Theresa May’s entire political career has been characterised by caution. How ironic, therefore, that the only gamble she has ever taken has thrown the country into chaos, along with DUP support and could yet mean she loses her job.
As the UK voted on Thursday, June 8th the pollsters were almost as one. The Conservatives held roughly a 7 point lead, enough to see Theresa May back in Downing Street with a comfortable majority, ready to push through Brexit and govern for another five years.
The polls closed at 10 pm and as Big Ben finished chiming David Dimbleby announced the result of the BBC’s exit poll.
“We are predicting the Conservatives will be the largest party in a hung parliament.”
Cue a nation in shock and the vast majority of pollsters asking (again) ‘where did we go wrong?’
The initial exit poll gave the Tories 315 seats. In the event – with the final seat to declare, Kensington and Chelsea, going to Labour after a third recount – they ended up with 318. A resurgent Labour had 262, the SNP crashed to 35, the Liberal Democrats were up to 12, ‘Others’ had 13 and the Northern Ireland’s DUP had 10 seats.
Undeterred, Theresa May went off to take morning coffee with the Queen and came back to announce that she would be forming a government. Perhaps no longer ‘strong and stable,’ but she did intend to govern for five years. But where would her majority in parliament come from? Step forward the Democratic Unionist Party, whose ten MPs stumbled into the limelight on Friday afternoon like a factory syndicate that had won the lottery.
There are 650 seats in the House of Commons, but Sinn Fein has once again confirmed that their MPs will not take their seats: effectively that means there are 642 seats after another one has been deducted for the Speaker. Therefore 322 MPs are needed for a majority. Taken together, the Conservatives and the DUP have 328, giving a working majority of 14. That’s not far short of the majority Theresa May had before the election: perhaps that explains how she waltzed back into Downing Street as if nothing had happened.
But that majority of 14 is only notional. There are any numbers of situations, personalities and events that could overturn it. Hard Brexit/soft Brexit, more austerity/more government spending, the disagreements between the Scottish Conservatives and the DUP – and you have only scratched the surface. What was it the Prime Minster repeatedly warned us against during the election campaign? Ah yes, a ‘coalition of chaos…’
Who are the DUP?
The Democratic Unionist Party (DUP) is the largest political party in Northern Ireland. It was founded by the late Ian Paisley in 1971 at the height of the Northern Ireland troubles. It is now led by Arlene Foster and has 10 MPs, among them Ian Paisley Jr. and Jim Shannon – who has the remarkable distinction of being voted ‘the least sexy MP in the House of Commons:’ (a stunning achievement, given the competition…) The DUP is socially conservative, anti-abortion, opposes same-sex marriage, is Eurosceptic and supports the UK’s withdrawal from the EU.
Economically (based on their 2017 manifesto) they favour a reduction in corporation tax to 12.5%, low-tax, deregulated freeports (areas where imported goods may be stored duty-free) in economically undeveloped parts of the UK, the abolition of air passenger duty and reduced VAT for tourism businesses.
What does all this mean for Brexit?
“Brexit means Brexit.” “No deal is better than a bad deal.” All those previous soundbites can be consigned to history. Right now, no-one has any idea what the UK wants from the negotiations. ‘The best deal for Britain’ is a given, but everyone seems to have their own idea about what the ‘best deal’ is.
There are, however, some simple facts:
- The UK gave notification of its intention to leave the EU on March 29th. Unless all the other 27 member states agree to an extension, the negotiations – due to start on June 19th – must be concluded so Britain can leave the EU on March 29th, 2019.
- Politicians in the EU have not been slow to express their pleasure at Theresa May’s discomfort. Gianni Pitella, socialist leader of the European Parliament’s second biggest party said, “Her gamble has backfired spectacularly. She has no credibility in the UK or in Europe. She should resign.” Has Thursday’s result weakened the UK’s negotiating position? It is impossible to think anything else.
- A ‘hard Brexit’ – the UK simply exiting the EU without a deal and operating under World Trade Organisation rules – now looks very unlikely. The impetus, from influential figures within the Conservative party and from business, is to prioritise business and trade over immigration control.
Could Labour form a government?
By Saturday lunchtime it was being reported that Jeremy Corbyn was preparing his own Queen’s speech and was ‘ready to serve’ should Theresa May be unable to form a government. How likely is this? I would suggest that nothing will concentrate DUP minds like the possibility of power and nothing will concentrate Conservative minds like the prospect of Mr Corbyn as Prime Minister. My view is that the ‘Labour speech’ is more an exercise in being seen as a credible government should there be another election in the near future, rather than a document Mr Corbyn expects Her Majesty to be reading in a fortnight’s time.
What does this mean for the pound and shares?
The pound initially fell on the election result, but only slightly. At the time of writing it stands at $1.2743 having started the month at $1.2892 and been relatively stable in the Asian markets overnight. The FTSE-100 index of leading shares started the month at 7,520, closed at 7,527 on Friday and at the time of writing is down fractionally at 7,504. At the moment the markets seem to think that the Conservative/DUP arrangement will work.
However, what markets do not like is uncertainty. If a deal with the DUP is not concluded swiftly if Theresa May’s position is not clarified one way or the other and above all, if the markets suspect that Jeremy Corbyn may walk into 10 Downing Street – and John McDonnell takes up residence next door – then all bets are off.
What about business confidence?
The Institute of Directors has carried out a snap poll of 700 members following the Election. The news was not good, with the IoD reporting that business confidence has sunk ‘through the floor.’ They report a dramatic drop in confidence, with the IoD members seeing ‘no clear way’ to resolve the situation. However, there was ‘no desire’ to have another election this year, which the IoD believes would have a further negative impact on the UK economy.
You can only come to one conclusion: the current political turmoil is a wholly unnecessary mess and responsibility for it lies squarely with Theresa May. A week before the election Nigel Farage wrote in the Telegraph: ‘The more people see of her, the less they like her.’ By polling day it proved an accurate prediction.
Negotiations to leave the EU will start on Monday 19th June. For the sake of those negotiations – and for the sake of business confidence, the pound and the stock market, there needs to be clarity and stability over the Prime Minister’s position. Hopefully, that will come at her meeting with the 1922 Committee of Tory backbenchers on Monday night.