Government must face up to 'critical time' for economy

Business groups have welcomed Tuesday's announcement of the new coalition Government, but have spoken of an urgent need for the economy to take centre-stage.

Throughout the five days of talks between the Conservative and Liberal Democrat parties, business groups had called for stability in the wake of the General Election - from which no party emerged with a clear mandate to govern the country.

While the Conservatives won the highest number of seats, they were some 20 short of winning an outright majority, meaning that they would have found it difficult to enact policy that was opposed by other parties. Having joined with the Liberal Democrats - who won 57 seats - the coalition Government now commands a majority in Parliament.

And early reports suggest that the Government plans to tackle the deficit head-on, with £6 billion of spending cuts already announced, and - according to the BBC - "measures to promote financial stability and support business growth".

In addition, it has pledged to scrap the planned percentage point increase in employer's National Insurance contributions, which had been scheduled by the outgoing Labour government - and which had been a bone of contention for business groups in the run-up to the election, who criticised it as a "tax on jobs".

Crucial

Despite the new Government's promises, the British Chambers of Commerce (BCC) emphasised that the next 90 days would be crucial to the future of the UK economy - a reference to its challenge last week to any incoming government.

Director-general David Frost said that it remains a "critical time for the economy". He called for "concrete proposals" to reduce business red tape and tax burdens, and for it to be spelled out precisely where spending cuts would be implemented.

"We will judge the new administration on the basis of what it does to promote business recovery across the UK," he added.

"The BCC wants to see the delivery of a clear and achievable plan for business over the first 90 days of a new administration - a plan that puts business growth at the centre stage.

"Fixing the public finances must be at the top of the agenda."

Meanwhile, the Federation of Small Businesses (FSB) spoke of the "certainty" which the coalition would offer both to firms themselves and the stock markets in general. It also welcomed the proposal of a 'nation loan guarantee scheme', which is thought to be on the table as the Government takes shape; something the FSB says would improve credit for smaller businesses while there remain "concerns with bank lending".

Lacking confidence

Prior to the announcement that the Conservatives and Liberal Democrats had reached an agreement, the FSB claimed that virtually half of small firms were lacking confidence in the economy after the election result, and that the majority wanted another election within six months.

Last week, the Forum of Private Business (FPB) had pointed to its own recent research, which suggested that 70% of small firms were finding 2010 difficult to plan for - even ahead of any confusion caused by the hung parliament. In the wake of the coalition announcement, the forum issued a "cautious welcome", while chief executive Phil Orford reiterated calls "for politicians of all political persuasions to show responsibility and put aside their differences in order to avoid pushing the UK into further economic turmoil".

At a media conference to discuss the Bank of England's quarterly Inflation Report, governor Mervyn King praised the new Government's "strong and powerful" deficit reduction plan. However, he warned of dangers that he said recent events in the Eurozone had demonstrated, which still faced those economies that failed to show where their borrowing cuts were to fall.

The interest rate remains at 0.5%. Meanwhile, official figures revealed that unemployment had risen to 2.512 million in the three months to the end of March - its highest level since December 1994.

IMAGE by AP Photo/Andrew Winning

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