Bosses say the next prime minister must restore confidence with a credible fiscal plan
Business leaders have responded with anger and dismay to the UK’s political chaos, calling for whoever replaces Liz Truss to act rapidly to stabilise the crisis-hit economy.
The prime minister announced her resignation on Thursday afternoon, after only 45 days on the job, leaving businesses uncertain of the government’s plan for policy issues such as the taxes they will pay and the extent of future energy subsidies.
Industry bosses have been almost unanimous in their condemnation of recent political turmoil, which they say has caused investment in the UK to stall as economists predict a long recession.
Tony Danker, the director general of the Confederation of British Industry, the UK’s biggest business lobby group, said he believed half of the companies considering investments would wait until the situation had stabilised.
“The politics of recent weeks have undermined the confidence of people, businesses, markets and global investors in Britain,” said Danker. “That must now come to an end if we are to avoid yet more harm to households and firms.
Danker had previously hailed a “turning point for our economy” when Truss and her first chancellor, Kwasi Kwarteng, announced their “growth plan” on 23 September.
However, that mini-budget quickly triggered market turmoil that eventually led to Truss’s downfall, and Danker said the new prime minister’s priority must now be a “credible fiscal plan for the medium term as soon as possible and a plan for the long-term growth of our economy”.
Paul Drechsler, the chief executive of BusinessLDN, a group representing companies in London, said the UK was in the grips of an “unmitigated political and economic crisis” and the government would need a “rock solid” cabinet as well as a new leader.
However, he argued against an immediate general election, which could add to the government’s paralysis for several weeks. “We don’t need more Cirque du Soleil,” Drechsler said. “We don’t want any more circus, any more theatre, any more shenanigans. Just do your job.”
The recent turmoil had deeply damaged the UK’s international credibility, he added.
Helena Morrissey, the chair of the board of investment platform AJ Bell, said her initial reaction was “relief” after “the carnage of the last six weeks”.
The Conservative peer, who previously backed the former chancellor Rishi Sunak for the leadership, said business leaders would want a “steady PM who understands markets”.
“Whoever is elected needs to take a step back and have a proper, well-thought-through plan that gradually rebuilds confidence,” she said.
The political situation is expected to directly impact businesses’ finances, with higher interest rates raising the cost of servicing debt for companies still trying to recover from the Covid-19 pandemic lockdowns.
UK borrowing costs surged after Truss and Kwarteng announced billions of pounds of tax cuts at the end of September without detailing a longer-term fiscal plan. Treasury sources said the government would push ahead with scheduled plans for holding a debt-cutting announcement on 31 October, although any final decision to proceed would be the responsibility of the new prime minister.
Market reaction to Truss’s resignation was muted on Thursday. The pound rose briefly against the US dollar to above $1.13 on Thursday afternoon, before dropping back to a 0.3% gain for the day. The FTSE 100 closed 0.3% higher at 6,943.91 points. Government bond markets were roughly flat.
Wholesale energy costs have dropped significantly in recent weeks but many industries are still deeply concerned about how they will cope once state support for companies’ energy bills runs out at the end of March. The government has promised to review which industries would receive support after that point.
Tina McKenzie, a policy and advocacy chair at the Federation of Small Businesses, said companies needed to know if they would face a “cliff edge” on energy costs in April.
“Political turmoil feeding through to economic turbulence makes it harder for small businesses to operate, with rapidly changing policy decisions making planning much harder than it needs to be,” she said.
“The prospect of interest rates continuing to rise is causing sleepless nights for small business owners facing higher borrowing costs, just as prices for everything from electricity to eggs continue to climb.”
Kitty Ussher, the chief economist at the Institute of Directors, a lobby group, said: “Confidence in the UK economy – that was already running at very low levels, according to our data – is being hit further as a direct result of political instability in the UK government. This reduces investment, thereby constraining growth. Without stability and confidence, growth is impossible.”
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