Political turmoil is now the biggest threat to small businesses' future

Companies seek out restructuring advisers when they can no longer operate in a ‘business as usual’ fashion. And for many companies, business has not been ‘usual’ for a very long time. 

Enquiries in 2024, particularly amongst UK SMEs, are at levels close to what we at Resolve last saw during the 2008 financial crash, as a perfect storm of high interest rates, high inflation and subdued consumer demand have impacted the small business community, which accounts for approximately a quarter of the UK’s GDP.  

As if all this economic uncertainty wasn’t bad enough, UK businesses now have an even bigger challenge on their hands: political uncertainty. 

A survey conducted by ReSolve, interviewing predominantly UK SME business advisors, has revealed that political uncertainty is now causing the biggest headache for businesses as we enter the second quarter of 2024.  One in four respondents believe small and medium sized businesses in the UK face greater challenges from political uncertainty than from those presented by inflation and interest rates. 

Top of the list of concerns come the high costs associated with doing business and the lack of political and policy stability. We have seen five prime ministers in eight years and 15 business secretaries in 15 years, making it much harder for a company to commit to a programme of investment with any certainty on the environment in which it will be operating.  

With a General Election on the horizon, the Government will be less focused on a long term legislative agenda and more focused on readying for an election in the near term.    Any incumbent government pre-election will look for visible and immediate victories, rather than long term strategic positioning.  

Governmental behaviours differ pre and post election, and there is always the uncertainty as to which party will be in power and which in opposition. Until the election comes to a close and a new government is installed, it is challenging to separate rhetoric from genuine intent, and of course always a variable as to who will be in government and with what sort of electoral mandate.   

All signs are pointing to the first Labour government in 14 years.  SMEs will be keeping a close eye on any potential hints or indications on policy that come from Keir Starmer’s team over the coming months. Businesses are likely  to hold off on making significant investment or initiating changes in strategy until there is more political clarity.  

The findings of ReSolve’s survey also show that 52% of UK SME businesses are likely to require a restructuring of their debt at some point in 2024 which will inevitably create a pinch point that has the potential to bring about another wave of restructuring and possible insolvencies. Access to capital was third on the list of concerns for SMEs which means that despite many needing  to refinance, businesses may struggle to do so as a result of tighter lending policies.  

Whilst many challenges remain,there is some positivity. Business advisorsa are optimistic around the trajectory of interest rates with 93% of survey respondents anticipating cuts during 2024.  

But there is much at stake over the future of many small businesses if more political upheaval is to come in the months ahead. Hopes are resting on a combination of favourable rates and government stimulus to help the UK SME community weather the storm and shine in the years ahead. 

Mark Supperstone is Managing Partner and Co-Founder at ReSolve. He specialises in advising businesses on restructuring and turnaround solutions.