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Europhobia threatens love-in between Coalition and business

IT is fascinating to see a bit of tension emerge in the love-in between the Coalition Government and the business community as the European issue raises its head.

The honeymoon between the Coalition and business, which is almost certainly not over yet in spite of the uncertainty over European Union membership created by the Prime Minister, has been particularly notable because of its extremely protracted nature.

Way back in his debut Budget of June 2010, Chancellor George Osborne heaped on an extra £40 billion per year of fiscal austerity but, even as he did this and told us we were all in it together, he triumphantly set out his plans to slash corporation tax.

While those dependent on the welfare state picked up the tab, the Conservative-Liberal Democrat Government was at pains to ensure business benefited most from its grand economic plan. Unfortunately, such grand plans are often undone by unintended consequences.

What Mr Osborne did not appear to understand was that slashing welfare spending would suck demand straight out of the economy. He should have known, given his measures took money away from people who have to spend everything they have to live.

Business might have loved George's marvellous medicine, but that is not to say the prescription was necessarily good for it, given that we ended up with an excruciatingly slow and stuttering economic recovery.

There have been other policies put in place by the Coalition to the delight of the business lobby, including sweeping changes to employment legislation which have eroded workers' rights even further.

It could be argued that employees without job security will be far less likely to spend, thereby weighing on aggregate demand in the economy and making it more difficult for businesses to sell their goods and services. However, this did not appear to be a worry for business leaders as they rushed to embrace the legislation.

While the likes of the Federation of Small Businesses north of the Border and Scottish Chambers of Commerce deserve credit for more incisive analysis of the Coalition's economic policies, the London-based business lobby groups have at times appeared truly beguiled as Mr Osborne and his colleagues have proceeded with their grand plan, regardless of the consequences.

The business community has been both extremely patient and forgiving. It has also taken the Coalition's apparent change of focus, to boost the housing market ahead of next year's General Election, in its stride, after Mr Osborne's March 2011 vision of "a Britain carried aloft by the march of the makers" failed to materialise.

UK economic output in the first quarter of this year remained adrift of its peak in the first quarter of 2008, ahead of the Great Recession.

And, while there has been some better growth in recent quarters, a boom in the housing market, particularly evident in London and south-east England but also apparent in some other parts of the UK, looks like a cause for extreme caution, if not quite yet for alarm. The Coalition is playing with fire with its housing market moves.

In spite of all of this, you would hardly expect the business community to fall out in any kind of dramatic style with a government which has given it so much. However, with this week's European Parliament elections in the spotlight, there have been some signs of friction over David Cameron's plan, conceived amid pressure from the Europhobes, to have a referendum on EU membership by 2017.

Sir Michael Rake, president of the Confederation of British Industry, declared in a speech to senior business leaders and politicians this week: "The advantages of the EU far outweigh the disadvantages."

Although giving a view that UK membership of the EU had its costs and frustrations, Sir Michael said: "We cannot be our best when in isolation, we have to face outwards: keep connected to the world and embrace the opportunities afforded to us by being based in the EU."

And he made plain the difficulties created by Mr Cameron's referendum pledge.

Sir Michael said: "We accept that calling a referendum on EU membership is a constitutional issue for government, but even the possibility of it happening has caused uncertainty for business, with the risk of fewer inward investments than would otherwise have been made."

This appeared to amount to at least mild disappointment over the Prime Minister's position on the issue.

Liz Cameron, chief executive of Scottish Chambers of Commerce, recently highlighted the huge benefits of being part of the EU for members of her organisation.

Writing in The Herald, Ms Cameron highlighted the findings of a survey by Scottish Chambers of Commerce in which 61 per cent of respondents expressed a view that Scotland leaving the EU as part of the UK would be damaging to their business and 70 per cent said that an independent Scotland leaving the EU would impact negatively on them.

Ms Cameron noted that Scottish firms exported nearly £12 billion of goods and services to the EU annually, around 45 per cent of the nation's total international trade. She also highlighted the fact that the pan-European labour market allowed businesses to access a wide pool of skills among more than half-a-billion people across 28 member states.

We underestimate the massive damage which an EU exit could do to the economy at our peril.

Yet Mr Cameron has chosen to put the issue partly outwith his control, should he be at the head of the next UK government, for the sake of popularity with the electorate.

Even taking account of the challenge from the UK Independence Party for traditional Conservative voters, it is truly astonishing that Mr Cameron has put himself at the mercy of ill-thought-out Europhobia by committing to a referendum. And the business community should be annoyed about this unnecessary risk, even though he leads a government which has given it so much.

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