So, how will the 2019 general election affect business? We take a look at the predictions and what they could mean for commerce.
It’s an election that prime minister Boris Johnson had been chasing for weeks in an attempt to break the Brexit deadlock, but the vote has come sooner than expected for business leaders and the public.
Pundits are calling it a once-in-a-lifetime ‘Brexit election’ and, given those stakes, the impact on British business could be seismic.
Navigating major change from inside the C-suite is rarely a smooth ride. It means creating a backup plan for your backup plan, then running the numbers for each.
Fortunately, corporate speakers and expert journalists were on-hand to offer their insight just as the possibility of an election descended on the City of London at a night aptly called ‘Preparing for Unprecedented Change’.
At the event, former BBC business correspondent Declan Curry stressed that Brexit is just one of the big changes Britain could face in the fallout from the election.
The business and economics speaker said executive teams are also busy making plans for the possibility of a Corbyn-led Labour government.
“Businesses are hearing the commentary that we’ve had since 2017 – that polls indicate that he has absolutely no chance whatsoever of being the next prime minister,” he told the crowd of corporate guests in Barbican, central London.
“But then they remember the polls running up to the Brexit vote were wrong, the polls running up to the 2017 election were wrong, and in 2015 they weren’t exactly models of prediction either.
“And business leaders like to be prepared,” he adds. “So in most major companies there will be someone somewhere – an executive in an office with the door closed – drawing up the plans for ‘what if’.
“What if John McDonnell is the chancellor, what if the idea of having trade union representatives forcibly on boards is enacted? What if there are bans and restrictions on bonuses?”
As we speak, many businesses are preparing for this possibility just as they are preparing for Brexit. Declan added: “This is being mapped out as a theoretical enterprise.”
The event was organised by international speaker bureau Speakers Corner, whose 7500-strong portfolio of orators and experts have already been called on many times to help businesses navigate the uncertainty of Brexit.
In fact, Declan Curry revealed he himself takes professional guidance on the levels of Brexit fatigue in a given audience before taking to the stage.
He was also keen to point out change can bring opportunities as well as risk. Near the Irish border in Donegal, people are “excited for the return of the ancient art of smuggling,” he joked.
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“Brexit will throw up opportunities, too,” said Declan, pointing to law firms currently profiting from all the uncertainty. The former On the Money radio show host said economies are suffering and pondered the idea that another financial crash could be looming – something that could magnify the risk to British business.
This speculation comes as both major parties enter a public spending bidding war that the Institute of Fiscal Studies has said may be undeliverable.
General elections often make markets unstable, but the combined uncertainty around Brexit and the UK’s economic direction is heightening the impact on shares – especially for companies like BT, which could even be partly nationalised under Labour plans.
Still, some business leaders see the vote as an imperfect path to preventing the damage of a hard Brexit. Sonia Sodha, chief leader writer at the Observer, also spoke at the Knowledge Guild event – and she is sympathetic to this view.
“You can see a path to a Labour-led coalition government with Lib Dem and SNP support if Boris Johnson loses a significant number of seats,” she said, but feels an election is not the best way to deal with the Brexit question.
Business owners and C-suite executives have expressed concerns about the risks of a chaotic Brexit since 2016 – and despite continued delays, the risk of no deal remains. The implications could include increased taxes on imports and exports, supply chain delays and staffing supply problems.
“We are going to be talking about Brexit for years to come, whichever outcome,” Sonia told the crowd of central London executives.
For executives concerned with risk management, the turbulence runs in many directions. The only certainty is the election result will spark significant change – whatever the result.
The new Government has to prioritise economic renewal, encourage investment and provide more support to businesses looking to grow according to Michael Izza, ICAEW’s chief executive. In anticipation of the Queen’s Speech later this week, he is urging ministers to take steps now to head off a looming threat to economic growth from weakening business investment, rising inflation and slower wage growth as revealed in ICAEW’s latest forecast.
“We cannot underestimate the impact that the current outlook for the UK has on business confidence,” said Michael Izza. “The vote for Brexit, the outcome of the General Election and looking ahead, the negotiations on leaving the EU all help build uncertainty and create a hiatus in making long term changes to our tax and regulatory systems.
