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General Election outcomes offer ‘limited appeal’ for business leaders

EVER since the American campaign strategist James Carville told Bill Clinton to use “it’s the economy, stupid” as his election slogan, politicians have realised that what business leaders think matters. As the general election looms, UK party political leaders suddenly start worrying about the ‘business vote’. While companies do not vote and CFOs have only one ballot paper each, employers know their concerns resonate with the wider voting public. But what does business want?

The answer is threefold: policies that will boost the economy in general; measures that will help their own company; and a ban on ideas that will make their life worse. Unsurprisingly, there is no single shared view: exporters have different priorities from domestic-focused organisations, while consumer-facing companies worry about issues that concern B2B firms less.

That was thrown into focus by the publication of a letter with 100-plus signatories in The Daily Telegraph praising the coalition for its record on encouraging investment and creating jobs. The signatories – who included Bob Dudley, the American boss of BP; Tidjane Thiam, the CEO of Prudential who received an £11.8m cash and shares payout for 2014; and Lord Rose, the Conservative peer – also hailed the Conservative pledge to cut corporation tax to 20%, adding: “We believe a change in course will threaten jobs and deter investment.”

Certainly, tax comes top of the list for anyone in the finance function. While the Conservatives have pledged to keep corporation tax at 20%, Labour’s Ed Balls would raise it to 21% and keep it the lowest in the G7 – although the second-highest is Canada’s 26.5%. However, Labour has pledged to cut and then freeze business rates for 1.5 million small companies with a rateable value of less than £50,000.

“There’s a big divide here but what Labour are taking from big business, they are using to reward smaller businesses and that’s clearly Ed Balls’ thinking,” said Charles Lewington, a former press secretary to John Major who now advises businesses as managing director of lobbyists Hanover.

Labour has its eye on a number of taxes that affect financial services companies and especially hedge funds, such as the Eurobond exemption, and stamp intermediaries relief, which it hopes will expose the role those secretive financiers play in Tory funding.

There is also an array of incentives to encourage start-ups, such as entrepreneurs’ relief, which allows owners to pay a capital gains tax of just 10% on stakes held for a certain time. The allowance on this has risen from £2m to £10m under George Osborne, while the bill to the Treasury has increased from £475m in 2007/8 to £2.9bn in 2013-14. Meanwhile, enterprise investment schemes offer investors 30% income tax relief.

“There are a lot of these reliefs and incentives that add up to quite big sums of money,” Lewington said. “Partly as a result of the growth in the economy, they may be areas a future chancellor will look at. They won’t be talked about in the campaign but they are known to be Labour party policy.”

While tax is a key concern, finance directors also harbour concerns over the big picture issues, where there are clear dividing lines. The Conservatives will hold a referendum on Britain’s membership of the European Union after David Cameron has sought to negotiate better terms for the UK. Labour rejects this as fuelling uncertainty at a vulnerable time for the economy.

Seven-party system

But for the first time in three generations, there are not two parties vying for power but seven with a chance of a stake in a future coalition. UKIP wants the UK out of Europe, the SNP backs membership, while the Greens and Lib-Dems would also back a referendum.

On the budget finances, the Tories claim they would eliminate the deficit and run an overall surplus by the end of the parliament, while Labour aims to deliver a surplus on the current budget in the next parliament, with debt falling as a share of GDP. According to the Institute for Fiscal Studies, the Conservatives’ plans imply cuts to departmental spending of 6.7% between 2015/16 and 2019/20, the Liberal Democrats 2.1%, and Labour 1.4%.

None of the options look “appetising”, according to former Bank of England economist Rob Wood who is now at Berenberg Bank. “The choices are 1970s left-wing statism or ludicrous public spending cuts and a Brexit vote,” he said. “The result of those options is that UK politics is almost certain to undermine the UK’s growth potential somewhat.”

The letter-writers aside, most executives want to keep their head down for fear of criticising the next government. One theme that emerges strongly is uncertainty over the outcome given the fact that no party is likely to win a majority.

Election chart“The forthcoming general election brings a period of uncertainty,” said David Ritchie, CEO of Bovis Homes, a concern echoed by Gavin Stark at building products supplier Grafton Group who said “political uncertainty about the outcome of the general election [is] among the risks that could weigh on the strength of the recovery”.

Sir Martin Sorrell, the flamboyant head of advertising giant WPP, summarised the choice faced by financial executives as “Morton’s Fork”, a choice between two unpleasant options named after a 15th-century Archbishop of Canterbury.

“If the Conservatives win outright or lead a coalition or even form a minority government, there will be a referendum on the EU in 2016 or 2017, which will cause significant uncertainty,” he said.

“If Labour wins outright or leads a coalition – more likely with the SNP – or forms a minority government, it will win partly on a ‘bashing business’ manifesto, which may resonate at the ballot box.”

Sometimes executives’ reactions can be unexpected. When Labour unveiled a plan to abolish the non-domicile tax status that benefits globe-trotting financiers, it was backed by Duncan Bannatyne, the former Dragon’s Den star – and signatory to the Tory letter – who switched to Labour as a result.

On the issues of employment and business finance, there is more common ground. As well as cutting business rates, Labour would deliver 80,000 more apprenticeships and establish a British Investment Bank to boost lending for small businesses. The Conservatives will hold a review of business rates and create three million apprenticeships funded by benefits cuts. The Lib Dems too will review business rates and expand apprenticeships.

As Chuka Umunna, Labour’s business spokesman, told the British Chambers of Commerce: “Maybe it’s controversial to say this but there is a lot more consensus about business policy than [you’re] led to believe.”

Lewington is less sure: “There’s a fundamental philosophical difference which over time a finance director will notice – the appendices to any Finance Bill will be three times as long for a Labour chancellor versus a Tory one.”

Only after 8 May will CFOs learn which prediction is more accurate.

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