Majority of financial services chiefs are bracing for Budget impact, but remain upbeat on business outlook

• One month until the Chancellor’s first Budget and three quarters of financial services leaders are bracing for an impact on their business; more than a quarter (28%) expect the impact will be significant.
• Almost a third (31%) are expecting the biggest impact to be in the form of sector-specific tax increases.
• Despite Budget uncertainty, leaders are bullish on business growth and profitability for Q4. 

Three quarters of financial services leaders are preparing for the Chancellor’s upcoming Budget to have at least a moderate impact on their business, according to KPMG’s latest UK Financial Services Sentiment Survey. Over a quarter (28%), expect the impact will be significant.

The quarterly poll*, which tracks business sentiment among over 150 leaders working mostly in banking but also insurance, asset and wealth management and private equity, found that almost a third of leaders (31%) are expecting the biggest impact to be in the form of sector-specific tax increases such as bank surcharges. More than a quarter (26%) are expecting an impact on payroll costs, while 19% say the impact on talent from tax changes to non-doms will affect their business.

Currently, almost three quarters (74%) of financial services chiefs feel that the UK’s tax regime for the sector is competitive compared to other major countries. But 40% of leaders feel that stability is the most important aspect of the tax system to stimulate sector growth.

“Leaders in the sector are gearing up for this Budget to have a considerable impact on their business. While there are notable expectations about sectoral tax rises, leaders will hope for a period of stability thereafter to ensure the current tax regime for financial services remains competitive,” commented Karim Haji, Global and UK head of financial services for KPMG.

Confidence in sector’s future under new government dips

The survey also found that leaders’ confidence in the sector’s future under the new government has dipped over the last two months. In the days after the election outcome, seven in ten leaders felt more positive about the sector’s future under the new government; this has since dropped to 59%.

“It’s not completely unexpected to see a dip in confidence after a post-election high, but the speculation surrounding the Budget could be compounding this,” commented Karim. “This will drive greater need for clarity and certainty when it comes to financial services policy and plans to maintain the UK’s standing as a global financial centre.”

Despite Budget concerns, leaders remain bullish on business outlook

When it comes to business activity in Q4, sector leaders are forecasting a strong quarter, with the majority feeling confident about profitability (89%) and overall business growth (85%). This confidence is driven by increased demand for products and services (52%), a more positive economic outlook (45%) and plans to enter new /launch new products (40%).

Inflation pressures are forecast by 42% of leaders as the biggest business challenge over the coming quarter, followed by 39% expecting interest rates to present the biggest hurdle. A third are forecasting cost pressures as the biggest challenge in the next three months. Geopolitical risks, pressure to improve ESG performance and keeping up with advances in technology were ranked by the least (25%) as the biggest challenges.

Karim added: “It’s encouraging to see the sector forecasting a positive end to the year. While leaders are also optimistic about the economic outlook, the knock-on effects of a turbulent economy continue to weigh on their businesses. Leaders are dealing with a myriad of challenges and it’s easy to see how the more immediate, closer-to-home issues could detract from challenges that pose a greater threat to business longer term, such as ESG and technology advancements. It’s imperative that leaders don’t take their eye off these areas, given their significance to future business performance.”