Uncertainty over which parties will form the next government increases cash surplus for many businesses
The Greek philosopher Heraclitus famously said that change is the only constant in life. It’s also difficult to dispute that change often breeds uncertainty, and that uncertainty breeds fear.
According to the ICAEW, the forthcoming general election is causing businesses to temporarily ease up on their investment. Of course, one can hardly blame businesses for exercising some caution given the opposing economic views of the competing political parties. For example, a Labour-led government could have a markedly different impact on the British economy and business landscape than the outgoing coalition government. The result of this, according to the ICAEW, is that cash surplus has ultimately become king for businesses.
Its survey of 500 businesses has found that just over half (52%) half are refusing to invest because of the uncertainty surrounding the outcome of the general election, with seven in ten saying increased confidence in their business prospects would encourage them to invest. It found that 62% of businesses are sitting on a bigger cash surplus than last year, but just 32% are using it to invest in growth, with 38% neither considering nor starting to invest.
Stephen Ibbotson, director of business at the ICAEW, said the results suggest that businesses have learnt their lessons from the 2007 financial crisis. “We have seen business investment slow down, and firms are now sitting on their cash and waiting for the right opportunity,” he said. “And those who are looking to invest are doing so in their staff to retain them, rather than on plant and machinery." This should be commended — businesses are getting their houses in order. But we don’t want to see firms just battening down the hatches, which could stop our recovery in its tracks.
Unfortunately, it doesn’t look like our political parties are going to agree on economic policy anytime soon so we will just have to leave it up to businesses to take a leap of faith. One thing’s for certain though: things are looking a lot rosier now than they were at the time of the last general election.