Business chiefs fear the risk of indecision over our budget deficit. Peter Elson reports

A HUNG Parliament will be the worst result possible for business and industry, following the election tomorrow.

This was the unanimous view of Merseyside business leaders and experts as the country prepares to go to the polls.

Such an indecisive outcome was described by Sir Michael Bibby, Bibby Line Group managing director, as “a total bloody nightmare”.

This comment was widely endorsed by others across the business spectrum.

There is a consensus that the most crucial matter facing the next government, of whatever persuasion, is the budget deficit.

As Sir Michael said: “We can’t afford any indecision on getting this under control.”

City of London experts have warned that the pound and the UK’s gold-plated credit rating will be threatened if the election produces the first hung Parliament since 1974.

Anxiety over delays in tackling the country’s huge deficit (a record £163bn last year) could also send the UK’s cost of borrowing soaring.

While details on dealing with the budget deficit differ, at least it appears that the parties do agree this is a priority.

However, Jack Stopforth, Liverpool Chamber of Commerce chief executive, is sceptical.

“When you see how much politicians in the same party argue with each other, what is the chance of getting cross-party agreement in handling this?” he said.

The old Left and Right dichotomy over increasing taxes or cutting public expenditure is as confused as ever.

The other big issues for business are Labour’s National Insurance Contribution hike and the 50% top rate of income tax.

There is general relief that the UK did not join the euro zone, highlighted by the pain of Greece’s bail-out.

Peter Stoney, Liverpool University honorary senior fellow in economics, said: “Greece is an awful warning. If there’s no political union, there will be no functioning currency union.”

Concerns over the debt burdens of Greece, Portugal and Spain have triggered downgrades from ratings agencies.

This has added to the recent turmoil in stock markets, and the ratings agencies could turn their attention to the UK if political paralysis strikes.

Michael Hewson, CMC Markets currency specialist said: “Ratings agencies said they would review the UK’s credit rating after the General Election.

“Reading between the lines, it means they will want to see some clear intent from whoever is in power to rein in the deficit.”

Coalition haggling could also undermine the pound, which has sunk from near 1.70 against the dollar to around the 1.50 mark this year, in line with a diminishing Conservative poll lead.

Frank McKenna, Downtown Liverpool in Business chairman and former Labour councillor, regards all three major party manifestos as a “big disappointment”.

He said: “There is a failure by all of them to address the budget deficit in any serious way.

“None detail the tough decisions they will have to make once the election is out of the way.

“There is a large degree of uncertainty in terms of the public expenditure cuts.

“The NIC hike row is a drop in the ocean compared to the massive deficit gap to fill.”

Mr Stoney added: “Any outcome is going to be the least worst scenario.

“Each of the major parties’ election manifestos is a curate’s egg, containing good and bad ideas.

“The Conservatives are very concerned to abolish the regional development agencies, but haven’t actually spelt out in detail when or if that’s going to happen.”

If bodies like the Northwest Development Agency bite the dust, it will create problems locally.

“For example, it’s very doubtful if the second Runcorn bridge would have got this far without the NWDA,” said Mr Stoney.

“Left to their own devices, the local councils fall out with each other and never reach a decision.”

The stock market, however, should be less turbulent, because it is stabilised by the international nature of the companies which make up the FTSE 100 Index.

Those blue-chip companies with big overseas earnings could even be helped by the weaker pound.

“With UK growth stagnant, we are looking to see it in China, India and elsewhere in Asia,” said Sir Michael Bibby.

The last time the country was presented with a hung Parliament, between February and October, 1974, the FTSE All-Share fell by 48% in six months.

Inflation shot up to 17%, interest rates stood at 12.5% and gilt yields (the country’s effective cost of borrowing) jumped from below 11% to almost 15%.

The Bank of England spent billions supporting the flagging pound before an International Monetary Fund bail-out two years later. The UK’s problems back then were exacerbated by the oil crisis and industrial disputes.

In spite of everything, the current economic crisis might not be as dramatic. Yet, if politicians fail to take the necessary decisive action, then the markets could deliver a crushing punishment.