The run-up to a general election is always an unstable period for business. And, says David Smith, a general election won with a small majority will be unsettling, whichever party is in power.
The countdown has begun. Every big event, political and economic, over the coming weeks can have the adjective 'last' put in front of it. Thus, we will shortly have the last party conferences before the election, in November the last budget and Queen's speech, and so on.
For business, as I have noted here before, general elections and the period leading up to them can be dangerous territory. This time, with the campaign seemingly having smouldered away since the last election, it has been both risky and wearing. And there has been a big and possibly destructive development in British politics - the shift towards open questioning in the mainstream debate of whether Britain's future lies in Europe, something that was barely conceivable back in 1992.
But the fear of what might happen during the run-up to the election is nothing compared with what could occur afterwards. Think back, if you can, to the 1979 election when, to quote Lord Callaghan, the British people voted for a sea change in British politics, and ushered in Margaret Thatcher. Most businessmen, I would judge, would have expected her victory to bring in a period more beneficial to them and their companies than the painful 1970s.
Wielding the surgeon's knife
So it did - eventually. But the first two years of the Thatcher government saw the harshest recession since the 1930s and the wiping out of nearly a fifth of manufacturing industry. It may have been necessary surgery at the time, but few people expected the knife to be wielded so quickly and without resort to anaesthetic.
Every election is followed by an attempt by the newly elected or re-elected government to tighten up on the largesse of its predecessor. In 1983, Nigel Lawson's first act on being appointed chancellor was a programme of emergency public spending cuts. In the summer of 1987 he tried to hose down the pre-election consumer boom he had created. But his plan, of raising interest rates to calm down a raging recovery, was scuppered with the worldwide stock market crash in October 1987, which forced all countries to cut their interest rates. So, instead of timely action, we had more boom, followed by the 1990-2 recession.
And then, of course, there was 1992. At the time of the April 1992 election, the recession was coming to an end, although how soon recovery would follow was uncertain. But two issues appeared clear. One was the government's rock-solid commitment, in which it was supported by the opposition, to maintain sterling at its then parity in the European exchange rate mechanism (ERM). The other issue was that the Conservatives, having successfully attacked Labour as a high-tax party, would themselves continue to be a low-tax government.
Neither assumption, as we now know, was justified. The first six months after the election was dominated by the attempt to keep the pound in the ERM, and by picking up the pieces afterwards. The remainder of the parliament has been all about trying to reduce an enormous budget deficit, largely by big, and unpopular, tax hikes.
Better the devil you know?
There are plenty of reasons, therefore, to be concerned about what might follow the election. Nor, it should be stressed, are such concerns solely in the event of a change of government. Re-elected governments, who should be able to pursue a 'business-as-usual' strategy have encountered as many difficulties as newly elected ones. One theory, that's always hotly denied, is that so sure were the Conservatives of defeat in 1992 that they pursued a scorched-earth policy, to ensure that their Labour successors would immediately face a serious budgetary crisis.
Having said that, there is an inevitable 'better the devil you know' aspect to political change, particularly when it comes to business matters.
A survey conducted among its members by the Society of Business Economists in the summer found a high degree of scepticism about whether a Labour government, despite its declared attention to be as tough as the Conservatives on both public spending and inflation, will succeed on either front. However, the differences were marginal. Two-thirds of survey respondents, for example, thought that base rates would average 6.5% to 8% under a Labour government. Given that the party is untried in government for 17 years, that is not a bad position in which to start.
Oh for a majority government
Whether Labour succeeds or fails after the election, or whether the Conservatives, if they manage a breathtaking recovery, can move seamlessly from one administration to another, depends on the state of the economy at election time. The prospect of Kenneth Clarke eliminating the budget deficit by the end of the parliament has disappeared. I'm not sure, though, that this would present much of a disadvantage for shadow chancellor Gordon Brown. The figures would back up his declared intention of not relaxing public spending.
If the deficit was eliminated, I doubt even a new Labour government would be able to keep the public sector unions in check.
Monetary policy is a different matter. It looks as if the economy will be growing rapidly at the time of the election. To demonstrate it means what it says on inflation, Labour will almost certainly have to raise interest rates initially. How long they would have to be kept up would depend on how quickly the financial markets are prepared to award them brownie points.
One thing is clear. The past four years have demonstrated that small majorities do not make for good government. Ministers are distracted by the need to keep their backbenchers happy. Policy suffers in consequence.
One can hope that, whatever comes after the election, one part of it will be a government, of whatever party, with a decent majority. Business will then be sure that uncertainty is confined to election time and not the following five years.