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Underinvestment in SMEs is the biggest risk from ‘Corbygeddon’

17 May 2019

A new word was coined in the Sunday Times Rich List this year. “Corbygeddon” describes the abject fear of hard-left Labour government that’s set to drive the uber-wealthy (or at least a proportion of their assets) out of the country in droves.

With the Tories weakened and the prospect of an early general election hovering in the wings, rising taxation on “wealth” seems a real possibility. Add to that the news that Labour would extend its £10 minimum wage plans to under 18s and there’s suddenly a distinct chill in the enterprise climate. No wonder UK entrepreneurs are worried.

Concerns over such a dual-pronged assault on personal assets and business profitability are understandable – but there’s something even more important at stake here. From a wider perspective, the biggest risk is that investment in UK SMEs (which make up 99.9% of UK businesses according to the Federation of Small Businesses) will suffer. As small and medium sized enterprises are major employers and generators of tax receipts which pay for our public services, if that happens we will all have cause to regret it, regardless of political persuasion.

Of course, should the super-rich all leave taking a reported £1trillion out of the country, that could be very damaging economically. But let’s not forget that SMEs turned over £2trillion last year alone according to the Federation of Small Businesses.



If business owners and investors see no incentive (or have less headroom) for committing capital to growing their companies, SMEs will just stagnate, and so will the UK economy. Leaving aside for a moment the cost of Labour’s proposed minimum wage (which will weigh on small companies far more than larger corporates), it’s imperative that we maintain a pragmatic approach to individual financial rewards in our tax system. We need a regime that continues to promote business growth and offers people an attractive pay-off for the risks they are taking, not one that penalises success and stigmatises entrepreneurship.

An emerging trend towards “de-risking” by SME owners anxious about future policy changes is already becoming evident. In the past year, we’ve seen the number of UK SME private equity deals coming to market where entrepreneurs are seeking external capital in order to take cash out of the business rather than to fund growth or a change of ownership (traditionally the top reasons), increase by almost a third.

It’s entirely sensible and logical that they would want to crystallise some of the value they’ve built up while tax rules and the economic climate remain relatively favourable. Yet it does suggest that for some entrepreneurs, future-proofing their existing assets is taking precedence over ambition to progress.

If businesses end up standing still rather than moving forward because of a lack of investment, job creation could be hard hit, as would the corporation tax, income tax and national insurance coffers. Looked at dispassionately, ramping up taxes on wealth derived from business success risks being counter-productive. In a war against the perceived unfairness of capital inequality, small companies, workers, public services and the economy as a whole could end up being collateral damage.


Claire Madden, May 2019

Claire is a founding partner of Connection Capital. As Managing Partner, she heads up all of our activities in respect of our investments in alternative asset funds, real estate and private debt.

 Russell O'Connor
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