Legal Business Blogs

Election comment – Many a slip between cup and hardcore Brexit

For my sins I committed Legal Business to a lengthy piece on the 2015 general election, focusing on the policies impacting the City, business and law, back in an era that now seems a decade away. You may remember that one: the Conservatives were to deliver stability against those Labour mavericks on the assumption that its pledged Brexit referendum was in the bag.

The sceptic may wonder as we wake up to the fourth major election result that has failed to follow the script since 2010 why Conservative-bred instability and currency devaluations are so much more acceptable than the ghastly socialist version? Or even when the Conservative Party decided to give up…well, being conservative.

Chairing a debate last night of senior City lawyers at the time the shock exit polls came in, it was striking how little enthusiasm there was for the May administration (contrary to some caricatures, commercial lawyers are generally pragmatic centrists). In truth there hasn’t been a Conservative Party this indifferent to the City and business since the 1970s.

As we’ve noted, the post-banking crisis political settlement in the UK that was once taken for granted in business circles is now refusing to settle, a reality that is already threatening the stability premium the UK has enjoyed for decades.

But this election truly has reset the dial for confounded expectations. Young voters don’t vote. Campaigns don’t influence the vote. The death of the two-party system. An impending Conservative landslide. All have been turned on their head.

Even allowing for a poor campaign from a Conservative frontbench that staunch Tory voters would concede lacked gravitas, it’s a stunning reversal. Prime minister Theresa May chose to run as a conviction politician, despite little evidence to suggest that was her natural style. It’s very hard to lose an election once a consensus sets in but May proved lacking as a communicator, tactician and, ultimately, with the Conservative manifesto, even as a policy-maker. The proposals on social care will go down in political history as the most misconceived policy pledge for decades, reached with a credibility-sapping lack of debate or rigour, wanting in logic and then compounded with an inelegant U-turn from the prime minister. The result turned the original ‘strong and stable’ pitch on its head and shredded May’s claim to be Thatcher’s natural heir. Whether you like Corbyn’s Labour or not, the veteran left-winger at least had the virtue of a certain authenticity and mounted a better than predicted campaign, at least against subterranean expectations.

If there was one electoral convention that wasn’t confounded it was that – unlike in the 2016 referendum when vague and contradictory campaign positions went without political consequence – in general elections, set-piece policy commitments still carry weight. That is at least something to be thankful for, if the UK can resist any further the slide towards banana republic territory.

As far as the profession and the City are concerned, the Westminster drama will be interpreted almost entirely through the lens of Brexit and its impact on business. (As it was, the Conservative manifesto already met a lukewarm response from the profession thanks to unwelcome policies on takeover rules and plans to scrap the Serious Fraud Office). It was, after all, the Brexit election and the expected mandate did not occur.

Indeed, the clearest reason that City lawyers have failed to warm to the May-led administration was severe doubts that the Government was anywhere near grasping the challenges of exiting the EU. That was the message coming through at my dinner last night and half the assembled panel were sitting on their firm’s Brexit working groups.

With a hung Parliament and no obvious solution and the very real possibility of another general election this year, we will be in flux for some time. May this morning talked of hanging on. That’s hard to see lasting.

The conventional wisdom, backed up by the lawyer commentary being emailed to me this morning, is that this outcome is the worst possible result due to uncertainty. Lack of clarity is obviously bad for business confidence but I would argue – and I know many City veterans agree – that the entire Brexit process has generated sustained uncertainty, so we’re in the realm of the relative here.

The chink of hope for business is that the election at least calls for some rethinking on the unseemly rush towards a hard Brexit. Given the narrow and ambiguous state of last year’s EU mandate, many would have felt a Norway-style deal to maintain single market access was the appropriate balance. That was effectively being ruled out come January amid logic that was hard to ascertain beyond Conservative party management.

But if the UK had been willing to pony up substantial contributions to Brussels in return for such access, the odds of securing a face-saving ’emergency break’ on immigration and a far less risky and pragmatic EU exit looked promising. There will be renewed pressure now to go down the Norway compromise route now and ultimately that may be hard to resist whatever happens over the next few weeks. My hunch is that the electoral consensus behind Brexit will crumble if it became clear that the course will involve trade-offs and losses for a larger proportion of voters than has been appreciated; there is no credible evidence that a majority of voters are willing to accept a substantial or even moderate economic penalty for quitting the EU.

All of which speaks to the fact that it is no given that the UK is heading for a hard Brexit, though it would have been more tactically competent if the UK government had held off giving article 50 notice until the autumn after crucial elections in the UK, France and Germany.

Getting the UK out of the EU will be no easy business politically, let alone logistically. Far less of a challenge has cracked ruling parties in recent years. Who knows? We may even one day get another pragmatic centrist administration to try and sort this out and bring an increasingly divided and tribal society together.

In the meantime, commercial law firms are holding up better than expected through the 2016/17 season. It will be bumpy but the prospects for the legal industry look considerably more robust than many sectors of the UK economy. It’s just as well the profession is learning to live with uncertainty from across the political spectrum.