Seven things business can expect from the new Tory government

Business backed the winner, but now has to steel itself to save our place in Europe.

by Rachel Savage
Last Updated: 03 Feb 2016

Business backed the winning horse (apart from those in the business of polling) and David Cameron is about to form a slim majority government. The FTSE 100, led by banks, housebuilders, energy companies and the outsourcers with big Westminster contracts, has soared and the pound has leapt. Investors, then, are pretty certain the result is good for business, but what can business expect from a new Tory government?

1. A break from big-biz bashing

The anti-business rhetoric was strong in Miliband junior, despite his occasional claims to the contrary. But with no need to head off any left-wing challenge for a good few years yet, expect to see less populist tub-thumping about the engines of Britain’s economy.

But trust in business is still parlously low and although the party of business got a majority of seats it definitely didn't get a majority of the vote. While the Tories need to be magnanimous in victory and reach out across party lines to prevent our polity fracturing further, companies also need to make their case louder and clearer to a still sceptical public.

Despite that, energy companies and banks will be feeling particularly pleased at the prospect of finally getting some time off from being political footballs, with the spectre of a freeze/forced cut in energy prices and yet another swoop on bankers’ bonuses and profits lifting. No surprises, then, that while the FTSE was up 1.45% overall, British Gas owner Centrica soared 6.45%, followed by Lloyds’ rise of 5.91%.

2. Outsourcing ‘til the cows come home

If the Tories’ are even halfway serious about keeping their pledge to eliminate the deficit while freezing VAT, National Insurance and income tax then the state is going to have to go on a diet like no other. While some functions may just have to go entirely, there could be another wave of semi-privatisation and outsourcing, presenting a whole raft of opportunities for businesses.

Babcock is a big winner this morning, its 8.4% share price rise the biggest on the FTSE 100. Despite the prospect of swingeing Ministry of Defence cuts, the contractor’s investors are breathing a sigh of relief that the SNP (more of which later) won’t be able to demand a Labour government ditch Trident. FTSE 250 constituent Serco, meanwhile, is up 8.4%, while Capita is up more than 5%.

3. Hay for housebuilders

Housebuilders can ease their belts open a notch or few, safe in the knowledge that their fat margins are going nowhere for now. Even though the Conservatives pledged a £1bn fund to build 400,000 homes on brownfield sites, the companies almost certainly won’t be forced to build on their land banks.

Good news for Barratt (up almost 6%), Persimmon (5.2%), Taylor Wimpey (4.9%) et al, and the estate agents that flog their homes. Bad news for anyone with their eye still on the property ladder.

4. London living it large

Speaking of estate agents, the top end will also be raising a glass or two – especially in London. The possibility of a mansion tax is now looking as small as the Lib Dems’ vote share, as is another crackdown on non-doms and their Kensington piles. Foxtons’ shares burst up as much as 15%, before settling down to a 7.5% rise in mid-morning trading, while Savills was up almost 7%.

5. Support for startups

The startup scene, particularly fintech in London and science around Cambridge and Bristol, has boomed under the coalition. A lot of that is down to the blood and sweat of entrepreneurs, of course, but the Tories and Lib Dem MP-no-more Vince Cable as business secretary created a decent environment for them to thrive, from the hyped Silicon Roundabout hub TechCity, to the various Government startup loans. Given how darn trendy tech has become, expect more startup-friendly policies so politicians can rack up those all-important photo ops.

6. Schism in Scotland

Now for the bad stuff. Nicola Sturgeon has said she isn’t after another referendum, but given the magnitutde of the landslide north of the border, businesses definitely shouldn’t count it out.

Of more immediate concern is devolution. It may even be full fiscal, raising the prospect of profit-soaking taxes as the SNP try to prop up the holes that the Institute of Fiscal Studies has predicted would appear in their finances. After all, other than today’s result, there is nothing the unionist Tories would relish more than seeing the nationalists try to go it alone financially and faceplant.

7. The EU elephant

It’s the elephant in the spin room: Cameron has promised an in-out referendum within two years and he has to deliver that to protect his wafer-thin majority from the Tories’ restive right-wing.

It hardly needs saying that’s bad news for business. Even if ‘kippers eventually decide to hug a Hungarian, there are years of uncertainty ahead. The fight to save our place in the single market (however imperfect it may be) will be long and exhausting - and companies must be on the frontline.

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