Business 'worried about hung parliament'

Firms are increasingly concerned about the impact of a hung parliament, a business group is warning, as the political battle intensifies ahead of the 6 May general election.

According to the British Chambers of Commerce, almost two-thirds of businesses are uneasy about the future of decision-making in a government that does not hold a clear mandate - a real possibility with no single party showing a distinct lead in polls.

Of 300 companies polled by the group for its latest monthly business survey, 30% said that they were 'very concerned' about the impact of a hung parliament, with a further 35% saying they were 'concerned'.

Twenty-two per cent said that they were not concerned by the prospect, while 13% said a hung parliament would be 'a good thing'.

And the latest indications paint a picture of a close-fought race, with the Conservatives holding on to a slim lead from the bouyant Liberal Democrats, and Labour narrowly behind in third place. If the polls are accurate, any party would need to make a significant jump in popularity in order to win the election outright.

A hung parliament is one where no one party holds an absolute majority - 50% or more of the overall seats - meaning that laws can be difficult to pass, as smaller parties are able to join together and out-vote the Government. However, larger parties can counter this by soliciting support from smaller ones on an ad-hoc basis, or they may join together into a coalition government that holds an absolute majority.

And due to the UK's first-past-the-post voting system, the party with the largest percentage share of the overall vote may not be rewarded with the greatest number of seats in Parliament.

David Frost, director-general of the British Chambers of Commerce (BCC) said that firms were "right to be wary" about the possibility of a hung parliament.

"Instinctively, companies prefer a clear mandate to lead and govern," he added.

"With our economy still fragile and the public finances in a dire state, the overwhelming concern is whether a hung parliament will provide decisive action around the UK’s unsustainable deficit.

"Whatever the outcome of the election, whether we have a coalition government or not, we must see a credible plan to reduce the deficit and restore confidence within ninety days."

VAT trade-off?

In addition, companies seem to be planning for a VAT rise after the dust settles on the election.

When asked in the same poll which tax they thought was most likely to rise - ignoring next year's planned National Insurance increase - the majority pointed to VAT.

The business group argues that this result reinforces its position that a rise in the employer's NI contributions (NICs) - "a tax on jobs" - would be more damaging than a VAT rise. The results of the BCC's February survey would appear to underscore this, with more than a third of companies saying that a VAT rise would be the least damaging tax rise that could be imposed by an incoming government. By contrast, only 6% thought that an NIC rise would be the least damaging option.

Based on this, Frost proposed a re-think for the next government.

"Considering companies have already said that VAT would be less damaging to their operation than a hike in NICs, it seems obvious that the tax on jobs should be scrapped and replaced by a less harmful tax on consumption," he added.

The final debate

Meanwhile, the Federation of Small Businesses (FSB) has spoken out about what small firms expect from the final prime ministerial debate this evening.

The group says that the planned NIC rise should be on the agenda - pointing to its own research, which suggests that such a hike would lead to a loss of 57,000 jobs in the SME sector. The debate should also feature a discussion of how to increase employment levels among SMEs, the FSB says, and how to improve access to finance.

IMAGE Stefan Rousseau/PA Wire

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