“In the current climate, businesses tend to see the potential risks rather than the rewards of investing. I would like to see the new Government put business and the economy at the top of its agenda, doing more to create a climate of optimism and certainty which will help build confidence. It also needs to send a clear signal to the rest of the world that Britain continues to be an good place to do business, to invest and to trade. Not to do so could put at risk the economic progress we have made over the last two parliaments.”
ICAEW has also published its Economic Forecast for Q2 2017 which has revealed:
- Real income losses for households. Weaker growth in demand for workers, along with upward pressure on non-wage labour costs faced by firms, suggest that wage growth will remain around 2% in 2017. With the Bank of England expecting inflation to remain close to 3% for the year, this will lead to a squeeze in household incomes through the second half of 2017.
- Weaker business investment in 2017, but potential for faster rebound. Investment recovered a little in Q1 2017, but ICAEW continues to forecast a modest fall for the year. However, firms’ financial positions and profit margins remain good, and borrowing costs will remain low for quite some time. But given the uncertain domestic political outlook and difficult Brexit negotiations to come it seems likely firms will continue to exercise restraint in their capital spending.
- Labour market to remain tight. Recent labour market data suggests the degree of spare capacity remains historically low, while BCM evidence shows firms expect to continue to create jobs in the year ahead. At just 0.7% for the year, the rate of private sector employment growth will be the slowest since 2012. Given the continued growth in working-age population, this rate of job creation will be just enough to stabilise the unemployment rate close to the current level.
- Q1 slowdown could prove temporary. GDP growth slowed sharply from Q4 2016 to Q1 2017, with the 0.2% reported in the first three months of this year - the slowest increase since 2014. We expect GDP growth to rebound a little in the remainder of 2017, with exports playing a greater role in driving growth than in previous years. We have nudged up our forecast for GDP growth in 2017, from 1.6% in our last report to 1.7%.
- Long-term fiscal risks still not being tackled. The last fiscal year delivered the smallest budget deficit in cash and GDP terms for almost ten years. But early evidence for 2017-18 suggests that the slowing economy is hurting the UK’s fiscal position. The election campaign has demonstrated that no consensus exists on how to tackle longer-term risks to the public finances.
Michael Izza adds: “The voice of business needs more prominence within Government’s plans to rejuvenate the economy. The political parties, who largely ignored business in their manifestos, must now engage with the business community if UK companies are to thrive in a post-Brexit landscape.”
(Source: ICAEW)
In this video, Mark Burgess, Chief Investment Officer, EMEA, talks about how the markets view the June 8th 2017, election result and its potential impact on the UK economy. He also discusses what the election outcome signals for the forthcoming Brexit negotiations.
Authored by Markus Kuger, Senior Economist at Dun & Bradstreet.
On Monday 19th June, the UK is scheduled to enter negotiations for its exit from the EU, in discussions that will fundamentally shape the future of the country and its economy. Just two months ago Prime Minister Theresa May surprised the nation by calling a shock general election, seemingly with the aim of strengthening her position in the Brexit negotiations and bolstering her claim to represent a consensus in the UK. However, the election did not unfold as expected.
Despite early polls suggesting a 20 percentage point lead for the Conservatives, the Tories lost 13 seats and thus their overall majority. Now, just days before talks with the EU begin, the Prime Minister is involved in domestic negotiations with the Democratic Unionist Party (DUP) to form a government. So, what will the ‘Hung Parliament’ outcome mean for Brexit negotiations – and how can businesses respond?
On the home front
Short-term political uncertainty in the UK has increased sharply. The Conservative Party must now enter an alliance with another party in order to pass the Queen’s Speech and form a new government. Overall, this process will be time-consuming, leaving businesses without a clear outlook in the coming days and possibly even weeks.
In the longer term, even with the support of the DUP, the Conservatives’ majority will be extremely slim – which will be problematic, given the wide spectrum of views within the party on a number of issues, including Brexit. Against this backdrop, the government is likely to need to tread a conciliatory line both within and outside its own party: all of which will fundamentally impact the Brexit negotiations. Taking all factors into account, Dun & Bradstreet has downgraded the UK’s Political Environment Outlook from 'deteriorating' to 'deteriorating rapidly’, although this indicator is likely to be upgraded again once a new government is formed.
At the negotiating table
The dynamic of the Brexit negotiations has changed fundamentally. After Article 50 was invoked on 29 March and snap elections were called in April, initial talks between the EU and the UK were scheduled for 19/20 June. However, this round of talks is unlikely to deliver any noteworthy results, as the yet-to-be-formed British government will not have had enough time to prepare its negotiating position.
