It's uncertainty the City fears, not a coalition

Money men: Alistair Darling, Vince Cable and George Osborne in the Chancellors’ television debate
12 April 2012

According to popular wisdom, the pound will collapse and all hell will break loose if, come 7 May, the day after the likely election, no party has an overall majority.

Actually, that isn't quite right: the main proponents of this notion of impending apocalypse are Labour and the Tories. The Liberal Democrats are relishing the prospect, as well they might, as the likely holders of the levers of power.

As for the City, supposedly swamped in gloom, think again. Nobody I've spoken to in the Square Mile is planning a quick exit from the UK if we have a hung parliament.

It's quite possible that some foreign investors may take fright if they see no decisive outcome. It's probable too that sterling may dip temporarily. But is that so calamitous?

It would mean our assets would be cheaper and we may attract overseas investors: a weaker pound may even be positive for the economy in the short term.

The City, it is true, can't abide uncertainty. The one aspect of power-sharing that would provoke alarm is the thought that whoever forms the Government may be delayed in making the cuts that everyone deems necessary to start eradicating the public finance deficit.

We need to get on and bring down public spending - there isn't time to wait while politicians argue among themselves and determine who does what job.

What would also cause dismay is the likelihood of an immediate second general election. That brings with it the thought of a frozen Whitehall now, followed by six months of prevarication and then more torpor as government closes down again for a second battle. We could be looking at a year of seizure with no one calling the shots - and that does send shivers down the spine.

But if that subsequent poll could be avoided - and there is already speculation at Westminster that it would be -what then? Either Gordon Brown or David Cameron would be Prime Minister with a Cabinet comprised of senior figures from their own party and from another.

We would, in effect, have a government of national unity - which, given the situation in which the economy finds itself, may not be harmful at all.

It's not as if, on 6 May, the electorate will be asked to make a radical choice. There is very little to choose between the Tories, Labour and Lib-Dems. It was striking, watching the Chancellors' debate the other evening, just how much common ground there was.

George Osborne was pressed on the Today programme on Radio 4 to quantify the actual difference between him and Alistair Darling.

He didn't want to do it but he was pushed into a corner by Evan Davis. The shadow chancellor said he would eliminate "the bulk" of the annual overspend over the lifetime of the Parliament.

Yes, but how is that so different from Darling's promise to "halve" the annual overspend over the same period? Answer: not much.

Then they got on to the nitty-gritty. Osborne says they differ on how they will achieve their aims. He likes to follow the OECD line that the best way of bringing down the overspend is an 80/20 mix of cuts and taxes. What's Labour's formula? It's 67/33 - so the gap on cuts is just 13 per cent.

Davis rightly said: "It's a difference, but it's not one to get that excited about." Osborne insisted it is "quite a substantial difference", and listeners pondered the truth - only for Davis to calculate the killer number: "It's a £5 billion difference in spending on a government spend of £622 billion. Not to be sniffed at - but it's a detail, really."

So we're about to endure weeks of political cut-and-thrust for just £5 billion out of £622 billion. Of course there are questions of policy that separate them but not only are they not so great - both parties have moved to the centre - but in the state we're in, the room for manoeuvre is slight.

That's why this election is all about personality. But while the two main parties squabble and try to outdo each other with the qualities of their leader, one politician stands apart.

He's a Lib-Dem and therefore from the Left - but even the City doesn't mind. Vince Cable is head and shoulders above Osborne and Darling in terms of credibility and popularity.

Again, it's not a question of Cable's policies that have propelled him to the top of the hit parade. It's his character. He comes across as solid and wise - virtues that the City seeks in the best Chancellors. It isn't likely to happen.

If the Tories are forced to negotiate with the Lib-Dems, the last sacrifice they will make is that of the second most important job in government - they will fight hard to keep Osborne at the Treasury. But it's not impossible - the bookies Paddy Power have Cable at 8/1 to be the next Chancellor.

The City would not be the slightest bit concerned if Cable were Chancellor to Cameron's Prime Minister. Indeed, there are many who would prefer to see Cable, the former Shell chief economist, alongside a novice premier than the untested Osborne.

The political leaders would not be allowed to just argue. The markets will not stand for a lack of movement on spending cuts. The hugely important credit-rating agencies would not hesitate to downgrade the UK - with terrifying financial consequences - if they thought the new administration, whatever its blend, was not serious about sorting out the budget deficit.

Would a coalition government be so bad? Not at all - provided it was not a recipe for inertia.

It can't be coincidence that in Europe, Greece, where one party has been in charge, is in financial meltdown, and Holland and Germany, where rule has been shared, are not. Labour and Tories may not like it, but a hung Parliament may not be so terrible.

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