Britain needs tough decision-making to avoid further economic problems

The posters are up. The manifestos are written. And the candidates are chosen. The British Prime Minister, Gordon Brown (pictured), has called for general elections to be held on May 6.

Should investors be buying into Britain ahead of that? The historical record says they should. Polls show the Conservative Party is the likely winner, and shares have always done far better under the Tories than under the Labour Party.

Likewise, sterling usually benefits from a change of government. Rising share prices and an appreciating currency are a great combination, particularly for foreign investors.

There is still too much doubt about the result of the election. And even if there is a change of government, it doesn't look as if the United Kingdom is ready for the kind of tough medicine it needs to get its economy back on track.

A weak government, with little public support for its policies, would be no improvement at all. There is no disputing the fact that Conservative governments have been better for anyone owning UK equities.

Equity trends

According to a paper by John Littlewood, published by the London-based Centre for Policy Studies, an economic-policy think tank, shares have almost always fared worse under a Labour government.

By contrast, equities have almost always done well under the Conservatives.

So the historical evidence is conclusive. This is the moment to buy into the United Kingdom. There are just two big problems.

First, we have no way of knowing how conclusive the election result will be.

A hung parliament would be the worst of all possible worlds. A coalition or a minority government would be weak and divided. It would be constantly monitoring the polls, waiting for the right moment to call a fresh election.

There would be no effort to get the deficit — now about 12 per cent of gross domestic product — under control.

Britain would look like Greece minus the olive groves and sunshine: a spendthrift, indebted nation, without a clue how to finance itself. The bond markets would be swift to punish it just as severely as they have the Greeks.

A Conservative government with a clear majority might not be much better. It hasn't campaigned seeking a mandate for reform, and can't complain if it doesn't get one.

Savage cuts

Britain doesn't just need to rein in public spending to control the deficit: it needs savage cuts on top of that to cut taxes and stimulate a recovery. The opposition isn't spelling out how hard the journey is going to be. So don't be surprised if a Tory government runs into massive opposition once it becomes clear how tough it is going to get.

Britain will be attractive again one day. But it needs tough decisions, and it needs to face up to a period of sharp austerity. It doesn't look like the country realises that yet. And until it does, it won't make much difference which party is in government and you don't want to own any UK assets.