How the Upcoming UK General Election Could Impact A SME: A Comparative Analysis

Key Takeaways

• Credit Appetite: A Conservative victory is likely to result in stable or increased lending with favourable terms for SMEs. In contrast, a Labour victory might lead to more cautious lending practices.
• Interest Rates:
• Conservative Victory: The Conservative focus on fiscal restraint is likely to help keep inflation under control, supporting a gradual decline in interest rates. This stability can be beneficial for SMEs planning long-term investments.
• Labour Victory: Increased public spending under Labour could lead to higher inflation, potentially delaying the decline in interest rates or prompting the Bank of England to maintain higher rates to control inflationary pressures. SMEs should prepare for potential fluctuations in borrowing costs.
• Tax Policy: Under Conservative leadership, SMEs can expect business-friendly tax policies, including possible tax cuts. Labour, on the other hand, may increase taxes on higher incomes and companies.
• Retiring Business Owners: Conservatives typically offer favorable conditions for business valuations and exits, whereas Labour might introduce higher taxes on capital gains.
• Regulatory Changes: Minimal regulatory changes and a focus on deregulation are anticipated with a Conservative victory. Labour is likely to implement increased regulations, particularly around employee rights and environmental protections.
• Government Spending: Conservative governments are expected to continue austerity measures with limited public sector growth. Labour may plan to increase public spending, which could result in more public sector contracts for SMEs.
• Consumer Confidence: Conservative policies may lead to steady consumer confidence with slight increases. Labour's public spending initiatives could boost consumer confidence, though it might vary.
• Foreign Trade: Conservatives will likely support free trade agreements and attract foreign investment, while Labour may focus more on fair trade practices and protecting domestic industries.
• Labor Market: Stricter immigration controls and reduced employee regulations are expected under Conservatives, whereas Labour supports more open immigration policies and stronger employee protections.
• Innovation Policies: Conservatives are likely to promote innovation through tax incentives and deregulation. Labour is expected to invest in research and development and technological advancement.

Historical Perspective on Economic Sentiment

Historically, there is often an upturn in economic sentiment following a change of government in the UK, irrespective of the party. This boost in sentiment is typically driven by a renewed sense of optimism and the anticipation of new policies that may stimulate economic growth and improve business conditions. For example:

• After the 1997 election when Labour took power, there was a notable increase in consumer and business confidence, driven by expectations of economic reforms and investments in public services​.
• Similarly, the Conservative victory in 2010 led to an initial boost in confidence due to promises of austerity measures aimed at reducing the deficit and stabilising the economy​.

However, it's important to note that while there is generally a positive sentiment post-election, the actual economic outcomes depend heavily on the policies implemented by the new government and the broader economic environment. The initial boost in confidence might not always translate into sustained economic growth if the policies fail to address underlying economic issues.

Conclusion

As we approach the general election, understanding how the outcomes could impact SMEs is crucial. While the Bank of England sets interest rates, the government's fiscal policies and their impact on inflation will play a significant role in influencing these rates. By focusing on these key areas and understanding the historical context, business owners can better navigate the uncertainties and prepare for the future.