With the credit crunch, food crisis and rising fuel prices ever in the news, government ministers, world leaders and international institutions have been meeting to discuss ways of promoting stability.

This week’s Knowledgeshop looks at a few of the major issues facing business and how the Government has been responding.

Food prices

The UN Food and Agriculture Organisation recently concluded its summit in Rome which discussed the global food crisis and its impact on the developing world. At the same time, the effects are being felt closer to home, with food prices across Europe rising by twice the rate of inflation on last year.

With some retailers facing criticism for posting healthy profits at the consumer’s expense, Alistair Darling met with some of the countries biggest supermarkets, suppliers and industry bodies to discuss the current economic climate. At the Downing Street summit, the Chancellor was told that there is little sign that inflationary pressures are beginning to lessen.

Although he has acknowledged that consumers are feeling the pinch, Tesco Chief Executive Sir Terry Leahy recently said: “I don’t think that the rate of food commodity price increases will continue into the long term.” and there is certainly a debate as to precisely how much current prices are being overly influenced by market speculation.

Some farm groups and food producers have blamed a rise in speculative trading by investment funds for the added volatility. Last week the United States Commodity Futures Trading Commission launched an investigation into possible price manipulation in US oil markets. Analysts reported that the probe may widen to include other commodities such as wheat, soyabeans and rice.

Fuel prices

This uncertainty has been most pronounced in the oil market, with the price per barrel seeming to reach record highs on a weekly basis. With the knock-on effect hitting a range of commodities, both food and non-food alike, oil has also been the focus of attention from both the governments and the media. Rising prices and the prospect of an increase in fuel duty in the autumn have led to a rising unhappiness among voters, with recent fuel protests echoing those of 2000.

In a recent interview with the Guardian, former Prime Minister Tony Blair commented on how rising fuel prices may have contributed to Labour’s poll ratings, saying: “If you are going to fill up your car and it is costing double the money that it did last year you are not happy. It is totally understandable, and it happens to be true unfortunately that it is not the fault of the government that oil prices have gone up.”
                                                                                                  
A number of senior politicians, including the Prime Minister have highlighted the role of OPEC in the oil market and the steps it might take to reduce the price of oil - with varying degrees of sophistication. The 1970s linkage between North Sea oil and Scottish Nationalism (sloganised as “It’s Scotland’s Oil!”) has also resurfaced in response to continued high prices and an SNP administration in Edinburgh.

Further afield, Australian Prime Minister Kevin Rudd called on OPEC to increase oil output, adding: “The G8 provides the opportunity to apply the blow-torch to the OPEC organisation and it’s time that happened.”

In fact Saudi Arabia has announced that it will increase crude oil output by 6%, however initial responses have indicated that some refiners may be unlikely to buy any more at current high prices.

However the outlook from business differs somewhat from that of government ministers. BP’s Chief Executive Tony Hayward has claimed that today’s oil prices are unstable not only because of a lack of supply but also due to higher taxes in oil-producing countries which limit investment in new output.

Mr Hayward said: “The problem is not below ground, the problem is above ground…The taxes that governments take from the oil and gas industry have continued to increase across the world. I believe this is unsustainable and counterproductive. All it means is that we have less money to invest in new production.”

He also called on Governments to cooperate and lower trade barriers and tariffs, claiming they are “unproductive and run counter to the essential truth that a free and open energy market is just about the best possible guarantee to energy security”.

Banking and Housing

The oil industry is not the only sector under scrutiny at the moment. The ongoing credit crunch and falling house prices have ensured that banking remains firmly in the media spotlight.

The continuing gloom in the housing market was the subject for discussion at talks in April between the Prime minister and the UK’s leading banks and building societies - including Barclays, HSBC, Lloyds, Nationwide and Royal Bank of Scotland. Mr Brown asked banks to pass on the interest rate cuts to consumers. In return the banks warned of a reduction in mortgage lending and that more liquidity needed to be poured into the financial system.

Downing Street denied that the meeting was a crisis summit, stating that it had been in Mr Brown’s diary for some time. Of course, this all took place on the back of extremely adverse coverage of the abolition of the 10-pence tax rate.

Despite many banks stating they expect moderate growth in new mortgage lending - albeit at higher rates - Bradford & Bingley’s surprise profit warning will do little to steady shareholders. In a further indication of market uncertainty, Citigroup’s internet bank Egg, announced last week that it is withdrawing from the UK mortgage market.

The latest report on the housing market by the Royal Institution of Chartered Surveyors has claimed that there has been a “collapse” in the number of transactions.

Responding to the study, the Department for Communities and Local Government said: “We are well placed to meet the challenges of the global credit crunch, the fundamentals of the economy are sound with low unemployment and historically low interest rates, and long-term demand for housing remains high…The issue affecting the market is fundamentally about the supply of credit - a different situation to the early 1990s which was about high interest rates and unemployment.”

But there is still some positive movement in retail banking. Lloyds TSB announced that it will offer mortgages to some Northern Rock customers when their present deal expires in a three-year agreement signed between the two banks. However critics may be quick to point out that only customers with the most attractive credit ratings will qualify.

The Bank of England and the Treasury blocked Lloyds TSB’s previous attempt to buy Northern Rock last August, citing competition concerns, so this latest news may come as little surprise.

Taxes and Multinationals

A Treasury consultation on proposed changes to the taxation of foreign profits, originally planned for July, is to be delayed. This follows moves abroad by a number of companies and rumours of further emigration to follow. There has been a wide degree of fallout from the proposals, which would focus largely on tax avoidance, with companies such as GlaxoSmithKline threatening to move their headquarters out of the UK.

At the first meeting of the treasury’s new tax taskforce, Treasury Secretary Jane Kennedy said: “We obviously made it clear that the original proposal…possibly did go further than we had originally envisaged. We are looking at it and we’ve got some further work to do.”

Following the meeting, Richard Lambert, Director-General of the CBI, said: “We said we think there is a good degree of uncertainty as to where the Treasury has got to and that is one of the reasons companies are so anxious.”

Another meeting between the Chancellor of the Exchequer and representatives from the British banking sector was due to revisit the housing market. It was also expected that the banks would ask that they are consulted more closely by the Treasury on future changes to the tax system.

Party politics

Voters continue to feel the pinch and are making their feelings known in the polls.

The latest YouGov poll for the Sunday Times put the Conservatives on 47 points, 22 points clear of Labour with the Liberal Democrats on 18. This is an improvement for Labour on the YouGov poll at the end of May - which gave the Tories a 24 point lead - but Gordon Brown is still ten points down on this time last year.

With some of the more sceptical analysts predicting a 95% chance of a recession, it seems increasingly important for the Government and business to engage effectively with each other to boost confidence not only in international markets but also in the local economy.