Private enterprise leaders confident in the new normal of challenge and change

Six months ago, we published our inaugural KPMG Private Enterprise (KPE) Barometer which showed that, despite recently announced employment cost rises in last year’s Autumn Budget, and a generally subdued economy, over 90% of private enterprise leaders were confident about their future prospects and growth.

This degree of confidence may have raised some eyebrows – but our updated six-month ‘Pulse’ research amongst 1,500 private enterprise leaders shows it was no aberration. Having lived with the reality of the Budget’s increases to employment taxes and despite a turbulent period on the geopolitical trading front, including the US administration’s tariff regime, almost exactly the same proportion of private enterprise leaders are bullish about the future. A remarkable 93% are confident, with 62% describing themselves as very confident.

Euan West

Head of UK Regions and UK & EMA Head of KPMG Private Enterprise, Head of Markets & Growth

KPMG in the UK

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We also see very similar investment intentions and priorities to last time. Nearly three-quarters of executives say they are planning to grow and diversify by launching new products and services, nearly two-thirds are eyeing expansion into new international markets, and nearly a third say they may expand via acquisition. Balance sheets remain strong and over six in ten expect to finance diversification from their own internally generated funds; for those expecting to raise finance, private equity is the most prevalent route (44%), followed by the capital markets/IPO (36%) while traditional bank borrowing comes some way behind (22%). In another parallel with our first wave of research, it is technology (AI, cyber security, digital transformation) that tops the investment list, by a long way: 67% name this as the most important area for investment, ahead of workforce & skills (36%) and sustainability (34%). Sustainability has dropped somewhat as a priority (44% last time) – perhaps as a result of a delay to the implementation of reporting requirements in the EU and perhaps also due to challenges in monetising the effort. However, it can’t be ignored as a strategic item – so it will be interesting to see what future waves of our research show.

Can-do mindsets

These findings highlight some fascinating truths about the UK’s private enterprise sector. Business leaders by their nature tend to see opportunity – they are glass half-full people. Amongst private enterprises and family-owned businesses, this is perhaps even more the case than in the large corporate space, with a very strong entrepreneurial mindset predominating. Yes, there is a high degree of change, challenge and unpredictability at the moment – but leaders have become accustomed to this as the new normal. It is simply how business is. For younger leaders and entrepreneurs, it is in fact how it’s always been.

This is highly encouraging. It shows that there is a resilience, determination and agility in the ranks of our many and varied private enterprises that can carry the UK a long way in terms of employment, wealth creation and growth.

That is not to say that the external environment doesn’t matter. Any business leader wants stable conditions in which to lead their organisation. In particular, they want certainty. In that respect, there seems little doubt that the UK’s framework trade deal with the US – the UK being the first country to secure one – helped settle nerves and instil more confidence. But what our research results also indicate is that, even when conditions are difficult and unpredictable, management teams will roll with the punches and double down on their own business discipline and performance.

Technology is a key lever

Businesses are also very pragmatic. The cost of employing a workforce has risen fairly significantly since last year’s Budget, both in terms of NIC and the national minimum wage. There are signs, seen in KPMG’s latest jobs market research with the REC, that there is a decline in hiring activity. From my conversations with clients, businesses are being very specific about the skills and capabilities they require from those people they do hire. They are also using their increased investments in technology to do more through AI and automation, reducing their reliance on people for process-based tasks.

In short, if the cost of employing people goes up, businesses will look at alternatives. However, they also know that through the effective use of technology, they can free their people up to focus on more strategic and value-adding work – raising productivity. If businesses can get the balance of technology and people right, there should be a real win-win available.

Navigating the barriers

Nevertheless, private enterprise leaders want an environment that helps them run their businesses more effectively – and they point to a number of concerns in our research. Inflation emerges as a key perceived barrier – perhaps because of its potential impact on interest rates as well as input prices. But future tax rises in the next Autumn Budget and rising employment costs are also a concern, and this is especially marked amongst family business respondents. The priorities for leaders are a Budget that supports technology adoption (44%) and business profitability (35%).

In terms of long-term factors influencing their planning for growth and investment, UK and global economic performance are seen as the most important factors (51%), followed by the availability and cost of capital (42%) and the performance of the capital markets/equity valuations (41%).

Not far behind these factors are the wealth taxes that are so material to private enterprises and family businesses – including capital gains and inheritance tax. Certainly, when capital gains increased at last year’s Autumn Budget, we saw a spike in clients exploring exit options and other mitigations.

Policy to support and unlock growth

There are some regional variations – the most upbeat region is London where a remarkable 97% of leaders are confident, 70% very confident. But in the East Midlands, there is a much more mixed picture with only 48% describing themselves as very confident and 46% as somewhat confident. Nevertheless, I believe the government’s commitment to devolution and channelling more investment through local decision making bodies is universally welcomed by those operating across the UK’s regions.

The message is clear: private enterprises are full of confidence and are looking at the growth opportunities. But while they will navigate bumps in the road and keep their momentum going no matter what, the right policy and tax environment could have a powerful multiplier effect that helps them really unleash their potential – raising national economic performance and wealth creation with it. I hope that when in about six months’ time we analyse the next set of full KPE Barometer results, we will see evidence of that before us.

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