Anna Blackaby finds out why the West Midlands’ finance sector is spooked by the prospects of a hung parliament after the General Election.
If there is one thing which frightens the financial community – and in turn the businesses who depend on it being healthy and happy enough to lend and invest – it’s uncertainty.
And the message coming out of the opinion polls as we head towards the General Election is that there is no certainty about who will get in, and whether they will have the majority needed to take drastic action on the nation’s finances.
What really frightens investors, advisers and banks is the prospect of a hung parliament, where any decisions on spending cuts fall victim to a political gridlock caused by neither party being strong enough to steer its plans through.
David Sedgwick, Clarke Wilmott chief executive, warned the UK could face the chilling scenario of being viewed as another Greece if no party had a working majority after the next election. “I don’t think it matters which party gets in as long as they have a working majority.
“The danger of a hung parliament is that no party is going to want to appear to be the bad guys by cutting public services and there won’t be the political will to take as big an axe as would be needed.
“The danger would be that the money markets would see UK plc as not addressing its cost base by not cutting public sector borrowing and the value of the pound would fall further – then we’re back to something like the late 1970s where the IMF could become involved,” he added.
“The issue with Greece is that the markets don’t think the Greek government will deliver the swingeing cuts that they think are necessary and they could think the same thing about the UK.
“Whereas it would be better for exporters, the effect of the falling pound would mean higher inflation which then would mean higher interest rates.
“That would lead to the recession coming back – and a lot worse than we have seen – and that will lead us back to a situation where jobs disappear.”
Phil Griesbach, director at Barclays Private Equity, agreed on the message a hung parliament would send out.
“You are going to be semi-paralysed in terms of what you are going to do as a government,” he said. “A knock-on effect of that is any legislative changes you want to push through to drive the economy in a certain direction are going to be more difficult as you are going to have to convince another party that cost cutting or not cost cutting is the right thing to do.
“So I can’t see any benefits for anybody of a hung parliament. One thing we do need is strong governance one way or another rather than flip-flopping around with policy.
“The uncertainty for the businessman is not good at all – people like certainty and then they can plan.
“If you don’t have certainty then you withhold that capital expenditure or you don’t recruit that person – you just stretch out the resources you have got at the moment which is not good news.”
The banks, just like any other businesses, will not be immune to that uncertainty over the future direction of economic policy.
And when banks are uncertain, it is never good news for the businesses that depend upon their lending.
Mr Griesbach said: “From a more financial point of view, it will affect the banks as if they are not sure what’s happening in the economy and with government strategy, they are going to pull back as well.
“If they had a clear mandate from a strong government on what the direction is going to be, at least the banks can prepare for that.”
Andy Currie, managing partner at Catalyst Corporate Finance, said a hung parliament could also have an impact on attracting foreign direct investment (FDI) to the UK
“You can’t run anything by committee – the only way you can really run anything, to be honest, is through a benevolent dictatorship.
“A hung parliament would be the biggest committee in the land and it wouldn’t provide that certainty and clear direction in terms of what our policies are. In some ways a businessman doesn’t really mind whether it’s Labour or Conservative because at least he can sit there and think ‘one lot are probably going to help me and the other lot are probably going to tax me, but at least I know that and can set up my plans around that
“That would apply to overseas investors looking at the UK as well. Up until last year the UK was a massive beneficiary of FDI and that plummeted last year.
“We have benefited significantly from the likes of Toyota in Derbyshire making that commitment to the UK.
“They can only make that commitment if they can look you in the eye and ask ‘is this the way it’s going to be for the next five years?’”