Political uncertainty in Westminster is weighing heavily on Britain’s small business sector, according to one of the City’s most influential bankers.
Kunal Shah, co-chief executive of Goldman Sachs International, warned that a lack of clarity over tax and labor laws is creating an “overhang” that is preventing entrepreneurs from investing and hiring.
Ahead of a reception in the House of Commons to mark the 15th anniversary of Goldman’s 10,000 small businesses program, Shah said founders were increasingly nervous about the government’s changing regulatory agenda. “One of the things that these companies often come back to is the tax burden in the UK,” he said. “Last month’s budget was a focal point for everyone to once again see how difficult the financial math is now. It brings challenges for all entrepreneurs and the business environment here.”
Although small businesses remain optimistic about their own performance, Shah pointed out that Labor’s manifesto commitments – particularly around expanded employment rights – had raised concerns among many founders about future costs. “These entrepreneurs are largely optimistic about their own business and the things they can control,” he said. “But it is all the uncertainty about the promises in the manifesto that can affect investment confidence. That continues to be an overhang.”
Last month, Labor abandoned its promise of unfair dismissal rights from day one and struck a compromise with unions to reduce the waiting period to six months rather than two years. The government insisted the move would still result in a significant change to worker protections, but business groups warned the proposals would require significant adjustments to hiring strategies.
Shah, who joined Goldman in 2004 and became a partner a decade later, said British companies now had clarity on taxation for next year, but warned that broader economic pressures were further eroding SME confidence. “There is a longer-term productivity problem,” he said, adding that “persistent inflation” and interest rates “at the tight end” were having an impact on corporate finances.
Despite these headwinds, Shah pointed to real growth opportunities, including improved trade relations with the US and India. He also praised the Chancellor’s stamp duty exemption for newly listed shares as a pragmatic step to revitalize the UK’s capital markets. “It shows a clear intent,” he said. “These are signs of how they want to support the wider growth agenda.”
More than 2,500 companies have completed Goldman’s free training program for small business founders, which is aimed at companies with a turnover of over £250,000 and between 5 and 50 employees. Research from Professor Mark Hart of the Enterprise Research Center shows that participants increased their sales by 43% within three years, increasing their turnover by an average of £665,000.
After ten years, these companies were 14% more productive than comparable companies that did not participate.
The UK government’s own equivalent – the Help to Grow program – has signed up 10,000 managers since 2021, with funding secured until 2029.
Despite greater market uncertainty, Shah said Goldman expects another strong year for merger and acquisition fees. The bank has already been involved in deals worth $1.5 trillion in 2025 and is advising on several high-profile transactions across Europe. “The backlog is healthy,” he said. “We expect this dynamic to continue next year.”
Goldman recently advised Shawbrook on its £1.9 billion London IPO – its biggest in several years – and is closely monitoring the dramatic Warner Bros. takeover battle but is not advising any of the bidders.
Government engagement is improving – but uncertainty remains a burden
After meetings with Rachel Reeves, Anthony Gutman and Goldman Sachs CEO David Solomon earlier this year, Shah welcomed the government’s willingness to work with the banking sector. However, he was unequivocal in his assessment that uncertainty is the biggest factor undermining SME confidence.
As he put it, “Entrepreneurs are optimistic – but optimism only gets you far if you can’t plan ahead.”
Reeves responded by saying: “This report shows the huge contribution that small businesses make in creating jobs, driving innovation and driving growth across the UK. They are not just businesses – they are the innovators, creators and entrepreneurs that keep our economy running. The 10,000 Small Businesses program shows how larger businesses can support the next generation of entrepreneurs and I congratulate them on this 15-year milestone. In the Budget we have taken action to help businesses to make life easier in the long term.” Cutting business rates for hundreds of thousands of retail, leisure and hospitality businesses, unlocking new funding opportunities to help SMEs invest and hire more, and supporting entrepreneurs with tax relief to help them grow.”
