On 8 June 2017, UK citizens voted in the historic snap General Election announced earlier in the year by Prime Minister Theresa May. Mrs May was hoping that by winning the election, she would consolidate her position as Prime Minister, which in turn would strengthen her stance during Brexit negotiations. However, Mrs May's plans to form a "strong and stable" government were left in tatters as...
On 8 June 2017, UK citizens voted in the historic snap General Election announced earlier in the year by Prime Minister Theresa May. Mrs May was hoping that by winning the election, she would consolidate her position as Prime Minister, which in turn would strengthen her stance during Brexit negotiations. However, Mrs May's plans to form a "strong and stable" government were left in tatters as the Conservative party failed to win an overall majority falling short by six seats. Although the Conservatives emerged as the largest party, they have now lost the privilege of governing on their own. As a result, Mrs May sought to form an alliance with the far-right Northern Irish Democratic Unionist Party (DUP) to form a minority government. With Brexit negotiations scheduled to take place, how will the aftermath of the election affect talks between Mrs May and European Union (EU) leaders? Will Mrs May, who has previously endorsed a hard Brexit, change her tactics? This article aims to explore the future of UK post the shocking result of the General Election.
Brexit-Change In Direction?
Brexit has been at the forefront of UK politics since its announcement on 24 June 2016. When Mrs May called the election, she calculated the results to be in her favor which would have demonstrated public support for her approach towards Brexit. Mrs May had signaled on previous occasions that she intended for the UK to leave the single market and has been famously quoted as saying "no deal is better than a bad deal". EU's budget commissioner Guenther Ottinger told the German newspaper Frankfurter Allgemeine that it may be possible "to talk about closer relations between the UK and the European Union than Mrs May had originally planned." Gunther Krichbaum, chairman of the European Committee in the German government also commented that the "British people have clearly expressed their opposition to Theresa May's confrontational approach to the EU." The results of the snap election support Mr Ottinger and Mr Krichbaum's statements. They suggest that while the majority of the British public had voted to leave the EU, they did not agree with Mrs May's hard stance on Brexit and outright rejected her vision concerning Brexit. Moreover, the younger generation who are generally pro-EU largely voted against the Conservatives implying that party's anti-EU approach did not go down well with UK's youth.
Mrs May's new forged alliance with the DUP may also prove to be a hurdle to her original plan of a hard Brexit. While the DUP wants UK to exit from the EU and seek an end to the single market, it wants to avoid hardening of the border between Northern Ireland and Ireland, which has become virtually invisible as a result of Ireland's peace process. DUP leader Arlene Foster has spoken against a hard border and has displayed a desire to "see a workable plan to leave the European Union". The DUP's manifesto lists 30 different "priorities and objectives" for Northern Ireland to see secured in negotiations with Brussels, but does not provide any definitive confirmation regarding the UK's continued membership of the Customs Union. The DUP also wants to prioritize the rights of British citizens living in the EU and vice-versa, which is an issue Mrs May has hesitated to comment on. In view of the above, the Prime Minister may be opting for a softer Brexit to keep her new partners on board.
Political Instability Causing Business Concerns
When the results of the election were initially announced, the political instability caused by the UK having a hung parliament raised questions over the country's economic developments in the future. Businesses strive for a consistent economic landscape. The UK's future post-Brexit remains uncertain and on top of that, the country was facing an unstable government.
Bob Bishop, co-chair of DLA Piper M&A practice, commented that "many in businesses wanted nothing more than certainty to flow from the election. Certainty helps stabilize the markets, underpin the economy, and could have provided a more firm-footing for Brexit negotiations. Expect continued pressure on the pound, increased market turbulence, and stronger headwinds when it comes to M&A."
Mr Bishop's analysis is supported by Raj Karia, head of M&A Norton Rose Fulbright in Europe, who also highlights the uncertainty posed by the outcome of the General Election and goes on to suggest that the political uncertainty "combined with the start of the formal negotiation of Brexit, will create a challenging backdrop for deals - unless Brexit negotiations are seen to be progressing smoothly."
Tim Gee, a Baker & McKenzie M&A partner provides a more optimistic angle by suggesting that "the sterling will stay relatively weak, so the capital costs of the UK assets will remain attractive." Phil Sanderson, a private equity partner in Roper & Gray seconds Gee's optimism by suggesting that "the Brexit elephant in the room still encourages sellers to sell now and there are more than enough buyers willing to discount this as a bit of local political difficulty." One thing is clear from the statements made by various lawyers; investors will be paying close attention to the outcome of Brexit negotiations combined with the future political landscape. While the political upheaval may be seen as a temporary event, much depends on the Brexit deal secured by the government.
London also reacted to the news of a hung parliament. City of London Corporation Policy chairman Catherine McGuiness called for "an effective and secure" government to be formed as soon as possible. Mrs McGuiness pointed out that this situation should not harm "London's position as the world's leading financial center or damage the financial services industry which supports 2.2 million jobs in the UK and generates £72 billion in tax income".
One Month Later…
The Conservatives and the DUP have now agreed on a deal. The DUP has agreed to back the Conservatives in key votes, to include, Budget and a confidence motion, but are not tied into supporting them on other measures.
The deal will also see £1bn more spent on Northern Ireland over the next two years than had previously been planned. The two parties have agreed on a range of policy priorities
such as keeping the guarantee to increase state pensions by at least 2.5% a year, to maintain defence spending and to maintain agriculture spending in Northern Ireland at the same level for the rest of the current Parliament. However, it is too early to tell the full significance of this deal.
A Change In Political Direction?
The mere fact that results of the General Election came as a shock to most shows that British politics has assumed a different dimension. Many were shocked to learn that the Conservative Party which won a comfortable majority in 2015 lost 16 seats in the 2017 election, forcing it to seek an alliance with a third party. It is also interesting to study the rise of opposition leader Jeremy Corbyn. Corbyn started off the campaign as an "unelectable" leader. However, as the campaign progressed, Corbyn flourished, with Labour eventually gaining 30+ extra seats than it did in the previous election. With Corbyn's popularity at its height, he is claiming that he is ready to form a minority government if the Conservatives fail to secure a majority at the Commons. The UK has not seen a credible opposition since the rise of Tony Blair. However, the recent General Election has changed this perception with Corbyn strengthening his popularity at grass root level and harboring support from the younger generation. Although Labour has not won this election, for many, Corbyn is the ultimate winner.
As well as facing a strong opposition, the Conservatives have been further discredited due to their alliance with the
DUP. The rise of the DUP is a cause for concern amongst liberals as the party is known to harbor orthodox views. The extent of their influence on Westminster is not known at the present time but nevertheless people are worried about the controversial connotation associated with the DUP. Mrs May is facing scrutiny due to her decision to form an alliance with the DUP. Former Prime Minister John Major has displayed concerns over the impact of the alliance on the current Good Friday Agreement between Northern Ireland and the Republic of Ireland which has been in place since the 1990s. Furthermore, many in Scotland and Wales are also concerned about special financial deals being struck for Northern Ireland.
The General Election has unleashed cracks in the political and social fabric of British society. It will be interesting to observe how the UK's political scene unfolds in upcoming weeks.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.