Precarious parties and general uncertainty – will the UK election lead to EU ejection?

30 March 2015

The general election is fast approaching and once again it's causing headaches in the world of business. It's been the highlight of the political calendar since 1802, but it still manages to instil fear into the heart of every business leader. Why?

Ballot box 

One word - uncertainty.

Businesses hate it and general elections breed it. How can you plan ahead when you have no idea who will be making the rules in six months' time?

The impact of this uncertainty shouldn't be underestimated. Current predictions from The EY ITEM Club suggest business investment growth will slow dramatically from 9% in 2014 to a predicted 5.8% in 2015 purely as a result of uncertainty surrounding the election.

This year's election is particularly potent, with two key sources of uncertainty: the prospect of another coalition government and a possible EU referendum. Both have the capacity to send shockwaves through the UK economy and beyond.

Dave and Nick: the Sequel

Current polls indicate there is no clear leader in the election race, which means that there is a chance of a fractious three party coalition or – far worse – a government with no majority. The chance of such a government succeeding for a full term is slim according to commentators, raising the possibility of a second election within the year, and mirroring the recent political instability of countries such as Belgium and Italy. But more importantly, a weak government doesn't instil confidence; lack of confidence leads to jittery investors; and jittery investors lead to a downward spiral in the economy.

This multi-party election provides a new challenge for businesses. For decades, general elections have effectively been a two horse race. This time, the predicted destruction of the Lib Dems and the growth of minority parties such as UKIP and the Green Party have turned the election into a six or seven horse race. For business leaders, this means increasing scrutiny of policies they would have previously ignored — what is the Green Party’s view on the EU? What is Plaid Cymru's policy on corporation tax? These smaller parties are unlikely to win a majority, but they may well influence government policy as part of a compromised coalition.

EU stands for Economic Uncertainty

The Conservative Party has long been associated with capitalist trade. However, this association could be weakened during the next election now that a vote for the Tories could well be interpreted as a vote for an EU referendum. An EU referendum is a touchy subject for much of the business world, with both support and opposition being shown by various business people in equal measure. Will a referendum go ahead? Will it be a negotiation of terms or a British exit? What will happen to trade?

But in this global society where no man – or business – is an island, it is not just the men in bowler hats and grey suits who have an opinion on the EU. Figures from City AM show that over half of UK company shares are now owned by foreign investors, so it's no wonder the US has already warned the UK government of the grave economic consequences should it leave the EU.

Does this election matter?

Surely, with collapsing oil prices, the threat of Putin and the rise of global terror groups such as Islamic State, an election on one small island isn't that important in the grander scheme of things? Not according to the Chief Economic Adviser to the ITEM Club, Peter Spencer. In his view, the UK has a unique competitive advantage in that "we offer foreign investors… a haven of political stability and …proximity to Europe. If both of those are brought into question, what happens?" Spencer's message is clear - it's not just business leaders who have a valid reason to be concerned. If the rest of the world has an interest in the outcome of this election, so should we.

Gabby Ives

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