If the opinion polls are correct the United Kingdom could have its first Labour government in 18 years by early May. The new administration, led by Prime Minister Tony Blair with Gordon Brown as Finance Minister, would be very different from its predecessors.
The new Labour party has recognised from the outset that if it is to have the credibility it needs it will have to reach out to business for support. Even companies like British Airways, whose president Lord King was among the closest business supporters of the Conservative party, have shown a willingness to lend their support to Labour: chief executive Robert Ayling has appeared on the same platform as Blair.
A change in government would have an immediate double impact on the UK business climate. Firstly, labour would probably take the difficult macro-economic decisions soon after it comes to office, perhaps leading to some slowdown in growth. Secondly, one of the key planks of its policy, the proposed windfall tax on the privatised public utilities -- expected to raise some 5 billion in new revenues -- could potentially be extended to both British Airways and the airport operator BAA plc.
On the macro-economic front, Brown would almost immediately be faced with an interest rate decision in order to keep to the 2.5 per cent inflation target which Labour has endorsed. The Conservatives have so far declined to increase interest rates contrary to advice from the Bank of England. If Brown wished to snuff out concerns about an unsustainable consumer boom, he would almost certainly have to raise short-term interest rates.
He could also have to increase taxes. The lesson Brown has learned from his Labour predecessors in the 1970s is that their failure to take tough decisions early on meant pent up difficulties later. Brown has already committed his party to sticking with Conservative spending targets. This may mean raising taxes within weeks of office, to ensure that the ú26 billion ($42.4 billion) forecast for the budget deficit is not missed. The combined effects of higher interest rates, a strong pound and tighter fiscal policy could mean that the strong growth so far seen in the UK for 1997, would slow.
It is almost certain that British Airways would not be subjected to the windfall tax. The Labour view is that BA operates in a highly competitive marketplace, where prices are far from regulated. But BAA is likely to be less fortunate. Despite a spirited campaign to demonstrate that its monopoly is not absolute, in that carriers could use airports other than Heathrow and Gatwick (BAA's two main hubs) the group is likely to face a levy. If the situation arises BAA plans to pay the tax by cutting some of its capital programmes which include Terminal Five at Heathrow and expansion at Stansted airport.
Source: Airline Business