The election result suggests that the UK lacks an overwhelming consensus on the sort of deal that should be brokered. Theresa May’s personal position has also shifted, and rumours already suggest that she could be asked to step down by her own party at some point in the coming months as a result of the disappointing election outcome. The UK government may need to placate a broader range of opinions in parliament – including those of other parties – to pass any legislation. The extra time this will take will make negotiations with the EU even more complicated: Article 50 sets a strict 24-month deadline within which talks must be completed, of which two months have already passed due to the election campaign in the UK.
We predict that in the long run, the election result could make a ‘hard’ Brexit – which our analysis suggests would be harmful for the British economy – extremely hard to implement. It’s now more likely that the UK could remain in a customs union with the EU, reducing Brexit’s impact on businesses. The election outcome has even opened up the very small chance of the UK remaining in the EU, although businesses should continue to assume that the UK’s exit from the EU will still take place in March 2019. With so many factors in play at home and internationally, it is currently difficult to predict how the negotiations will unfold.
From the business perspective
All of this makes for a complex environment for businesses. Our analysis indicates that uncertainty will remain high in the next 18 months, regardless of what happens in the wake of the election, and we are maintaining our risk rating for the UK at DB2d, with a ‘deteriorating’ outlook. Given the backdrop of an already slowing economy (the UK posted the lowest real GDP growth of all 28 EU economies in Q1 2017), it is not surprising that businesses are beginning to express a lack of confidence, as seen in a recently published survey for the Institute of Directors.
Businesses should continue to monitor the progress of negotiations, and use the latest data and analytics to assess risk and identify potential opportunities. Once a government is firmly in place and Brexit negotiations progress, organisations may get a clearer picture of the likely basis for future business relations between the UK and the rest of the world. Until then, a careful and measured approach to managing relationships with suppliers, customers, prospects and partners will be essential.
Navigating uncertain times
The general election result surprised most commentators, and more importantly it creates the prospect of greater uncertainty in the medium term – both domestically and for the Brexit negotiations, which will be one of the most significant factors in the future development of the UK economy.
However, it’s vital to remember that the UK remains a stable economy, with long-term economic potential that exceeds that of most other European economies. For now, businesses should continue to follow developments closely as the impact on the Brexit settlement – and the political landscape of the UK – becomes clearer.
For all the stability that this latest General Election was due to bring, the Great British Public awoke on Friday morning with more questions than answers. With a weakened Government and a reinvigorated opposition, what does the world now look like for the fintech industry? Here, Kerim Derhalli, Founder and CEO of fintech app invstr, discusses the results’ impact on the fintech sector.
Traditionally, politics and technology has had an uneasy relationship. On the one hand, tech innovators strive to upset the status quo and find new ways of doing things; on the other, governments tend to be comfortable once they have exerted control over the unknowns of new technology.
The great challenges
In the aftermath of two horrific terrorist attacks in London and Manchester, Theresa May moved quickly to criticise technology companies for providing “safe spaces” for extremist ideology, reinforcing the Conservative pledge for greater regulation of the internet.
Labour, conversely, support greater rights on the internet specifically, backing a ‘Digital Bill of Rights’ within their digital manifesto – released in August last year.
How will these two opposing ideologies play out in a fintech world brimming with optimism and entrepreneurship? There are pros and cons, and it may be that a hung parliament works in the favour of the tech glitterati.
The criticism of the Tories has been that they protect the big boys. Low corporate tax and a reduction in business red-tape will have the big banks rubbing their hands, but there’s also plenty for startups, disruptors and SMEs to be excited about.
But the Conservative’s manifesto declaration that “for the sake of our economy and our society, we need to harness the power of fast-changing technology” should be treated with caution.
Harness or heel?
The phraseology is fascinating. What does ‘harness’ really mean? If it means a managed level of regulation, which keeps consumers safe from the more sinister aspects of technology, while maintaining the capacity for innovators to try new things, then fintech entrepreneurs will be cheering.
If the real result is Big Brother laying down the law and attempting to bring the disruptors to heel, then the outlook isn’t so positive and, in reality, this approach is liable to backfire. As we’ve seen with Trump, the social revolution and today’s unprecedented access to shared information, the masses will soon make themselves known if they feel the palm of oppression settling on any of their concerns.
