-make-dispose’ and instead increasingly seek ‘circularity’ in investment decisions. The optimisation of the UK’s resources can be both economically stimulating and encourage the scale up of markets that support the UK’s net zero ambitions, whilst simultaneously producing high – and crucially less risky – returns for investors.
It is important that the Government provides the right environment to encourage these investments to continue. The installation of a new government brings the prospect of a political and regulatory reset, and with it a new direction of travel for policy. A particular point of focus is what approach new the Prime Minister will take. Liz Truss, a self-confessed fiscal Conservative who is keen to hit the ground running, has vowed to bring about the biggest change to the UK’s economic policy for decades. It remains to be seen how Liz Truss will approach environmental policy, aside from conflicting statements to boost the green economy whilst simultaneously supporting fracking.
The circular economy is an important feature of the Government’s environmental strategy, as has been made clear in the 25 Year Environment Plan published in 2018, and the more recently published Net Zero Strategy. But there has been scant indication of how the new Prime Minister intends to build on these strategies and how she hopes to maximise resource productivity, reduce waste of resources, and to encourage an acceleration in the circular economy’s development. This is where the financial sector needs to proactively respond and not shirk its responsibility – finance can and should be a key lever in maximising the circular economy’s potential. It should be in the sector’s immediate priorities to establish a working relationship with the Government to achieve the environmental and financial benefits that can set the UK on a path towards economic growth and environmental sustainability. This will be of vital importance if the Government and the UK’s finance sector are committed to maintaining the UK’s status as a global leader for finance and climate action.
GK Strategy are experts in helping organisations understand the changing political landscape, and strongly recommend that business leaders quickly meet with government to discuss their priorities. GK is well placed to support finance leaders looking to connect with relevant stakeholders, get in touch with milo@gkstrategy.com for more information.