Voters and businesses weigh in on Britain's post-election challenges

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For Talking Business, I went around central London and spoke to UK voters about whether they had concerns about the economy.

Along with the NHS, taxes and housing were the issues that were mentioned most frequently.

One parent that I met was particularly irate that her adult children were still living at home because they couldn't afford to move out, which she attributed to expensive housing as well as low wages.

Others were concerned about tax rises, an issue that my colleague Robert Peston has written about.

Slow recovery

Nationwide reports that house prices have risen strongly by 1% over the past month and average house prices have exceeded £190,000 for the first time. Those are the sorts of headlines that lead many to worry about "Generation Rent," ie, young people who can't afford to buy their first property.

It's been a decade since the Barker Review which concluded that 120,000 new homes were needed each year to reduce house price inflation to 1.1% per annum. That's per year, and not the monthly increase recorded by Nationwide and others which have similarly tracked the rise in house prices despite a slow recovery.

To address the needs of social housing requires around 20,000 new homes to be built each year. Altogether, it means that £1.2-1.6bn of investment is additionally required.


It's well known that home building has lagged demand, particularly in the past few years. In 2012-13, there were only around 108,000 completions in England, which is one of the lowest house building rates since 1923.

Policies that ease the demand side, including helping first time buyers, without increasing the supply of housing risks generating more upward price pressure. This debate is well-trodden ground as buyers appreciate the help while economists fret over the impact given the supply constraint.

In terms of affordability, there's certainly an income dimension.

It's another long-standing issue made worse by the fact that wages that haven't kept up with inflation, which has been a feature for most of this recovery. To sustain higher wages requires greater productivity. In other words, firms can pay more if there is higher output per worker.


The productivity puzzle in the UK that centres on why output per hour remains below what it was in 2008 when the rest of the G7 is now about 5% above that pre-crisis level is a persistent one.

I've written before about this puzzle and part of the explanation is the dramatic fall in investment since the 2008 recession. But, there's likely to be more to it since other post-banking crisis countries like the US have recovered better.

In any case, the end result is a squeeze on incomes, and thus the irate voter that I met whose children can't afford to live outside the family home. It's an all too familiar tale.

The budget deficit and Europe were also mentioned, but these weren't of the greatest concern for voters.


By contrast, these are major worries for business.

In terms of the fiscal deficit, there continues to be a divide between those working in markets - which want to see a clear plan to close the gap between government spending and revenues - and some academic economists who fault austerity for prolonging the recovery. This is certainly well-covered ground.

In terms of Brexit - Britain's potential exit from the European Union - it figures prominently among the concerns of the business community. Grant Thornton conducted a survey among global businesses and found that Brexit was more of a concern than Grexit - the potential exit of Greece from the eurozone.

That may be surprising since Greece and the euro crisis have dominated headlines for years, and has triggered some fairly seismic changes in Europe, including the formation of a Banking Union and now a Capital Market Union.

Yet, Grant Thornton finds that nearly two-thirds (64%) of businesses believe that Britain's exit from the EU would negatively affect Europe, as compared with just under half (45%) who believe that Grexit would have a negative impact. Among non-euro EU members, the figures are even higher where nearly four out of five businesses (72%) believe there to be a negative impact from Brexit.


This is consistent with research from the Centre for Economic Performance (CEP) at the LSE which finds that Brexit would cause a loss of national output of 1-3% per annum for Britain. A study by two German think tanks, Bertelsmann Stiftung and the ifo Institute, concurs and also finds that there will be a negative impact on German income until 2030.

For businesses such as those represented by the British Chambers of Commerce (BCC), there is support for re-negotiating the terms of Britain's membership of the European Union. But, that is short of Brexit.

In the City, I've heard repeatedly that a potential referendum by 2017 leaves the situation uncertain for too long. After all, it's a frequently heard phrase that markets don't like uncertainty.

We may get some clarity about an EU referendum after the election, but the questions around Britain's relationship with a reforming eurozone are likely to linger.


Former European Central Bank President Jean-Claude Trichet told me to not underestimate the institutions that have developed in the euro zone. He says it'll take time for Europe to evolve and it won't be entirely like the United States, but he described it as eventually evolving into more of a federal structure. So, it won't be the United States of Europe anytime soon, but that is one direction of travel.

If the euro zone moves in that direction, then it raises a number of questions about where that leaves the non-euro European countries like Britain. Does it mean negotiations each time there is a new institution or major policy decided in the euro zone? How much sway would Britain possess when the euro zone decides on a rule for capital markets, for instance? Recall that Britain failed to block a financial transaction tax in Europe.

Thus, for the UK, there are certainly long-term economic challenges that will need to be addressed - by whichever party (or parties) come into power after the General Election.

For more, watching Talking Business with Linda Yueh. Times to watch are found at:

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