Could the City turn blue on 5 May?
By
Simon Wilson May 24, 2006
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Which party do business people support? Both the main parties have plenty of high-profile backers in the business world, and Labour has been highly effective at cultivating friends in the City, as elsewhere. In the years before 1997, Labour’s front-bench team assiduously courted the City through its infamous ‘prawn cocktail offensive’, led by Gordon Brown, and once in government they have sought to keep them on-side. Yet there are more and more signs that business people are moving back to their traditional support for the Conservatives.
What are these signs?
The Conservatives seem to have a steadier nerve under Michael Howard: even if a future Conservative government is not an immediate likelihood today, it is at least conceivable. This has made the party become more confident about wooing back its ‘natural’ business supporters and made these supporters more confident about giving their backing. Meanwhile, a Mori poll of UK finance directors this week showed that, even though Labour has put its economic record squarely at the centre of its re-election campaign, six out of ten financial directors will be voting Tory.
What reasons are they giving for the turnaround?
According to the survey, 49% of directors think the Tories have the best policies for business, more than twice as many as those who favour Labour (23%) and the Liberal Democrats (4%). Over half (51%) think Labour’s tax and regulatory environment discourages businesses from investing and expanding; only 4% think the opposite. It will be of comfort to Labour that Brown is rated a more capable Chancellor than the Tories’ Oliver Letwin by a considerable distance, 58% to 29%. Nevertheless, 44% believe that Michael Howard would make the most capable prime minister of the party leaders, eight points ahead of Tony Blair. That should all be encouraging for the Conservatives.
But isn’t the economy a vote-winner for Labour?
They certainly enjoy a deserved reputation for strong macroeconomic management and Gordon Brown can correctly boast of a triple whammy of steady (if not particularly high) growth, low inflation and low unemployment - in marked contrast to other big EU economies. For so long the perennial under-achiever of Europe, Britain is now, on the surface, one of its most successful countries, and Labour is eager to take the credit. It points out that, even if the UK has been slipping down the league tables on international competitiveness, it is still the most popular destination in Europe for foreign direct investment.
So what’s the problem?
Business people probably have a strong sense of just how much good fortune Gordon Brown inherited from previous (Conservative) governments. There has been steady economic growth since 1997, but the expansion started in 1992 and inflation was under control well before Labour took power. Even Brown’s most significant change - independence for the Bank of England - was the logical extension of Tory policies of the early 1990s. Equally, the much-flaunted low unemployment figures owe a lot to the structural labour-market reforms of the 1980s. They also know that while any damage the Labour Government has done to the economy is not yet particularly apparent, it soon will be. Labour’s huge shift of resources to the public sector is likely to hurt business, for example, since it means lower productivity growth, wage inflation spilling over into the private sector, and a gradual increase in the tax burden.
What about regulation?
Too much regulation, particularly of the labour market, is another major concern of the corporate sector. Last year, a poll by the Institute of Directors showed that 82% of its members saw employment regulation as their biggest burden. According to the British Chambers of Commerce, the cumulative bill from new regulations is £39bn since 1998. The tax picture isn’t nice either. Labour may have cut corporation tax from 33% to 30%, and introduced tax credits for research and development, but these have been more than offset, notably by the 1% rise in national insurance, and Brown’s raid on company pensions.
Will the Tories be better?
The Tories pledge to cut red tape by at least a quarter in their first term if elected, and plan to make all business and economic policy based on the presumption of minimal red tape and regular reviews of all regulations along with ‘sunset’ clauses (limiting the time for which a particular law is valid) wherever possible. They also say they intend to raise spending significantly less than Labour and that they will cut taxes.
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