THERE is a “clear risk of economic paralysis, higher interest rates and a loss of market confidence” if the general election results in a hung parliament, George Osborne warned yesterday.
Speaking in an exclusive interview with City A.M., the shadow chancellor said the Tories needed to win an overall majority so they could make “the right decisions to get the British economy moving again”.
The Conservatives have been forced to change campaign tactics in the face of opinion polls that suggest the UK is heading for its first hung parliament since 1974.
Osborne said that politicians in a hung parliament would spend time “horse trading” instead of taking action to reduce Britain’s crippling £163bn deficit.
He pointed to the fiscal crisis in Greece as an “example of what happens when countries aren’t able to assure the markets that they’re in control of the public finances” and said there was a risk the UK might also have to go cap-in-hand to the International Monetary Fund for a bailout.
“If markets lose confidence in your ability to pay your way in the world then you do get intervention. It is a statement of fact that the last time the IMF intervened in Britain was when we had a hung parliament and a Lib-Lab coalition,” he added.
The shadow chancellor also fired a broadside against Liberal Democrat economic policies, saying they were “falling apart under scrutiny”.
“The numbers don’t add up, the policies don’t add up, and the economic damage they might bring is becoming apparent to people,” he said.
He singled out Lib Dem plans for a new 50p top rate of tax on capital gains, as part of plans to tax income and capital gains at the same level.
“A 50 per cent capital gains tax would be one of the most punitive in the world and would drive away entrepreneurial activity and wealth creation,” he said.
Osborne showed little enthusiasm for working alongside Lib Dem Treasury spokesman Vince Cable in the event of a hung parliament.
“I’m not handing out jobs to Liberal Democrats. I’m working for a Conservative majority with Conservative ministers in a Conservative cabinet,” he said.
Meanwhile, the shadow chancellor launched an extraordinary attack on Prime Minister Gordon Brown, accusing him of making “pretty criminal mistakes” in the run up to the banking crisis.
Pointing to the fact that there was no mechanism in place for an orderly wind-up of banks that came close to collapse, he said: “It was a pretty criminal mistake of Gordon Brown’s, because he had been warned by the bank governor and others that there weren’t effective resolution mechanisms in place. There was no Plan B. And it turned out that Plan A was pretty useless as well.”
...and the City thinks so too
A HUNG parliament would be a disaster for the economy, according to our panel of City workers.
The City A.M./PHI Panel, which has been specially recruited with Politics Home to represent a cross-section of London’s financial and business community, were asked about the consequences of no party winning an overall majority.
An overwhelming majority of panellists (80 per cent) said a hung parliament was likely to send sterling “somewhat lower” or “much lower” while 83 per cent of respondents said it would push up the cost of government borrowing.
A hung parliament would also make it harder for the government to impose spending cuts to reduce Britain’s yawning £163bn budget deficit, the panel said. Seventy-four per cent of respondents said it would be “much harder” or “somewhat harder” to cut public spending.
The Tories are sure to seize on the findings as proof that the financial markets would balk at a hung parliament.