Family Businesses Navigating Storm Of Political & Economic Uncertainty

In the corridors of Whitehall and the boardrooms of Britain’s family-owned firms, a common feeling is emerging: caution. The UK economy is not in freefall, but growth is distinctly sluggish, business confidence in the current economic climate is shaky, and the looming backdrop of politics is amplifying the risks for the family business sector. Family firms across the UK are having to deal with the political and economic uncertainty that is prevailing over British businesses today.

The EY ITEM Club has lowered its forecast for UK GDP growth in 2025 to around 1%, citing weak investment, persistent uncertainty and global headwinds. The British Chambers of Commerce (BCC) speaks of a 'two-speed economy' in which cost pressures and uncertainty threaten to leave many firms behind.

Meanwhile, a recent survey by Family Business United (FBU) reveals that 70% of family-business leaders feel less optimistic about their prospects than they were a year ago. Political turbulence, rising taxes, inflation, regulatory burdens and supply-chain anxieties are all cited as key issues.

For family businesses — firms where ownership and management often intertwine with family, tradition and community roots — such uncertainty presents a particular challenge. These organisations are often long-term in outlook, slower moving than high-growth start-ups, and invested emotionally as well as financially. Their dual role as family and business amplifies both opportunity and fragility in times of instability.

The Political Landscape & Why It Matters for Families in Business

Britain faces a number of intersecting political factors. With the next general election on the distant horizon, business owners are watching policies, tax changes, public-spending decisions and global trade negotiations more keenly than usual.

For family businesses, some key political issues stand out:

• Taxation and employer costs: Changes in national insurance, employer contributions and tax reliefs create cost and planning uncertainty.
  

• Regulation and red tape: Sixty per cent of family firms cite 'government regulation, red tape and legislation' as a top challenge.
  

• Global trade and tariffs: External political decisions, such as tariffs, trade deals and ongoing Brexit-related frictions, filter down to firms that export, import or rely on global supply chains.
  

• Confidence and investment: Political uncertainty erodes the ability of family firms to plan for major investments, succession or capital expenditure.

Inheritance Tax Reforms and the Family Business Dilemma

A further area of acute concern lies in the recent changes to inheritance tax (IHT), particularly revisions to Business Property Relief (BPR) and Agricultural Property Relief (APR). These reliefs have historically played a crucial role in protecting family-owned firms and farms from being broken up on succession, by allowing qualifying assets to be passed to the next generation free of, or at a reduced, inheritance tax liability.

Under the government’s current review, both APR and BPR have come under scrutiny, with changes coming into force and owners who have spent decades building sustainable enterprises now face the unsettling prospect that a significant portion of their assets could become liable to IHT on transfer — potentially forcing sales of shares, land or property simply to meet the tax bill.

For many, this uncertainty undermines the very essence of the ‘long-term stewardship’ model that family firms embody.

Changes to APR and BPR ‘strike at the heart of the family business model’ as the continuity of ownership, a defining feature of the sector, could be put at risk. If government wants to encourage growth via investment, job creation and resilience, it must not penalise those who seek to hand over well-run businesses to their children.

The debate over inheritance tax is not only a fiscal issue but also a deeply emotional and structural one with implications for intergenerational planning, community stability and the long-term composition of British businesses.

Economic Pressures: Reality for Family-Owned Enterprises

Beyond politics, the economic environment brings its own set of pressures for family-owned companies. Some of the key challenges include:

1. Cost headwinds and margin squeeze

   Rising input costs (raw materials, energy, labour) and wage pressures continue to erode profitability. Family businesses feel this acutely and it is having an impact on day-to-day business decisions.
   

2. Weak growth and investment caution

   With business investment growth forecast to slow to around 1% in 2025, expansion plans, generational transfers and innovation are often delayed or deferred. In the recent Family Business United survey, ‘the economic climate’ was cited as the single greatest challenge by 68% of respondents.
   

3. Confidence and planning paralysis

   In the same survey, only 12% of family firms report feeling more optimistic than last year. This translates into fewer ambitious moves and a stronger focus on stability and preservation.
   

4. Succession and generational transitions

   Uncertainty makes leadership handovers and long-term reinvestment decisions more difficult. While succession planning was not the top challenge, it remains a concern for over a quarter of family firms surveyed.

How Family Firms Are Responding – and What They Can Do

According to research and sector insights, family firms are responding through a mix of prudence, innovation and collaboration:

• Scenario-planning: Many are conducting detailed ‘what if’ analyses to prepare for potential changes in tax, trade or regulation.
  

• Cost control: Firms are tightening processes, reviewing staffing and supply-chain efficiency, and delaying non-essential capital spending.
  

• Embracing digital transformation: Though sometimes slower to digitise, family firms are recognising technology as a route to greater productivity and resilience.
  

• Focusing on people and culture: Strong staff loyalty, family ethos and community reputation are increasingly used as differentiators in difficult times.
  

• Improving governance and succession: Families are re-evaluating roles, communication structures and generational transitions to safeguard continuity.
  

• Networking and advocacy: Engagement with industry bodies enables collective lobbying and shared best practice and discussion of broader challenges amongst peers.
  

• Preserving liquidity: With limited visibility, maintaining cash reserves and avoiding over-commitment are seen as key to weathering potential shocks.

There is no mistaking that businesses are operating in uncertain times, something which provides both opportunity and vulnerability to the sector.

Family businesses are the backbone of the UK economy, deeply rooted in their communities, creating jobs and driving innovation. However, recent surveys clearly illustrate the scale of the pressures family businesses and their leadership teams are currently under.

From navigating an unpredictable economic climate and increased regulation to dealing with taxation, inflation and rising costs, it’s no surprise that confidence levels have dipped this year.

Despite short-term sentiment being subdued, the family business sector remains a cornerstone of the UK economy. But they undoubtedly need the support of policies to enable them to continue to be the engine-room of the nation.

In reality, whilst family firms possess inherent strengths such as resilience, loyalty, and a long-term vision, they are not immune to the wider environment. Policy clarity, consistency and fairness are essential if these firms are to maintain their vital role in local economies and national prosperity.

Family-owned businesses in the UK face a confluence of political and economic pressures. Yet, they also embody some of the qualities most needed in turbulent times such as long-term thinking, authenticity and a commitment to people.

The road ahead will demand realism, adaptability and renewed confidence — not in the short-term cycle of politics, but in the enduring strength of Britain’s family enterprises.