Has the City swung back behind the blues? Cameron might wish it was that simple

The world of business is pragmatic at election time, and no party can count on its unquestioning support

For Gordon Brown, the revelation that the US government has charged Goldman Sachs with fraud must have seemed a gift. For days, the Conservatives and Liberal Democrats had been making hay with the Prime Minister's admission that his hands-off approach to regulating the City had contributed to the credit crisis. The "moral bankruptcy" of Goldman, as Mr Brown described it on Sunday, was an opportunity to prove he had learned his lesson.

Just one hitch. As The Independent revealed yesterday, Goldman has been the go-to investment bank for this Government. And though Mr Brown's friends and enemies alike have asked him to at least suspend the bank's lucrative taxpayer-funded contracts, the Prime Minister has maintained strict radio silence on their demands.

The irony will not be lost on senior Labour figures. Mr Brown's Government has been under attack from the City, which was less than impressed with the one-off tax on bankers' bonuses and even more disgruntled about the new 50p top rate of tax for those earning more than £150,000 a year. Yet the opposition parties hope to use the Goldman affair to further the perception that the banks have the Prime Minister in their pocket.

It's certainly the case that for many in the City, whatever their personal views, there is an element of better-the-devil-you-know. Take Credit Suisse's Jonathan Pierce, widely regarded as London's best banking analyst. Five more years of Labour, which has already got much of its regulatory reform out of the way, is the result that Britain's top banks should be praying for, he reckons. "A majority Labour Government would largely maintain the status quo for the banks, but a Conservative Government or coalition including the Liberal Democrats might bring a more immediate and unilateral tax, and increase medium-term uncertainty over the structure of the sector," Pierce warns.

Ordinarily, Labour would welcome support from the City. But given the toxicity of public opinion regarding the banks, this election is an exception. And to add insult to injury, the support of the wider business community can no longer be counted upon.

David Cameron never stops referring to planned national insurance hikes as "Labour's job tax", reminding Britain about the business leaders – 100-plus and counting – who have publicly endorsed his plan to reverse the increases. Also, in the weeks preceding each of the past three elections, a round-robin letter signed by leading businessmen has appeared in The Financial Times backing Labour's economic policies. This time, there has been no such support. Job done for Mr Cameron?

Well not entirely. For starters, the NI revolt is not all it seems. A good number of the business leaders who have complained about Labour's tax hikes have been prominent Conservative supporters for years. They are not disinterested bystanders. Some may even be eyeing positions in a Cameron administration: Simon Wolfson, the chief executive of Next, for example, is widely tipped for a peerage and possibly even a frontbench role.

Labour, meanwhile, retains its own links with business and the City. Not least, two prominent ministers, Lord Myners and Lord Davies, have spent most of their working lives in those worlds and still have strong ties to the private sector. And then there's "Sirallun", as fans of the BBC's The Apprentice call its star. Lord Sugar's appointment as Enterprise Tsar last year hasn't entirely worked out: he has a habit of putting his foot in it. But he has stuck with the task and is a Labour loyalist – his latest £400,000 donation proves the point.

As in all walks of life, the business sector has its fair share of tribalism, some of it concentrated in identifiable pockets. There will be few in the City's money broking and securities trading rooms, for example, who will baulk at the suggestion that their profession is a natural fit with the Conservatives.

Take David Buik, of broker BGC Partners, who says: "It's generally felt that the Conservatives will deal with the budget deficit – which is horrendous – more aggressively than Labour will. But in the same breath, they understand business, and therefore they will not allow tax that could damage business."

Others are more restrained. Terry Leahy, the chief executive of Tesco, Britain's biggest supermarket, has told executives he expects the company to remain above the fray of party politics. And support for Labour policies pops up in the most unlikely of places. When the millionaire entrepreneur James Caan – recently attacked by a fellow judge on Dragon's Den for his non-dom tax status – popped up on Newsnight, it was assumed he was joining the Tory onslaught against the NI hikes. He proceeded to rubbish the campaign. In any case, there are several business issues where the political cards fall differently. The generally supportive Institute of Directors, for example, is spitting blood that it is not the Tories but Labour that backs the third runway at Heathrow. "The Conservatives have got it wrong," says IoD director-general Miles Templeman.

Likewise, Conservative plans to implement a new levy on the banks in the UK – whether or not agreement is reached across the G20 on such a tax – have not gone down well with some in the City. The Lib Dems' aggressively anti-bank policies fare even less well. "You don't need much in this febrile environment for a bank to say, 'I'll take my business elsewhere'," says Angela Knight, who served as a Conservative minister under John Major and is now chief executive of the British Bankers' Association.

