Industry Focus: Deep breath and taxes – professional services firms eye the Budget with caution.

Any government policy – whether announced or assumed – unleashes an army of accountants, lawyers and specialist consultancy advice. Communications professionals included. The consultant’s job is to make sense of it all and assess the implications. 

So imagine these industries’ delight to find themselves picked as one of the eight growth-driving sectors – the IS8 – within the modern industrial strategy. 

As the strategy recognised, the UK’s professional and business services (PBS) industry has long been a jewel in our economic crown. From advertising, engineering, project management and planning to tax and the law, PBS accounts for over eight per cent of the economy – larger than car manufacturing, education or construction. 

We are the second biggest exporter of PBS after the US, contributing a whopping £300 billion last year. The dominance of English language in global markets, the track record of our leading academic institutions and a cultural legacy of soft (and historically less soft) power all have played a part in establishing this position. 

Labour is banking on PBS growing in prominence as agents of disruption – shepherding in an age of artificial intelligence (AI). This is a double-layered strategy: more demand for consultancy to embed AI-driven productivity, backed by an AI boost for efficiency – and fees – within PBS firms themselves. 

However, closer to home, other types of disruption are dampening firms' enthusiasm. Those same accountants that advise their clients on policy are eyeing up Rachel Reeves’ Budget with concern amid talk of income tax rises. There is alarm that the Chancellor could strip out tax advantages associated with Limited Liability Partnerships – historically a pioneering and appealing option for PBS firms. 

PBS advisers are typically less keen to critique the government over their own affairs: they act for the client first and foremost. Reeves is likely to be betting that the PBS sector will only grumble quietly – and that it can afford to absorb some of these extra costs. 

In many cases it will. However, the long-term success of firms often relies on a delicate balance of priorities and principles: high earning potential; attracting the best talent; rewarding hard graft; and ensuring stable succession for the future. Firms need to ensure that belief in this narrative holds if rewards seem to be under threat. No doubt some will start looking at alternative business models. 

The government for its part places a significant emphasis on talent attraction – focused on education and encouraging innovation in new tools and services. The trick will be to nurture the sector as it adapts, without losing its leading edge and eroding the longstanding foundations of its success.