The race to succeed Jeremy Hunt as Chancellor of the Exchequer is heating up, and British business leaders have made their preference clear: fiscal discipline above all else. In a series of statements and briefings this week, heads of FTSE 100 companies, hedge fund managers, and banking CEOs have urged the next occupant of No. 11 Downing Street to prioritise deficit reduction and resist the temptation of populist spending sprees.
The message is blunt: the City of London has had enough of fiscal incontinence. With gilt yields volatile and inflation still sticky above 3%, the spectre of a Truss-style bond market meltdown looms large. 'The next chancellor must signal a credible path to balanced budgets,' said a senior executive at a major investment bank. 'Markets will punish any hint of unbacked borrowing.'
Potential contenders include the current Home Secretary, who has privately argued for lower taxes, and a former business secretary known for cost-cutting zeal. But all are being sized up by the same yardstick: will they control spending? The Treasury's own forecasts suggest public debt is on track to exceed 100% of GDP within five years, a level that makes bond traders nervous.
The endorsement from business is not unconditional. Several leaders have warned against austerity that crushes infrastructure investment. 'We need fiscal rules that are smart, not stifling,' said the CEO of a construction giant. But the overriding sentiment is that the era of big government must end. Capital flight is already a concern, with foreign investors reducing their holdings of UK gilts for the third consecutive quarter.
The next chancellor will inherit a poisoned chalice: low growth, high debt, and a tax burden at a 70-year high. Business wants action on planning reform and energy costs too, but the sine qua non is budget responsibility. As one fund manager put it, 'We can cope with high taxes if they are stable. What we cannot cope with is the constant threat of fiscal fireworks.'
The Tory leadership race is still in its early stages, but the business lobby has made its position clear. The winner will have to show they can keep the bond vigilantes at bay. Otherwise, the UK risks becoming a 'peripheral economy' in the eyes of investors, a label it has not worn since the 1970s.
