Goldman Sachs warns UK policy hurts SMEs

Policy uncertainty in Westminster is significantly affecting Britain’s small business sector, according to Goldman Sachs International’s co-head, Kunal Shah. He has expressed concerns that unclear taxation and employment laws are creating an “overhang,” discouraging entrepreneurs from investing and hiring.

Ahead of a House of Commons reception marking 15 years of Goldman’s 10,000 Small Businesses programme, Shah noted that founders are increasingly uneasy about the government’s changing regulatory agenda. He commented, “One of the things that comes back often from these companies is the tax burden in the UK. The Budget last month was a focal point for everyone to see again how tough the fiscal maths is now. It introduces challenges for any entrepreneurs and the business environment here.”

While small businesses remain positive about their own performance, Shah indicated that Labour’s manifesto commitments, particularly regarding expanded employment rights, have left many founders apprehensive about future costs. “These entrepreneurs are largely optimistic around their own businesses, around things they can control,” he said. “But it is all the uncertainty over the manifesto pledges that can hamper investment confidence. That continues to be an overhang.”

Last month, Labour abandoned its pledge for “day-one” unfair dismissal rights, opting to reduce the qualifying period to six months rather than two years. Although the government claimed this would still mark a significant shift in worker protections, business groups warned that the proposals would necessitate substantial adjustments to hiring strategies.

Shah, who joined Goldman in 2004 and became a partner a decade later, mentioned that UK firms now have clarity on taxation for the next year but warned that broader economic pressures continue to undermine SME confidence. “There is a longer-running productivity problem,” he stated, adding that “sticky inflation” and interest rates “at the restrictive end” were affecting company finances.

Despite these challenges, Shah identified genuine opportunities for growth, including improved trade ties with the US and India. He also praised the Chancellor’s stamp duty holiday for newly listed shares as a pragmatic move to revitalise the UK’s capital markets. “It shows clear intent,” he said. “These are signs of how they want to support the broader growth agenda.”

More than 2,500 companies have participated in Goldman’s free training scheme for small business founders, aimed at businesses with revenues above £250,000 and staff numbers between 5 and 50. Research by Professor Mark Hart of the Enterprise Research Centre indicates that participants increased revenues by 43% within three years, adding an average £665,000 to their top line. After ten years, these businesses were 14% more productive than comparable firms that did not take part.

The UK government’s own equivalent, the Help to Grow scheme, has enrolled 10,000 leaders since 2021, with funding secured until 2029.

Despite broader market uncertainty, Shah mentioned that Goldman anticipates another strong year for fees from mergers and acquisitions. The bank has already been involved in $1.5 trillion worth of deals in 2025 and is advising on several high-profile transactions across Europe. “The backlog is healthy,” he said. “We see that momentum continuing into next year.”

Goldman recently advised Shawbrook on its £1.9 billion flotation in London, the largest in several years, and is closely monitoring the dramatic takeover battle for Warner Bros, though it is not advising any of the bidders.

Shah appreciated the government’s willingness to engage with the banking sector, following meetings with Rachel Reeves, Anthony Gutman, and Goldman Sachs CEO David Solomon earlier this year. However, he was clear that uncertainty is the primary factor undermining SME confidence. As he put it: “Entrepreneurs are optimistic — but optimism only gets you so far when you can’t plan ahead.”

Reeves responded, stating: “This report shows the huge contribution small businesses make in creating jobs, driving innovation and powering growth across the UK. They aren’t just businesses – they’re the innovators, creators and entrepreneurs that keep our economy thriving. The 10,000 Small Businesses programme shows how larger firms can back the next generation of entrepreneurs, and I congratulate them on this 15-year milestone. In the Budget, we acted to make life easier for businesses by permanently lowering business rates for hundreds of thousands of retail, leisure and hospitality businesses, opening up new funding so SMEs can better invest and hire, and backing entrepreneurs with tax reliefs to help them grow.”