In a way, the most surprising thing about last week’s election result was the surprise itself.
We held an election night party at the Institute of Directors, attended by experienced business leaders, politicians and journalists, all of whom should have had the 2015 election and the EU referendum fresh in their minds.
Yet, when the exit poll came in shortly after 10pm, predicting a hung parliament, a gasp of amazement, from supporters of all parties, went around the room.
It is common for economists to talk of economic shocks, such as the 2008 financial crash or the eurozone debt crisis of 2011-12. Shock, however, is more commonly used when speaking of emotion.
After the EU referendum, surveys of IoD members showed a collapse in economic confidence, with as many as a quarter saying they would have to freeze hiring. Fortunately, this does seem to have been “shock” talking, the worst of which wore off fairly quickly. Confidence recovered over the second half of the year, and employment continued to rise.
So how much should we read into the IoD’s weekend survey, launched just after the election result, which showed that over 90 per cent believe uncertainty caused by the lack of a majority government is a concern for the economy?
There is a degree to which any surprise result causes jitters. This, however, was exacerbated by polls which showed a shocking result in the exit polls as we all stood in that room at the Institute of Directors.
We should also be mindful of the gap between general expectations for the economy, versus how businesses individually are behaving. In the same survey, 57 per cent of IoD members said they were pessimistic about how the UK would perform over the next 12 months, but only 23 per cent said they were pessimistic for their own business.
We should not, however, dismiss the reaction of business, because the timing, and the peculiarities of this result, have stirred together a cocktail of uncertainty for companies.
In 2010, the coalition government formed by the Conservatives and Liberal Democrats was met with a certain degree of scepticism. Coalitions simply weren’t something Britain was used to, and many predictions were made that it would collapse within a few months.
From the business perspective, the arrangement actually proved to be quite satisfactory. It did not matter that manifestos had to be blended, with policies dropped or replaced, as the coalition agreement clearly spelled out the administration’s programme.
In comparison, a minority government, supported by a relatively unknown minor party, feels less comfortable for businesses looking to plan for the future. Reports are circulating that the Queen’s speech may have to be delayed, prolonging the political limbo.
A lack of clarity on domestic issues, not least a number of key areas for the economy like skills and infrastructure, is a worry.
Even more important, of course, is the uncertainty that has been created when it comes to the Brexit negotiations, which were meant to start within a few days. How closely the Prime Minister follows her pre-election Brexit strategy (which left many details still to be filled in), and what the effect of the involvement of Northern Ireland’s Democratic Unionists will be, are both still very important questions.
Brexit is a major national undertaking, the consequences of which will outlast this parliament, and the current generation of politicians. If ever there was an issue that needed broad political involvement, it is this.
Having not won a mandate to implement their manifesto in full, the Conservatives should take an inclusive approach on Brexit. They should listen to the concerns of the UK’s nations, and crucially to the concerns of business, which will be on the front-line of the wrangling with Brussels over complex issues, like customs procedures and barriers to trade.
While different sectors have different wish lists, companies as a whole have been consistent over the last year on the top Brexit priorities. Making clear that their EU staff can stay here comes out as the most pressing issue for firms.
This is not surprising given that we are hearing from some IoD members that they have EU workers already leaving, or thinking about leaving, because of their uncertain position. It was frustrating that we could not get confirmation on this issue earlier, but it’s not a question that can be ducked for much longer. This is why it would be concerning if the start of Brexit negotiations was delayed.
If there was one positive to come from the election results, it would be cross-party agreement that transitional arrangements are absolutely vital to make sure Brexit causes as little disruption as possible. Business is overwhelmingly in agreement on this, with nine out of 10 IoD members saying that a deal with the EU for suitable transitional arrangements is important. It is best to think of these results, and the general confidence figures, as warnings, not as promises.
If the government adopts a pragmatic approach on Brexit, while not forgetting domestic skills and infrastructure challenges, fears can be allayed, and the economy stabilised.
£ Lady Barbara Judge CBE is chairman of the Institute of Directors.