In January, Mrs May and Co. announced their modern industrial strategy, which promises investment and support for science, technology and innovation. On the surface, this is great news for the fintech set. University R&D funds, similar to that of the United States, could really accelerate advancement for innovative startups.
In the red corner
And what of their prime competitors? We’re now a decade on from the financial crisis, and Labour has said that it is time to reawaken the finance industry.
Their headline campaign announcement was a National Investment Fund that will bring in a £250 billion boost in lending for small business across the country. The manifesto cited private banks, small businesses and promised “patient, long-term finance to R&D intensive investments”. With fintech firms by-and-large falling into this category, this mantra could prove to be a firm positive for the sector, if the opposition flexes its muscles over the next term, as it can now do.
Back to the language of the document; Labour’s manifesto called out ‘big City of London firms’ as those which don’t support growth in communities. With tens of thousands of fintech roles sitting in the Square Mile currently, there may have been a few CEOs shifting uncomfortably in their seats.
Just last week, new figures from Europe’s prestigious Fintech50 list, which picks out the hottest fintech organisations, shows London providing half of the overall list.
Labour also pledged to appoint a Digital Ambassador to liaise with technology companies to “promote Britain as an attractive place for investment and provide support for start-ups to scale up to become world-class digital businesses”. Can one person change the face of tech investment in the UK? Fintech disruptors would be pleased to have an advocate in Whitehall, but similarly, the country is already showing that it is a leader in the world of tech and long may that continue.
The continuing turmoil is Westminster isn’t good for business on the whole. According to the Institute of Directors, confidence has plummeted since Thursday’s result – leaders want, believe it or not, ‘strong and stable’ leadership.
But the balance which the hung parliament gives us – a weakening of heavy-handed regulation policies on one side, and a firm dose of realism on the other as to what cash is available – may well work in the fintech industry’s favour.
Fintech is up to the challenge and will thrive. The arm-wrestle between governance and technology, politics and finance, regulation and disruption, between the established and the new, will continue. We’re opportunistic creatures, and we’ll continue to adapt and make the most of the breaks whatever government is there is provide them.
The first poll of business leaders since Thursday’s General Election reveals a dramatic drop in business confidence and huge concern over political uncertainty, and its impact on the UK economy. Company directors see no clear way to quickly resolve the political situation, feeling that a further election this year would have a negative impact on the UK economy.
The nearly 700 members of the Institute of Directors who took the survey are looking for any political certainty that can be found and are keen to see quick agreement with the European Union on transitional arrangements surrounding the UK’s withdrawal, and clarity on the status of EU workers in the United Kingdom.
The overall priority for the new Government, according to IoD members who have taken the survey since noon on Friday, must be reaching a new trade deal with the European Union. On the domestic front, work to deliver a higher skilled workforce and better quality infrastructure is considered vitally important.
A summary of the key findings and the full results of the survey can be found below.
Stephen Martin, Director General of the Institute of Directors, said: “It is hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy. The needs of business and discussion of the economy were largely absent from the campaign, but this crash in confidence shows how urgently that must change in the new Government.
“It was disheartening that the only reference the Prime Minister made to prosperity in her Downing Street statement was to emphasise the need to share it, rather than create it in the first place. With global headwinds and political uncertainty at the front of business leaders’ minds, it would be wise for this administration to re-emphasise its commitment to a pro-business environment here at home.
“Business leaders will be acutely aware that Parliaments without majorities are more prone to politicking and point-scoring than most. If we do indeed see a minority Government, both sides of the aisle must swallow their pride and work on a cross-party basis on the most important issues. The last thing business leaders need is a Parliament in paralysis, and the consequences for British businesses and for the UK as an investment destination would be severe.
“Saying this, there is also little appetite for a further election this year, and indeed business leaders are keener to see the new Government get to work in Brussels and on the domestic front. Ensuring negotiations start well, and delivering higher quality skills and infrastructure across the country, must be the priority.”
Markus Kuger, Senior Economist at Dun & Bradstreet said: “After the surprising election result, political and economic uncertainty in the UK has risen considerably. The election outcome looks set to further complicate the process of negotiating the UK’s departure from the EU, as the government only has a narrow majority in parliament – and even this looks vulnerable in the context of Conservative MPs’ widely differing views on post-Brexit UK-EU relations. Given the backdrop of an already slowing economy (the UK posted the lowest real GDP growth of all 28 EU economies in Q1 2017), it is not surprising that businesses are beginning to express a lack of confidence. We believe it’s highly unlikely that the first round of Brexit talks between the British government and the EU (scheduled for 19/20 June) will deliver more clarity or significant results. This means that companies will have to wait even longer to assess the impact of these negotiations on their business.
