U.K. election: A scary prospect for business

Economy at the heart of UK election
Economy at the heart of UK election

Britain has just kicked off five weeks of campaigning in an election that presents a scary choice for business.

Both of the parties most likely to lead the next U.K. government have policies that worry entrepreneurs and senior executives. And opinion polls suggest the outcome of the vote on May 7 is highly unpredictable.

If the center-right Conservative Party is re-elected, it will hold a referendum that could trigger Britain's exit -- or Brexit -- from the European Union.

If the center-left Labour Party wins, it will raise some taxes and regulate some industries more tightly.

"A soothing outcome for markets is hard to imagine," noted BlackRock in its election preview. "Labour would be tough on business -- and might be perceived as lacking fiscal responsibility. [Conservatives] would pave the way for an unsettling referendum in 2017."

Britain has one of the fastest growing economies in the world, and is creating jobs at a record pace. So why isn't business more relaxed about the outcome?

The Conservative 'Brexit' risk

Prime Minister David Cameron's Conservative Party has many fans in the business community. More than 100 business leaders -- including the new CEO of Credit Suisse (CS) -- signed a public letter Wednesday backing his party.

But some, such as the boss of Siemens (SIEGY) UK, have been spooked by Cameron's decision to put Britain's membership of the EU at risk.

Many voters believe leaving the EU would protect jobs by reducing the flow of European immigrants. Others worry about the cost of breaking away from the nation's biggest trading partner and shutting the door to foreign workers.

uk elections
Ed Miliband (left) and David Cameron (right) lead the two main political parties in the U.K.

Policy think tank Open Europe estimates that a successful Brexit could boost the U.K. economy by as much as 1.6% by 2030. But a botched Brexit could shrink the economy by 2.2% over the same period.

No matter which way you look at it, a referendum guarantees uncertainty for the next few years.

"Business is worried that there will be uncertainty in the run up to that referendum, which would discourage investment in Britain during that period," said Duncan O'Leary, research director at independent think tank Demos.

Little love for Labour

Labour's policy to keep Britain in the EU is popular with many senior executives. But some of its other plans are seen at "interventionist," and are making them nervous, O'Leary said.

Party leader Ed Miliband has promoted plans to restrict the market share of big British banks, freeze household energy bills, and cap profits for private companies that work with the country's public health care system.

He also wants to hike income taxes for people making over £150,000 per year ($222,000) to 50% from 45%, and levy a tax on homes worth more than £2 million ($3 million).

"A Labour government led by Miliband -- as opposed to [Tony] Blair -- would be more willing to regulate business and clamp down on what the Labour party sees as bad practice by business," said Stephen Tindale, a research fellow at the Centre for European Reform.

A messy coalition

Perhaps worst of all would be the inconclusive result most polls suggest is highly likely. Small parties such as the Liberal Democrats, Green Party, Scottish Nationalists and U.K. Independence Party could take a record share of the vote, leaving the main parties short of a majority.

"The election may produce a result that is so messy there's hardly room for a party to put a coalition together," said O'Leary from Demos.

Personal Finance


CNNMoney Sponsors