There is lingering suspicion about Labour's fondness for European initiatives on flexible employment practices and social policy. A manifesto commitment to raise the minimum wage in line with earnings in every year of the next Parliament has irked some employers, as have plans for an extension of paternity-leave rights. But the Business Secretary, Lord Mandelson,has rejected calls for Labour to go further, as it once wanted to. The extension of maternity leave at a cost of £500m to employers, for example, has been shelved for now.

And then there is the elephant in the room in this campaign: precise detail on how the Conservatives and Labour would go about scaling back the deficit. Neither, of course, has offered any detail, and despite all the posturing about when to cut the deficit – and by how much – the independent Institute of Fiscal Studies quantifies the difference between their debt reduction plans for the next Parliament at £15bn. Peanuts in the context of borrowing that will come in at around £160bn this year alone.

Is either party credible on debt? Well Andrew Balls, the European head of Pimco, the world's largest bond investor, says he is putting money into German bonds rather than those issued by the UK, such are his concerns. If the name sounds unfamiliar, you'll no doubt have heard of Mr Balls's brother: he is currently the Schools Secretary (and the man who covets the Chancellorship), Ed.

The debate on policy aside, how-ever, one thing is true above all about business leaders, many of whom depend on the public sector for key contracts: they like winners. In an election when Labour has started from behind for the first time in 20 years, it was never going to be able to count on vocal support from a community with much to lose from backing the wrong horse.

Is business swinging back behind the Conservatives once more? Maybe so, but for those who spend their days staring at balance sheets and bottom lines, pragmatism tends to be a more powerful force than ideology.

Governments and the money men

Labour Government (Harold Wilson, James Callaghan)

March 1974 – May 1979

The last hung parliament in the UK, a spiralling price of oil, the public finances in a mess and the UK in the grip of industrial unrest... A superficial resemblance of the mid-Seventies to now recalls that most hostile period of City-government relations and share prices hitting record lows. Punitive rates of income tax, capital gains tax, capital controls, price, wage and dividend controls and talk of a wealth tax were met with an "investors strike" that culminated in the collapse of sterling in 1976 and an appeal to the IMF for help.

Conservative Government (Margaret Thatcher)

May 1979 – November 1990

Mrs Thatcher's arrival in Downing Street was greeted with unrestrained joy by City interests. She dismantled the controls on the economy that previous Labour and Tory governments had imposed, and embarked on a programme of privatisation, which gave the City's brokers and corporate advisers plenty of fees. Taming the unions helped rebuild profits: the rise of the Hanson Trust and the red-braced Porsche-driving yuppie symbolised the excesses of that age. The "Big Bang" in 1986 swept away the old City's restrictive, old-school-tie ways, and turned the financial sector into an international hub. But the slump of 1979-82 saw much of the manufacturing base wiped out forever, sacrificed to a "monetarist experiment" that saw rates rise to 18 per cent. The City was happier with Mrs T than were the industrialists.

Conservative Government (John Major)

November 1990 – May 1997

The Lawson Boom at the tail-end of the Thatcher years let inflation creep back into the system. The Major government's answer was to shackle the pound to the German mark inside the European Exchange Rate Mechanism, which deepened the recession though it did indeed "kill" inflation. Exit from the ERM and the collapse of sterling was followed by a long boom that would only end in 2008. The City applauded the Major government's efforts to push privatisation further, including the sell-off of the railways – parts of which were scandalously undervalued. Kenneth Clarke's Chancellorship is better remembered than that of Norman Lamont; some in the City want Ken back now.

Labour Government (Tony Blair)

May 1997 – June 2007

New Labour consciously set a goal of befriending and reassuring the City, though the efforts actually began a decade earlier under John Smith's shadow chancellorship, with the much derided "prawn cocktail offensive". In the Nineties, Labour dropped its old pledges to reverse privatisation, and pledged to keep Thatcherite trade union laws and Tory public spending plans. Gordon Brown said foreign ownership didn't matter. There was a massive expansion of the private finance initiative. The only major City comment was the withdrawal of tax relief on pension funds – the original "stealth tax".

Labour Government (Gordon Brown)

June 2007 – Present

Unluckily, Gordon Brown's premiership has coincided with the sharpest downturn in the world economy in three-quarters of a century. The collapse of Lehmans led to a near collapse in markets, and the Labour Government has been forced to nationalise banks, flood the economy with money and raise taxes, in an attempt to prevent the recession turning into a slump. Labour no longer seems, as Peter Mandelson once said, "intensely relaxed about people getting filthy rich". Taxes on non-doms and banker bonuses, the 50p rate and employer NICs have all hit the salaries and profits of business and commerce, and their relations with Labour.

By Sean O'Grady, Economics Editor