UK election 2010: business reaction

Friday, May 07, 2010 | Posted by: Fiona Cullinan
Categories: Business | Tags: business, links, economy, government, reaction, election, British Chambers of Commerce, CBI, stockmarket, tax rises, hung parliament, uk election

As the UK wakes up to the first hung parliament since 1974, what are the views of business leaders, economists and analysts? And do you agree with them?

Commerce generally seems to have viewed the hung parliament as the worst possible result, with a period of turmoil expected as the country awaits a political shakedown through potential coalitions.

Here are some of the early responses…

Stock market turmoil: City reaction : The Guardian has rounded up views from the likes of Lord Digby Jones, former head of the CBI, economists and City analysts – from ‘the worst result for the markets’ and a downgrading of the UK’s credit rating to the difficulties of fiscal tightening in a minority government. Internationally, investors face confusion over what a hung parliament means. The Guardian also has a live blog covering the markets’ reaction throughout the day.

British Chambers of Commerce : Commenting on the electoral outcome as at 0930 BST, Dr Adam Marshall, Director of Policy at the British Chambers of Commerce (BCC), said:

‘Companies across the UK have expressed significant concerns about how a hung parliament could affect the decisive action needed to cut the deficit and improve the business environment.

‘The electorate has spoken – and opted for a hung parliament. But the business community has also spoken – and expects the parties to put political horse-trading to one side and put the UK economy at the heart of their thinking. Strong leadership and consensus are required to deal with the serious threats still facing the economy.

‘This week’s lesson from the eurozone is that we must avoid a crisis of confidence at all costs. British business wants to see a speedy resolution to political negotiations, the formation of a government, and an agreed policy of putting the economy first.’

Where are tax rises expected? : Nearly two-thirds of businesses (65%) are ‘concerned’ or ‘very concerned’ about the potential impact of a hung parliament, according to the British Chambers of Commerce’s latest Monthly Business Survey. The 300 companies polled were also asked which form of taxation was most likely to rise after the election. Leaving aside the planned increase in National Insurance in 2011, companies overwhelmingly said VAT would be increased (54% responded VAT, 13% excise duties, and 12% income tax). This suggests that companies are already factoring in a VAT rise in their financial planning.

The CBI : Richard Lambert, CBI Director-General, said:

‘Business needs stability and wants to see a clear decision reached swiftly, which delivers a stable new government. The UK’s route to economic recovery needs to be firmly established. The markets have been expecting this outcome, but uncertainty brings risks. The next few days will be critical.’

Business Week : Matthew Lynn, Bloomberg news columnist, said:

‘The real loser is the British economy… At more than 11% of gross domestic product, the British budget deficit is the largest in the Group of Seven nations. If any country should have been voting for a strong government, with a serious plan to get its finances under control, it was this one. But the government that emerges from this election isn’t going to be in any position to fix anything.’

We’ll be updating this page throughout the day. Meanwhile, if you need to visualise a hung parliament, try…

Boris Johnson’s sausage analogy
Via Will Heaven on The Telegraph blogs, here’s the early morning exchange between Boris Johnson, Mayor of London, and TV presenter Jeremy Paxman:

Boris: ‘I think if our new government is to be a Wall’s sausage, the meat of that sausage should be Conservatism. Of course there will be plenty of other bits and pieces in there like bread and what have you, but the meat should be the Conservatives.’

Paxman: ‘Will it be a chipolata or Cumberland sausage?’

Boris: ‘Enough of this gastronomic metaphor, I have tired of it.’

Paxman: ‘But you started it!’

UPDATES:

Francesca Lagerberg, Head of Tax at Grant Thornton, said:

Now we know we will have a hung Parliament, we are likely to see some weeks of uncertainty as the standalone tax policies of all the three main parties will be thrown into the mix to see which ones will emerge as a way forward. Traditionally radical change does not sit well with a hung Parliament so many of the manifesto tax pledges may simply fall away.

More reaction on our Election 2010 page.

Image: © Downing Street

Further reading: Grant Thornton tax executive Richard Jameson on Tax rises to be kept in the dark until after the election