“Our analysis indicates that uncertainty will remain high in the next 18 months, regardless of what happens in the wake of the election, and we are maintaining our risk rating of DB2d and our ‘deteriorating’ risk outlook for the UK economy. We predict that, in the long run, the election result could make a ‘hard’ Brexit - which we believe would be harmful for the British economy - impossible. The best advice for businesses is to monitor the progress of negotiations, and use the latest data and analytics to assess risk and identify potential opportunities. Once a government is firmly in place and negotiations progress, organisations may have a clearer picture of the business partnerships between the UK and the rest of the world. Until then, a careful and measured approach to managing relationships with suppliers, customers, prospects and partners will be key to navigating through these uncertain times.”
Following the shock Genereal election result from this morning, Finance Monthly reached out to Mark Dampier, Head of Investment Research at Hargreaves Lansdown, who discusses the impact that the election result will have on the UK investment market.
The current siuation is very different to the Brexit vote of last year. While the result is a surprise and may lead to another election later this year – market reaction has generally been subdued so far because the Tory government will remain in power, but a hard Brexit now looks less likely.
There will be no dramatic changes in domestic policy immediately, as there would have been under Labour, had they got in. Therefore, I see no need to make any rash investment decisions, given the range of possible outcomes over the next few weeks. Investors should sit tight or even buy, if the opportunity arises.
Overseas investment is unaltered by the election apart from changes to sterling, which should act positively as we have seen over the last 12 months. That said - remember a softer Brexit could see sterling recover.
We have always advocated a level-headed, long-term approach to investing, and I would urge investors to resist the temptation to make short-term, knee-jerk reactions. We could see some volatility over the coming days as more details emerge about the new government.
Once a government is in place, I expect the dust to settle fairly quickly. There will be a dawning realisation that everything has changed and nothing has changed. For the vast majority of UK companies, it will be a case of “business as usual” on Monday. Many companies have been around for decades and seen governments of both colours come and go.
In our view, investors should continue to pursue their long-term strategy. The international nature of the UK market means that in reality, the election result matters little for many UK-listed companies.
Chris Saint, Currency Analyst added: “Uncertainty over the formation of the next government means sterling exchange rates will inevitably remain volatile in the days ahead, as markets try to fathom how this could impact upcoming Brexit negotiations. However, the pound’s initial declines may have been tempered by hopes that any eventual deal which requires cross-party support might actually imply a ‘softer Brexit’ approach which could see the UK keep trade access to the EU single market for trade.”
On 18th April 2017, the UK Prime Minister Theresa May announced today’s snap general election, 8th June 2017. Three years earlier than scheduled, May’s official reason was to strengthen her hand in the Brexit negotiations, which she feared the other parties would try and frustrate.
With 650 parliamentary constituencies, the general public will elect one Member of Parliament (MP) to the House of Commons for each. The Conservatives currently hold 330 seats, with 326 seats needed for a majority.
If the Conservatives add to their seats at this week’s election we could quickly see an escalation to the sterling £; rallying to new year highs of up to $1.32/33. However, as we draw ever closer to Election Day and with it the almost daily release of new polls and surveys showing support for Labour, we are experiencing a few wobbles. Recently, Labour has closed the gap from 20% behind the Tories to just 7% over the campaign, according to the average of the last 8 polls. Significantly, 7% holds a lot of weight – it’s the lead the Conservatives had going into the last election. Anything less than this figure and they could see their majority reduce, not increase.
Markets were spooked by last year’s wrong predictions and false surveys over ‘BREXIT’ and
‘TRUMPIT’. As a consequence, I think any poll or survey needs to be taken with a pinch of salt! Indeed, the latest round of polls over the weekend were also inconclusive. The weekend polls put the Conservative lead at anything between 1% (Survation) and 12% (ICM) - even the pollsters can’t agree. - says Steve Long, Chief Risk Officer at Avem Capital.
A big factor will be the uncertainty of the young vote. Whilst young people are more likely to vote Corbyn, they are also less likely to get out and vote.
The sterling currency pair will be nervous up to Election Day as liquidity and volume dries up and HFT and Algos disappear for a few days.
