The Economy Setting the Debate: British business leaders back Conservatives in run-up to 7th May election

The Economy Setting the Debate: British business leaders back Conservatives in run-up to 7th May election

103 leaders of some of Britain’s biggest firms have publicly backed Prime Minister David Cameron’s Conservative party in the run-up to the tightest election in British history. But what will the impact be?

Business leaders claim a Labour Government will put the recovery at risk

On Wednesday, 1st April, leaders of some of Britain’s biggest businesses shook up the election campaign as they publicly backed Prime Minister David Cameron’s Conservative party. 103 signatories warned that a switch to a Labour government when voters go to the polls on 7th May could risk Britain’s $2.8 trillion economy.

In an open letter published in the Telegraph the business leaders said: “We believe this Conservative-led Government has been good for business and has pursued policies which have supported investment and job creation. The result is that Britain grew faster than any other major economy last year and businesses like ours have created over 1.85m new jobs. We believe a change in course will threaten jobs and deter investment. This would send a negative message about Britain and put the recovery at risk.”

A roll-call of British business

In one of the biggest expressions of pro-Conservative support ever seen, the signatories read a roll-call of the best of British business: CEO of BP Bob Dudley; Philip Green of Arcadia; Lord Rose, the former head of Marks & Spencer; Sir Charles Dunstone, the chairman of Dixons, Carphone Warehouse, and Talk Talk plc; George Weston, the CEO of Associated British Foods (Primark, Silver Spoon, Kingsmill, and Ovaltine); and the outgoing boss of insurer Prudential Tidjane Thiam, who is the newly appointed CEO of Credit Suisse.

Other signatories included the CEOs of retail companies and consumer brands such as Iceland, Ladbrokes, Costa Coffee, Ted Baker, Mothercare, LK Bennett, Cobra beer, Robinsons, Tango, and London Pride, alongside entrepreneurs Luke Johnson and Duncan Bannatyne, and the chairman of engineering firm Meggitt, Sir Nigel Rudd.

Embarrassingly, Peter Grauer, the chairman of Bloomberg, at whose London offices Labour leader Ed Miliband had unveiled his business manifesto just a few days before, was also included in the signatories.

British business and politics

Corporation tax is at the heart of the debate: Labour has threatened to reverse the cuts that Conservative Chancellor of the Exchequer George Osborne implemented lowering corporation tax rates from 28% to 20%. But while many commentators are therefore devaluing the impact of the letter claiming ‘of course, businesses want lower tax rates’, the economic debate does not stop there.

The letter was published just a day after official Office for National Statistics (ONS) figures revealed that the UK economy is growing faster than expected, increasing 2.8% in 2014. The same report revealed that consumer confidence has now also risen to its highest level in 12 years, real household disposable income is now a marginal 0.19% higher than the level the coalition inherited from Labour in May 2010, and household spending grew by 0.6%, or £1.6 billion, in the fourth quarter of 2014.

Head of the International Monetary Fund Christine Lagarde offered further credibility to the Conservative case at a press conference for the Spring Meetings of the IMF and World Bank in Washington on 16th April, saying: “It’s obvious what’s happening in the UK has worked… What clearly has been demonstrated in the past is that the UK authorities are capable of adjusting to the economic reality in order to provide the right balance of spending cuts, revenue raising and in the order, in the proportion and in the pace that is appropriate to the economy… I have no doubt that can continue to be the case in the future.”

Of course, it’s not all good news for the British economy – the ONS also reported that GDP per head remains 1.2% below pre-economic downturn levels – but these are clear indicators that the Conservatives can use to show they are good with the economy.

On the other hand, Labour’s relationship with business has soured since the leadership of Tony Blair, who himself courted businesses in the run up to his 1997 victory, and it has become progressively worse under the current leader, Ed Miliband. Alongside his proposal to reverse the cut in corporation tax, he has worried businesses with threats of tighter regulations, energy price controls, and a new law to ban zero hours contracts for staff after 12 weeks in work.

Alongside his sidekick the Shadow Chancellor Ed Balls, he has also built an image of an anti-business party: for example Miliband has described some firms as “predators” and Balls has publicly failed to name business leaders supporting the Labour party. Chuka Umunna, Labour’s shadow business secretary, has reinforced worry: pressed on Labour’s spending plans on BBC Newsnight he admitted that “there will be spending reductions” but was unable to give any actual figures or point to where these cuts were likely to fall. Labour’s economic credibility is under pressure.

What does this letter mean for the election?

This election is one of the tightest in history. And as millions of voters turn to marginal parties, opinion polls show the two key parties, Labour and the Conservatives, are still neck and neck. Indications are strong that neither party will secure the 326-seat majority necessary in the 650-seat parliament.

The economy has been at the heart of this election debate, and studies have shown that as the UK recovery continues, so support for Labour slightly fades. That is why the timing of this vote of no-confidence in Labour’s economic plan from Britain’s biggest businesses could have effect. Economic optimism is high – and even though the public is not keen on big business, it certainly is keen on a growing economy and more disposable income. Miliband will need to present a clearer and stronger case for Labour’s ability to manage the economy if he is to win.