Hung parliament – The dangers to UK plc


Recent opinion polls, driven forward by the Clegg phenomenon, indicate that a hung Parliament is a real possibility. As such, two critical priorities for the incoming Government – cutting the UK’s horrendous public sector net borrowing (PSNB) figure and tackling the UK’s lack of base-load electricity generating capacity – will be downgraded.

The incoming Government must cut public expenditure – both urgently and vigorously – if control of public finances is to be regained. The projected PSNB figure of £163 billion for this year – equivalent to a quarter of every £ of public expenditure (pre debt interest) being borrowed – is clearly unsustainable.

Unless concerted action is undertaken, the gilts market may react very badly and drive up borrowing costs. Whilst there are many differences with Greece’s plight, notably the UK’s floating currency, there are also too many similarities for comfort. An inconclusive result on 6th May, which produced either a formal Coalition Government or Liberal Democrat Parliamentary support for a Labour-led Government, would make cutting public expenditure very challenging.

The outcome of the General Election is very important to the energy sector. New base-load generation is a real priority. Whilst both the Labour and Conservative Parties back new nuclear-build, the Liberal Democrats most certainly do not. Indeed, they envisage a long-term energy policy based entirely on renewable generation – dream on!

Even without political disagreements, UK new nuclear-build has enough problems already, given that the two most obvious investors - France’s EdF and Germany’s E.On – have racked up net debt of c£40 billion apiece. And if the Liberal Democrats add a ban on new nuclear-build – in addition to a move to PR - as part of their price of coalition participation, new nuclear-build is probably a non-starter.

How much would UK plc suffer from a lack of resolution in tackling both these key challenges?