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Poll-axed: The City gets shock election result it wanted but EU vote looms after Conservative sweep

It has turned out to be the biggest election upset since 1992 and months of polling have been proved wrong but as the final results from the 2015 UK general election come in, the Conservative Party looks highly likely to win enough support to secure a working majority.

The results will be welcomed among the City and professional services community, which had been unsettled by a series of manifesto pledges from the Labour Party, including a rise in headline income tax, a proposed mansion tax and the phasing out of the controversial non-dom tax regime.

The results – which are projected to see Labour win less than 240 seats – utterly confounded months of polling that had consistently put the two main parties neck and neck, with neither projected to get near an outright majority.

With the Conservatives on course to win the 326 seats required for a narrow majority, the legal profession will have to contend with the realities of the one policy that generated huge unease in the Square Mile: an in-out referendum on EU membership before the end of 2017.

The referendum pledge was highly unpopular in the City, given London’s position as the dominant finance and professional services hub of Europe, as an exit could potentially have a major impact on access to the EU internal market. Polls suggest a referendum on EU membership would be highly uncertain, though the Conservatives have pledged to campaign for the UK to remain in the group.

A 2014 assessment by Clifford Chance sized up five options for an EU exit, concluding that the process would carry substantial risks as the UK strove to secure new arrangements on access to the EU market.

An exit would also lead to a complex unpicking of some UK laws from EU legislation. Even the prospect of the referendum is regarded within the profession as a threat to the City, with damaging uncertainty affecting confidence and investment as London faces the biggest existential challenge to its position since the late 1990s during the run-up to the launch of the single currency.

Commenting on the implications of an EU exit, Herbert Smith Freehills corporate partner Gavin Williams told Legal Business recently: ‘If you suddenly unplug the UK from a whole raft of European legislation covering lots of things like financial services regulation, product liability, health and safety, employee rights, intellectual property – a very big area here – it would have the potential to leave a huge gap with which could come great uncertainty and an enormous legislative burden. There would be a need to reproduce rules and that could lead to divergence of rules in the UK from those that exist in Europe. All of our clients would have to increase their resources to ensure they comply with these rules, whether it’s about how they package their food or how they protect their trade marks.’

A Conservative victory also brings in commitment to substantial fiscal retraction over the current Parliament. An assessment of the parties’ manifesto pledges by the Institute for Fiscal Studies concluded that the Conservative platform would require a dramatic tightening of spending, meaning an 17.9% cut in spending in real terms outside ‘protected’ departments such as health and education.

These cuts – coming on top of an 18.1% reduction in non-protected departments during the last parliament – will raise questions over feasibility. The Ministry of Justice was already one of the hardest-hit departments under the coalition government, including two highly controversial reforms of legal aid. However, justice secretary Christopher Grayling, who has become something of a bête noire in the profession, was re-elected in his constituency of Epsom and Ewell, with a 58% of the vote, a 2.1% increase on 2010.

In a rare piece of good news for Labour, Doughty Street Chambers’ Sir Keir Starmer QC, the former Director of Public Prosecutions, held Holborn and St Pancras after replacing the retiring Frank Dobson with 53% per cent of the vote.

In contrast, Simon Hughes lost his seat in Bermondsey amid a day of heavy losses for the Liberal Democrats, who have so far secured just eight parliamentary seats against 57 in 2010.

Unsurprisingly, the Conservatives’ focus on lower taxes and cutting spending was popular with commercial lawyers. Figures from Baker Tilly showed that a partner earning £1m would pay £43,508 more a year in income and national insurance under Labour than the Conservatives. A partner earning £500,000 a year would have paid an additional £17,060 in tax under Labour’s plans.

The election promises to have other legal and constitutional implications beyond the EU referendum, with the Conservatives pledging to abolish the Human Rights Act in favour of a Bill of Rights, a policy that has gained little traction among lawyers. In addition, there will be a fresh focus on the relationship between Scotland and England & Wales, given the sweeping gains made north of the border by the Scottish National Party (SNP). The party secured 56 parliamentary seats, against six in 2010, inflicting huge losses on Labour in a result that will be seen to raise fresh questions over the sustainability of the union. All major parties were already committed to further Scottish devolution following the referendum vote on Scottish independence last September.

The scale of the shake-up of the political landscape will likely have major implications for public policy in the UK for years to come, with Labour, having failed to make expected gains, facing an inevitable debate over its positioning and leadership as Ed Miliband steps down, the Lib Dems forced to reinvent itself following Nick Clegg’s resignation this morning and the rise of the SNP as a political force apparently here to stay.

Nevertheless, it will be the looming EU referendum that will quickly focus the attention of City lawyers, with most believing that membership has helped push London to its position as arguably the world’s top international finance and legal hub.

Slaughter and May senior partner Chris Saul commented recently: ‘The City would be somewhat diminished [outside the EU], though I’m a big believer in the strength of the English language. One great thing about this nation is it is very pragmatic. There is a tremendous spirit of “get on with it” here but it sure would be better not to have to try.’

For more comment on the election’s impact on the City and profession click here.

Subscribers can read Fault lines a detailed assessment of the election policies and the logistics of Brexit