They’ve worked their socks off keeping businesses afloat and
money moving round. Now finance directors could rightly expect to see some sort
of reward (or relief) from the government. But what do the leading political
parties say they’ll proffer up in three key areas regulation, stimulating
growth and dealing with a hung parliament if they win the election?
To find out, Financial Director spoke with Labour’s financial
secretary to the Treasury Stephen Timms MP, Conservative shadow Treasury
minister David Gauke MP and the Liberal Democrat’s shadow chancellor, Vince
Wafer-thin growth of just 0.1% in the final quarter of 2009 underlines the
danger of deep public spending cuts now, argues Stephen Timms. He wants to
continue “targeted support until the recovery is secure”. Labour’s target is to
halve the deficit in four years. The fiscal responsibility bill sets out
obligations to do it “fairly and at a sensible pace so we can protect the
economy, support key services and invest in new industries,” says Timms.
Gung-ho for deep cuts? Or not? Confusing messages have emerged from David
Cameron and shadow chancellor George Osborne in recent weeks. Osborne says a key
objective is to preserve Britain’s AAA credit rating by cutting a large part of
the structural deficit over the course of a parliament usually four to five
years. But that begs the question of whether cuts will come sooner or later.
Gauke told Financial Director, “We will make a start in 2010 and
crucially set out a credible plan to remove a large part of the deficit over the
parliament. The pace of cuts will be decided in co-ordination with the Bank of
Vince Cable talks tough on cuts. “What is absolutely clear is that the
incoming chancellor must have a clear plan to eliminate the structural deficit.
The current government estimate of the structural deficit at 5.5% of GDP is a
guess it could be worse. The plan to reduce this deficit by half over four
years may also prove to be too laid back for the markets. It is, however, a
Labour’s Timms says the actions the party took to cut VAT temporarily, the car
scrappage scheme and interest rate reductions prevented the recession being
worse than it could have been.
“Emerging from the recession, our active industrial strategy will be key,
rolling out high-speed broadband, investing in new technologies and protecting
and raising investment in science and research.”
Timms adds that the party will reduce business regulation by 25% by May 2010.
“And between 2010 and 2015, to help offset costs of new regulation, we will make
further new reductions of £1.5bn in burdens.”
Tory man Gauke believes it’s important to stimulate enterprise. “Any new
business started within the first two years of a Conservative government will
pay no employer national insurance on the first 10 employees it hires during its
first year. We will also build a network of business mentors and provide loans
to would-be entrepreneurs, supporting self-employment and franchising as a route
back into work.”
Cable also sees a more entrepreneurial climate emerging as key to creating
the conditions for sustained recovery. These include moderate taxes, cutting red
tape, securing intellectual property rights and ensuring a flow of credit on
Labour’s Timms says that plans to break up rescued banks will create three new
banking outfits “in the biggest market shake-up for a generation”. And he argues
that measures in Labour’s financial services bill will create a new body to
monitor and manage system-wide risks and will give the Financial Services
Authority new powers on the G20 model on banking remuneration.
Timms is keen to remind us that his party “commissioned and welcomed Sir
David Walker’s recommendations on financial sector corporate governance,” Timms
says, “including strengthening bank boards, boosting non-executives’ roles in
risk assessment and remuneration, improving the structure and disclosure of pay,
and encouraging institutional shareholders to be more active.”
Gauke reiterates the party’s well-known view on the abolition of the
tripartite system of regulation and restore the Bank of England’s responsibility
for prudential supervision, monitoring the overall growth of credit and debt in
“We will increase competition in the banking industry,” says Gauke, “starting
with a competition review of the sector that will inform our strategy for
selling the government stakes in state-controlled banks.”
Cable wants a modern version of the US’s Glass-Steagall Act, which would
reverse the platform for the past few years of gains in the sector and separate
retail from investment banking. “Until the banks are broken up and are able to
compete or fail without UK government guarantees, they should pay an insurance
premium a supplementary tax on bank profits,” he says.
What do FDs want?
Ask finance directors what they’d like to see a new government do after the
election and they’re likely to be far more forthright than the politicians.
Mike Holt, group FD at VP plc, an equipment rental company listed on the
London Stock Exchange, wants “decisive action” to tackle mounting public debt.
“I think there are some fairly unpleasant decisions that need to be taken at
government level when it comes to deciding where to spend the public purse.”
Politicians may dance delicately around the question of budget cuts but Holt
isn’t afraid to jump in with both feet, citing the growing burden of public
sector pensions as an area that’s ripe for the axe.
“There is an increasing disparity between wage inflation and post-retirement
benefits within the public sector as opposed to the private sector,” he says.
Richard Mann, chief operating officer at £68m-turnover Mobile Interactive
Group who includes the FD’s responsibilities in his portfolio is another who
wants to see brave decisions on public sector spending. “I believe there should
be significant spending cuts,” he says. He cites the Republic of Ireland’s
willingness to cut hard and cut deep.
“I think there has to be an increase in the tax burden as well and I think
everyone has to participate in that. We have to get through the next couple of
years. There may be a risk of a double-dip recession, but I think it’s the
lesser of two evils.”
Both agree that they’d like to see a government with a mandate to take tough
decisions. “The concern I have is that a hung parliament would be the worst
result,” says Holt. “I don’t think that if people are having to work through a
coalition they will be prepared to be as bold as they need to be.”
Mann adds, “My personal view is that we need a government with a very strong
mandate to take some brave decisions to give us a solid foundation so that UK
plc knows where it is and how we are going forward with some degree of
Difference of opinions
But there’s a difference of view on the need for measures to get the banks
lending again to business and consumers. Holt believes that banks have failed to
differentiate between solid corporates with good governance, and everyone else.
“I think the banks have got to go back to fundamentals and demonstrate they’ve
got proper risk management policies in place and that they’re adhering to the
But Mann warns that the business world can’t have it both ways. “We can’t
want the financial sector to take less risks and at the same time insist that
they lend money and open up the debt market.”
But he agrees with Holt on one point: “Managed risk has to be a fundamental
part of the financial sector.”
And the touchy topic of bonuses? For the FD, it’s not quite the witch-hunt it
has been from the FD’s perspective (remembering, of course, that they might be
in for their own juicy bonus packages).
“At the end of the day, I think that a banking sector without bonuses would
be very unhealthy and result in a brain drain,” argues Holt.
Mann sees the issue as getting the right balance between cash bonuses that
give an incentive for quick wins and longer-term benefits packages that are more
likely to align the interests of employees with those of shareholders and other
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