Kate Rogers, Portfolio Director and Head of Policy at Cazenove Charities shares her thoughts on issues faced by the charity sector in Third Sector Magazine every other month.
Uncertainty is feared by investment markets. More uncertainty equals more price volatility as investors react to short term news flow and shifting expectations. The general election in May is set to be one of the most unpredictable elections in the UK's history, as smaller parties capitalise on voters' disenchantment with the mainstream parties. The uncertainty in the run up to the election and the potential political stalemate afterwards has implications for charity investors.
In the short term, political uncertainty is likely to lead to a pause in business investment, which may also cause a slow down in employment growth. Specific companies and sectors are already being impacted, as investors worry about the implications of potential new government policies. For example, energy providers are concerned about a Labour government as they have pledged to cut home energy bills, while banks are not looking forward to seeing the annual levy being increased further to fund public spending. Meanwhile companies that trade with Europe are concerned about the prospects of a referendum on EU membership should the Conservatives win the election. This is already hitting overseas investment in the UK, where foreign investors want to have access to the entire European market.
However, the polls currently suggest that the election result is unlikely to be clear cut, increasing the probability of a coalition or minority government. Although all three of the main parties agree that further austerity is required after the general election, they disagree on the scale, timing and mix of policy in terms of spending cuts and tax increases. Thus a coalition government means that austerity becomes harder to implement. This could boost near-term economic growth compared to a scenario where tougher austerity measures are implemented. But, over the medium-term, a delay in austerity may slow the reduction in the budget deficit potentially leaving the UK vulnerable if the global economy slows.
On the face of it then, the election adds more uncertainty and not much prospect for positive market surprise, whatever the result. A Conservative majority, whilst looking unlikely at the moment, would heighten worries about on-going membership of the European Union, and would likely have a negative effect on investment and financial markets. A Labour majority, also unlikely on current polling, would likely be taken negatively by financial markets, due to perceived ‘anti-business’ policies. The most likely outcome, a coalition or minority government would find it difficult to agree on economic and budget policies, prolonging the uncertainty.
For charities, austerity spells further reductions in public spending for the sector which adds unwanted pressure on sector finances. The squeeze on funding is clearly a concern, and volatility of investment markets will only heighten anxiety for charity investors. Political, constitutional and economic uncertainty is also likely to have a negative impact on our currency, so sterling weakness could be a new trend. Uncertainty, it seems, is the only thing we can be sure of and it means the next few months may not be plain sailing for charity investors.
A version of this article first appeared in Third Sector on 26 March 2015. For this and other articles by Kate Rogers, visit thirdsector.co.uk
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