One question we ask is why make a market to be 5% offside immediately?
Another factor to take into consideration during Election Day will be the timing of the result. The result will likely be announced around 4am, when most of the UK is asleep. Early indications however, may come as early as 10pm on Thursday, when the exit polls are announced. In recent times, these have been generally more reliable than the pre-election polls, with confirmation of their accuracy proving evident as the first results are announced from about 1am onwards.
Possible result outcomes could produce the following permutations:
- A Labour win: £ drops 5/10%
- A Conservative majority: £ increases +3%
- A hung parliament would probably see a 3/5% spike in a very short time…say 30
seconds, before dropping significantly!
Recently we have seen the FTSE benefit from being cheap. This has given exports a helping hand, however a stronger £ would hurt the FTSE especially the FTSE250 which has just topped 20000.
A Labour victory or hung parliament would immediately turn the markets negative. We would likely see scenes similar to the day Brexit was announced, i.e. a 10% drop in seconds. However, before the excitement of Election Day, we first have the ECB and Draghi to contend with. He has already stated that he will say something special!
Taking heed from the Cub Scouts motto, “Always Be Prepared” …you can be assured that at Avem Capital, we are, always! - adds Long.
(Source: Avem Capital)
Physical gold sales have increased 68% in the last week at investment firm The Pure Gold Company in the run-up to tomorrow’s election, as the deadline looms.
Chief Executive Josh Saul said: “Some of our clients are concerned that if Jeremy Corbyn wins the election then national security will be threatened which would negatively affect the financial markets including the value of sterling and the stock market. While the polls reflect a May victory, similar polls predicted a Clinton Victory and a Remain vote in the UK Brexit referendum, and our clients remember how that turned out. On June 24th 2016, gold increased 24% over a 12 hour period following the unanticipated Brexit result despite polls reflected otherwise.
"We’ve seen a 64% increase in people investing in gold for the first time, citing fears that a further terrorist attack will add uncertainty to an already volatile market.
"People are preparing for the unexpected. We have seen a 49% increase in financial professionals purchasing physical gold to hedge themselves against the expectation of short-term volatility, counterparty risk and the possibility of sterling dropping in value following a potential Corbyn victory. Moreover, the sale of Banco Popular Espanol SA for 1 Euro has increased contagion worries within the banking sector, which is encouraging clients to purchase more gold.
"The Pure Gold Company have witnessed a 62% increase in retirees purchasing physical gold. Some of them are worried about the threat of cyber-attacks on bank accounts like that of Lloyds bank in January, and following on from the widespread cyber-attacks in May."
(Source: The Pure Gold Company)
With the election on our doorsteps, Jonathan Watson, Chief Market Analyst for Foreign Currency Direct talks to Finance Monthly about the potential impact of the UK’s general election on the national economy and the pound.
This election has gone from being one of the most predictable to actually quite an uncertain event. With this shift in outlook we have unsurprisingly seen the Pound too, go from fairly stable to displaying the more predictable behaviour caused by political uncertainty. Whilst Theresa May remains the favourite, the potential for surprise is high as polls in recent years have been anything but reliable. With the Conservative lead having fallen from as much as 20 points to less than 1 point in some cases, the market is having difficulty pricing in the news and possible outcomes. On Friday we could easily be looking at a slim Labour victory or a Conservative landslide. I am personally expecting a small improvement on the current Conservative majority of 17 which could call into question Theresa May’s decision to hold the election in the first place if not sufficient for a Conservative win
Elections are by nature uncertain events as they raise the prospect of a change in the Government responsible for setting taxes, spending and economic policies. Elections also take time, and often consumers & business delay important decisions to wait for the outcome.
The UK election must also be viewed against the backdrop of Brexit, without which we would not be having this election. The main reason it has been called is, according to Theresa May, to improve her negotiating position. Critics suggest other tactics but where Theresa May has framed the election about Brexit and many feel she is the right person to handle those negotiations, Labour have however made the election about austerity and played some strong cards to appeal to voters.
Free tuition fees and free school lunches as well as increases in government spending are all designed to appeal to the masses and could well earn Labour extra support. Such plans, if they come to fruition could certainly see Sterling lower, as the Pound performed very badly in the run up to both the 2010 and 2015 elections when it looked like Labour may win and they pledged to increase spending as they have now.
