General Election? It's a Hostile Takeover Bid.

Last Updated May 6, 2010 9:31 AM EDT

Now comes the profit warning. Just like any new CEO and finance director coming in after a takeover, the new managers of UK plc will look at the books, declare they are worse than anything that could have been imagined, and embark on a programme of redundancies and cuts.

An incoming Conservative government will take a leaf from the corporate world in taking tough action. While politicians made promises during the campaign to secure victory and were deliberately vague about their plans, once they are in control they have to disclose decisions that will be so unpopular they would never have landed their prize if they had been revealed earlier.

The excuse is that a hostile takeover is based on published information but without the help of the incumbent managers. Those bidding for power have to make a generous offer to win but then have to seek savings to pay for it.

Think Kraft promising to keep open a Cadbury factory then declaring after its victory that the closure is too advanced to reverse. Think Lloyds bidding for HBoS then seeing the books and writing down the assets. Then scale up those corporate examples to a national level.

In business it is called "kitchen-sinking" - changing the management, closing operations, reversing past policies and making cuts as the new chief executive gets rid of everything but the kitchen sink. An incumbent prime minister who wins a general election does that by reshuffling his ministers but a new party taking office not only brings in its own chief and cabinet but trashes the old regime and implements its own agenda. The change often even extends to managerial level with senior civil servants being moved.

The profit warning is both an acknowledgment of the true state of trading but also includes the costs of changing policy and of writing off past programmes. It will come in the emergency budget when a new chancellor presents a plan to rebalance the nation's finances instead of a programme to win an election.

But doing that employs the corporate trick of rebasing the accounts to look so bad now that the future can only allow improvement. Taxes raised immediately can allow cuts later. That provides the new managers with a track record for fighting off the next hostile attack.

Belatedly telling the country the truth of the national finances and of the measures that must be taken will allow the new team to impose spending cuts, job losses and impose extra taxes but it will be painful for the public sector, for the voters and for the private sector.

Gordon Brown put Britain into play by calling the general election leaving him to defend his record while the Conservatives mounted their hostile takeover and the Liberals' Nick Clegg emerged as a white knight to be wooed. But they should beware of the corporate analogy: research shows that most takeovers fail to deliver financial gains.