Companies get the jitters about potential hung parliament

UK firms are rightly worried that an indecisive Election result could seriously undermine the recovery...

Last Updated: 31 Aug 2010

Now that the Lib Dems have suddenly (and rather improbably) established themselves as a credible electoral force, it's looking even less likely that any one party will be able to gain a decisive majority in next week's General Election. And Britain's businesses are increasingly alarmed about the possible ramifications of a hung parliament: according to a new survey by the British Chambers of Commerce, two-thirds reckon it will hamper our ability to get our gigantic budget deficit under control. Oh, and the majority are expecting a post-election VAT hike...

If the volcanic ash cloud has kept you out of the country for the last fortnight, you're probably a bit confused to discover on your return that the previously unassuming Nick Clegg has suddenly morphed into a cross between Winston Churchill and Cicero. But the Lib Dem leader’s sterling displays on TV have sent his party rocketing up the polls, taking support off both the Tories and (particularly) Labour. As a result, the chances of any party winning a clear majority currently look slim. And if we get into hung parliament territory, the political horse-trading required to build a workable alliance will make it very difficult to push through the difficult decisions needed to balance the UK's very unbalanced books.

Not surprisingly, this prospect doesn't really appeal to UK plc. According to the BCC, 65% said they were concerned or very concerned that we might be left hanging in the event of a hung parliament. 'Whether we have a coalition government or not, we must see a credible plan to reduce the deficit and restore confidence within ninety days', said D-G David Frost, thumping his fist on the table (possibly). Then again, there were some glass-half-full types around: 13% thought it would be 'a good thing'. We can only assume this is a 'government of all the talents' line of thinking - but to us, it sounds like a recipe for a lot of arguments and very little action.

The good news for the politicians is that companies seem to be fairly sanguine about likely post-election tax hikes: no fewer than 54% are expecting an increase in VAT. However, they reckon this will be much less damaging than the Government's proposed NI hike (aka the tax on jobs) – an argument for scrapping the latter and bringing in the former, the BCC says. And we're inclined to agree. Although cynics will no doubt argue that these businesses are taking a rather self-interested stance here - since, unlike NI, they can actually claim VAT back (or even use it as a cover to put prices up)...

In today's bulletin:

Tesco continues land-grab with house-building plan
Companies get the jitters about potential hung parliament
Revenue squeezes an extra £13bn out of UK business
Employees still value CSR, despite recession
eBay joins virtual catwalk after model first quarter

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