Mrs May and the Conservative party aren’t perfect, having also failed to spark much imagination with their policies performing a series of U-turns and failing to provide clarity on taxation policies. Whilst committing to being a ‘low-tax party’, they haven’t explicitly promised not to raise taxes. Theresa May’s U-turn on the issue of social care, and indeed her decision to call an election have also contributed to her slide in both the polls and approval ratings.
The spate of terror incidents we have seen lately are another factor weighing on the market. Terror attacks typically cause a currency’s value to fall, and whilst Sterling had fallen, the Pound actually found favour as markets felt that voters would believe Theresa May could be better placed to handle such incidents.
Market participants, investors, businesses and consumers all contribute more effectively to society when there is confidence and certainty. The run-up to an election is by its nature uncertain, hence the fall in Sterling value, particularly with Theresa May having previously looked so likely to win by a considerable majority. If the polls are right and the lead has narrowed the result is likely to see the Pound decrease in value based on those previous expectations.
This election is absolutely critical to shaping Brexit negotiations. Theresa May might also end up looking foolish for calling the election. There is the outside chance of her losing power either through losing the Conservatives’ power or being forced to step down if they lose. My belief however, is that the Tories will have done enough to boost their majority but not to the extent we previously believed. Nevertheless this may be enough to boost the Pound and provide a little more certainty over the Brexit.
As the UK General Election approaches, all the major political parties have made their traditional bid for votes via the publication of their manifestos. Given the enormous contribution that SMEs make to the UK economy, it’s no surprise that parties of all colours have announced polices that aim to court the good opinion of SMEs.
But what exactly are these policies and, if implemented, what will they mean for SMEs during the next parliament? Steve Noble of Ultimate Finance talks to Finance Monthly.
Taxation:
Given the recent furore over business rate rises, all parties have made promises to alleviate the pressure on SMEs from various taxes. The Conservatives have pledged to increase the personal allowance for income tax to £12,500, and raise the higher rate threshold to £50,000. Labour has promised a full review of business rates, wants to increase corporation tax for large businesses, and bring in a lower small profits rate of corporation tax for SMEs. The Liberal Democrats see cutting business rates as a ‘priority’, and have also vowed to support entrepreneurship with a new scheme that would pay selected entrepreneurs £100 a week for six months to support their living costs.
What will this mean for SMEs? - There’s clearly good news for SMEs if either Labour or the Liberal Democrats win the election. Although the Conservatives haven’t made such explicit promises on business rates and corporation tax, the fact that their rivals are so hot on these issues should ensure that it’s kept near the top of the agenda during the new parliament.
Late Payments
Whatever your political preference, it’s good to see that the issue of late payments, long the bane of SME financial life, is now being taken seriously by the two main political parties. Labour have promised to “declare war” on late payments and will demand that all those bidding for government contracts pay their own suppliers in 30 days. Similarly, the Conservatives will ensure that business that don’t abide by the Prompt Payment Code will lose the right to bid for government contracts. They are also pledging to make one third of all government purchases from SMEs by the end of the next parliament; a promise that, if honoured, would potentially mean billions of extra income for SMEs.
What will this mean for SMEs? - It’s interesting to note both Labour and the Conservatives are planning to lead by example and instil good practice in companies that supply to the government, as well as supporting SMEs through purchasing from them. However, it remains to be seen whether this is the right approach to take. We believe that businesses should work together more effectively on this to ensure late payments are no longer an issue for both larger and smaller businesses, rather than pointing fingers of blame.
Employment
Labour has promised to ban one of the most controversial features of the modern economy: zero hours contracts and would do the same for the unpaid internships which have flourished in recent years. Labour also wants the living wage paid to all employees over 18 and to grant all workers equal rights from “day one”, including temporary staff. The Liberal Democrats have likewise proposed a ban on zero hours contracts and want to ensure rights derived from EU law, such as parental leave, endure post Brexit.
The Conservatives have proposed to double the Immigration Skills Charge to £2000 per year for each non-EU worker employed by a business. They have also vowed to offer a National Insurance holiday for businesses that take on ex-offenders, disabled people, and those with mental health issues.
What will this mean for SMEs? - Whichever party wins the election, rising staff costs are on the horizon, either via the increase in the Immigration Skills Charge or an enforced rise in the living wage. Employee costs are often a challenge for SMEs and these will increase, regardless of whether they have two employees or fifty.
