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UK election, deficit fears may hit investment

SAMAA | - Posted: Mar 18, 2010 | Last Updated: 10 years ago
Posted: Mar 18, 2010 | Last Updated: 10 years ago
UK election, deficit fears may hit investment

LONDON: An inconclusive result at Britain's upcoming election could hamper investment unless politicians come up with a strategy now to tackle government debt, the head of a top business lobby group told Reuters.

British Chambers of Commerce Director General David Frost also said that firms are not interested in costly government handouts, but want legislators to lighten the regulatory burden and give them the space to flourish.

However, Frost said that cuts should not start for a year or so to avoid snuffing out a fragile recovery — in line with the thinking of ruling Labour.

“If we end up with a hung parliament that's unable to develop that credible plan that would be a concern for business. Why? Because business will not invest until it's sure of the future,” Frost said in an interview.

“What both the markets and business want to see is, come the first day of the new parliament, a plan to bring the deficit down,” added the head of a body grouping a network of local business representatives.

How to tackle Britain's record budget deficit, expected to come in at over 12 percent of GDP this fiscal year, has become a key election battleground just weeks before Britons go to the polls, possibly as early as May 6.

Opinion polls have suggested that neither the governing Labour party nor the opposition Conservatives will win a convincing parliamentary majority, which could delay much-needed spending cuts and has sent shivers down financial markets.

But, speaking ahead of Thursday's BCC annual conference in London, Frost said that now was not the right time to start cutting public spending because it risked snuffing out Britain's recovery from the worst downturn in its post-war history.

“It's clear the early stages of recovery are underway and people are wary that if cuts take place now, that it would be snuffed out. So we should start to deal with it in the fiscal year of 2011/12.”

That is in line with plans outlined by Labour, in power for 13 years, and the smaller opposition Liberal Democrats.

The main opposition Conservatives want to make a start on cutting the deficit earlier, although they have recently toned down talks of hefty cuts in the next financial year.

Frost noted that business confidence was brightening around the country and said the availability of credit had improved.

And he urged politicians not to try to woo the business vote with eye-catching giveaways the country could ill-afford, but to focus instead on making the regulatory environment more conducive to doing business.

“As we enter an election period, what business wants to see from government is not only this underpinning credible plan to deal with the deficit. If they're proposing to put more regulations and more tax on business, the threat of moving back into negative growth will become ever greater.”

“Business is not seeking handouts. What it wants is to be given the freedom to do what it knows best, which is creating wealth and creating jobs.” AGENCIES

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