We are heading for economic uncertainty, warns Portillo

The former Conservative cabinet minister said doubt about what form of coalition the new government will take could cause chaos in the financial markets.

Mr Portillo also accused the three main parties of ignoring the public and private spending deficits and voiced fears that the UK is missing an opportunity to change its economic model.

"I have always thought a hung parliament extremely likely," he said in an interview with the Yorkshire Post before the Baker Tilly event.

"A lot of people underestimated the task that faced David Cameron.

"He needed the kind of swing that Tony Blair got in 1997, but that kind of swing happens very rarely.

"In 1997 – I know because I was on the receiving end of it – you could feel there was a gale of change blowing. Now, there's a breeze of change blowing but it isn't a gale.

"Since the campaign began it has become more complicated because the Liberal Democrats have had a surge.

"The extent of the boost has been so great that if even if it recedes, it is still going to be substantial.

"The froth will go, but the beer is still there."

The outcome of a hung parliament could be a minority Labour government, a minority Conservative government, a Labour-Lib Dem coalition or a Conservative-Lib Dem coalition.

Mr Portillo, 56, said: "When we went into this election we thought we knew if Labour emerged the winner, action to tackle the deficit would be postponed by a year, but then we would have the National Insurance increase.

"If we had the Conservatives on the other hand, we would take action to tackle the deficit this year and no National Insurance insurance.

"But with this range of possible outcomes we get no idea whether we get one of those options or some combination of policies that we cannot foresee so it is a period of extreme uncertainty.

"If it takes the politicians any time to settle these matters, then I think investors will get very worried.

"We could see it in the pound, we could see it in the mar- kets."

Mr Portillo said all parties have ignored the severe deficit, in favour of offering "different brands of sunshine".

He added: "We have had quantitative easing, 200bn worth, which has caused a certain frothiness in the stock market and in the property market and that is going to be unwinding.

"The markets, to the extent they have been patient in knowing there is a General Election coming, will want to know there's something serious going to be done about the deficit.

"One needs to see a firm government with a firm set of policies and some prospect of lasting for the markets to be calmed.

"Right now, it's difficult to put ticks in all of those boxes."

Businesses and consumers will hesitate before they decide to spend money, he said.

Mr Portillo added: "Another thing we have ignored is we have a big private deficit.

"We have people very heavily borrowed. With relatively low inflation, with people having high levels of personal debt, with wage levels likely to be constrained, it is going to be an awfully long time before people who have debts manage to reduce them.

"The second issue is if we do recover, what does that look like? Does it look like going back to another consumption boom which will last a few years and come disastrously to an end?

"Or is there a vision of encouraging people to save and seeing whether we can revive export and manufacture?"

Happy to be out of politics

Michael Portillo doesn't miss politics, preferring the relatively stress-free life of journalism and broadcasting instead.

He told the Yorkshire Post: "I envy my party so little during this campaign because they have really terribly difficult decisions to make about how to play this election."

Asked if he had any advice for David Cameron, he said: "Gordon Brown has been allowed to get away with too much; they have not succeeded in pinning the full responsibility for the recession on Brown.

"On the other hand, as far as Nick Clegg is concerned, although it's galling, you can't go for the jugular because it is counter-productive."