There’s also a momentum growing across all parties to ensure flexible working arrangements are legally binding, with a stamping out of zero-hour contracts and moves to ensure employees are entitled to the same benefits as permanent, full-time employees. This may have an impact on sectors such as hospitality and construction which can tend to have flexible employment arrangements depending on projects and seasonality.
Skills
There’s a lot of talk about skills in each of the party manifestos, which is good news for the SMEs that depend on a pipeline of skilled labour to ensure both growth and competitiveness. The Liberal Democrats want to double the number of businesses that hire apprentices, develop national colleges to deliver high-level vocational skills, and increase advice in schools about entrepreneurship and self-employment. Labour want to create a National Education Service for England, double the number of completed apprenticeships at NVQ level 3 by 2022, and, notably, protect funding to SMEs that hire apprentices. The Conservatives are planning to launch new vocational qualifications called T-levels covering 15 subjects including construction, creative and design, digital, engineering and manufacturing, health and science.
What will this mean for SMEs? - All three parties have declared similar ambitions to invest in apprenticeships and skills, which are welcome pledges as the UK looks towards Brexit and considers its competitiveness. Labour’s vow to support SMEs that hire apprentices is particularly interesting and it will also be interesting to see how the recently introduced Apprenticeship Levy would be impacted by these initiatives.
In conclusion, it’s clear that all the main parties are trying their best to secure the votes of SME business owners and there’s no doubt that some of the proposed policies will be welcome if they ever make it into law. However, as ever after an election the real test of the winning party’s commitment to SMEs will come when the new parliament begins and all these promises must become action.
With more than 30 years’ experience in the City, Kerim Derhalli, CEO and founder of invstr and a former managing director at Deutsche Bank and JP Morgan, talks to Finance Monthly about the upcoming UK General Election, hinting at the overall spread of its impact and the value of its consistency in a current world of uncertainty.
There has barely been a door knocked or a baby kissed since Theresa May surprised the nation with her snap General Election announcement, yet we’ve already witnessed our first gaffes, stumbles, awkward moments and grave predictions of the election campaign.
As if the past few months haven’t been turbulent enough, the curtain falls on the shortest Parliament since 1974 with voices from all sides of the political divide speaking of testing times ahead. In the right ear, we hear that Mrs May and co. are walking the line towards stability and a stronger negotiating position when it comes to Brexit. From the left, there are warnings of years ahead of Conservative strong-arming and marginalisation of the masses.
On the political front, we’re certainly set for a few more twists and turns before the UK finally makes its exit from the EU, but what does the changing face of British politics mean for the country’s economy or, more broadly, the markets at large? The answer: not a lot.
The City has long been battered, bruised, consoled and comforted by successive Parliaments, so the choppy waters which business leaders, investors and fiscal policymakers have been traversing is nothing new.
Does Brexit become clearer if Mrs May secures a stronger majority? No. Will banks rip up their plans to either relocate or stay in the City following the UK’s departure from the EU? Probably not. In the arena where invstr operates – fintech – disruptors revel in the unknown, finding any edge they can as the world changes around them – this will simply continue.
Concerns around the strength of the pound continue to circulate, but financiers know that currencies can be fickle. On that day in late April when Mrs May first announced an mysterious press conference, before dropping her bombshell, sterling first dropped to lows of 1 GBP = 1.17 EUR, before rallying to highs of 1 = 1.20. After yet another topsy turvy day, the currency closed just a penny higher than it had opened, and today has settled back to pretty much the same rate it was before the General Election furore began.
On the investment front, finance is still smarting from the 2008 global crisis. An air of trepidation reigns and many of the big players are cautious, making them less susceptible to risk. This means that the City is in robust shape when it comes to the fallout of Brexit, and the effect that this General Election will have (or not) on its future.
The repercussions from international businesses based in the UK are also unlikely to change. For every Goldman Sachs or HSBC that announces a move to Paris, Frankfurt or Dublin, there is a Deutsche Bank or Bank of America that has reaffirmed their commitment – and growth – in the UK. Even those who are looking at their options of moving their European bases have, beneath the headlines, opted to keep the vast majority of their workforces in London.
In this strange dystopian present, the one constant has been inconsistency, and many firms, big and small, in the finance world have learned to expect the unexpected. So, for all this change on the political and economic scenes, the City has actually become one of the more stable epicentres on which the UK’s global future continues to rest.
