May 3, 2017
British Prime Minister Theresa May last week called an election for June 8. The purpose is to get herself a larger majority and more time with which to negotiate a Brexit (British exit from the EU) deal. (This must be completed by March 2019; but may involve some interim arrangements.) Since her Conservatives are 20 points ahead of Labour in the opinion polls, the opportunity was too good to miss.
If she gets a majority of 50-70 or more rather than her current 17, she will be able to ignore the eccentrics on both wings of her party, who want either no Brexit or a Brexit that cuts off all ties with the EU. However, further analysis of British voting patterns suggests she may have played an unsuccessful game of Russian roulette.
At first sight, May’s position looks pretty good. She leads Labour by 44 points to 24 in the latest poll, with the Liberal Democrats a poor third at 12%. However, perhaps as many as 150 of Labour’s seats are in ultra-safe industrial areas where the Conservatives are unlikely to penetrate. (It does not help that this election is being fought on the old parliamentary boundaries, set in 2005-08, giving the Conservatives an automatic 20-25 seat disadvantage.)
Conversely, the Liberal Democrats were reduced from 57 seats to 8 at the 2015 election. If they recovered their 2010 position, and the Scottish Nationalists retained most of their current 56 seats, it would be effectively impossible for May’s Conservatives to have an overall majority.
A Liberal Democrat revival is not as unlikely as it appears. If you look at the EU Referendum voting patterns of the Westminster constituencies, even though Brexit passed by only 52% to 48%, a large majority of constituencies, some 409, voted for Brexit, while only 241 voted for Remain. If voters in June’s election voted as they voted in the referendum, there would be a solid Brexit majority, although that would be split between the Conservatives, Labour and the UK Independence Party.
Not all Conservatives are with May
The danger appears when you see that there are 80 Conservative-held seats that voted by a majority for “Remain.” These are not the rock-solid Conservative seats in the shires, most of which were solidly for “Leave.” They are instead the soft-centered underbelly of Conservative support, almost all in London and the South, with a high proportion of woolly-minded rich voters with a nasty tendency to defect to the Liberal Democrats.
My own home constituency of Cheltenham is typical of this class. Liberal Democrat from 1992 to 2015, it went Conservative in 2015 by a modest margin, but then voted by a substantial 57% to 43% for “Remain.” If Cheltenham stays Conservative on June 8, whatever May’s nominal poll lead over Labour, I’ll eat my favorite Panama hat.
This is a gamble
It therefore comes down to a simple equation: can May capture enough Brexit-oriented Labour seats in the North and Midlands to offset her losses of mushy Remain oriented southern and London seats to the Liberal Democrats. It is by no means certain that she can, and very likely that the Liberal Democrats will poll far more than their current 12% of the vote on June 8.
Independence Party will not gain seats
There are some complicating factors. It seems likely that the UK Independence Party, which captured 12.7% of the vote in 2015, will see its support decline sharply, on the grounds that Brexit has already been achieved, (they think.)
A majority of that support will go to the Conservatives, some to Labour and very little to the Liberal Democrats (though much of it may have come from the Liberal Democrats in 2015.) That should help the Conservatives, but it is already built into their opinion poll lead. Also, the Scottish Nationalists are likely to lose a few seats, both to Labour (who were slaughtered in 2015 in Scotland) and to the Conservatives – any Conservative gains here will help.
Conservatives without a clear majority?
Nevertheless, the probability must be quite high that when she wakes on June 9, May will find that her gamble has failed, and that she is in a fairly similar electoral position to David Cameron in 2010, short of a majority and needing to form a coalition (Labour will probably be much weaker than in 2010, but the Scottish Nationalists will be much stronger, and the Liberal Democrats may well be sitting on 80 seats rather than 2010’s 57.)
No path to a workable coalition
The difference from 2010’s result will be that it will be difficult or impossible for May to form a coalition government. The Liberal Democrats and Scottish Nationalists are both committed to remaining within the EU, so they will not form a coalition with May who is committed to leaving it.
It really seems implausible that the Conservatives could form a coalition with a Labour party led by the hard-left Jeremy Corbin, even though Corbin also wants to leave the EU. Most likely a coalition would be formed between Labour (minus Corbyn) the Liberal Democrats and the Scottish Nationalists, committed to reversing the Brexit decision, increasing the size and regulatory scope of government in every direction, and economic illiteracy in general.
Brexit is irrevocable
A mushy-left coalition committed to reversing the Brexit decision would face one major problem: under the terms of the EU constitution’s Article 50, Britain’s decision to exit the EU is irrevocable; the two-year waiting period is merely used to negotiate the terms of the divorce. Should a new British government determine that the result of the June 2017 election nullified the result of the June 2016 referendum, the EU would not be obliged to allow Britain to remain within the EU on the terms of its previous membership.
Strong anti UK sentiment in the EU
Given the bad will towards Britain of the European Parliament and several of the EU’s leaders, notably Jean-Claude Juncker, it is likely that several of the favorable deals Britain negotiated with the EU in the past would be withdrawn. Financial services legislation would be restructured so that (in the hope of the EU’s leaders) the EU’s financial center would move to Frankfurt, Berlin, or (as a reward to the EU’s new pet Emmanuel Macron) Paris. The refugee center at Calais would be moved to Dover and Britain would be given a thumping new refugee quota. The European Court of Justice would declare several time-honored British institutions, such as 5-day Test matches and Marmite, to be gross violations of human rights, to be abolished immediately.
In a way, this would be poetic justice. The EU may be determined to exact a penalty for Britain voting to leave it, but it would certainly be reasonable to exact a substantial penalty for shilly-shallying and wasting everyone’s time. It is in any case clear that most Tory supporters of the “remain” position would very soon regret their pusillanimity, as the EU and the new leftist government combined to extract their economic and social kilos of flesh.
There has been much discussion about possible compromise positions a Brexit negotiation might take, for example membership of the European Economic Area. In practice, this would very likely bring the worst of both worlds. Britain would not regain control of its borders, thus admitting far more than the “tens of thousands” of immigrants annually that May thinks are the maximum Britain’s overcrowded islands should absorb. Britain would remain bound by the EU’s trade treaties, and therefore would have its access to foreign markets blocked by every protectionist in Wallonia or the Mezzogiorno who wished to preserve 19th Century economic structures.
Finally, Britain would remain bound by the imbecilities of the European Court of Justice and the Brussels regulators; it would have achieved very little extra freedom, and would not have saved much cost, either.
No deal better than a bad deal
Teresa May was right when she said that no deal with the EU was better than a bad deal. With no Brexit deal, Britain would be free to negotiate trade deals with all the countries such as India and the United States that have been unable to reach a satisfactory accord with the EU. With no deal, Britain would be free to regulate its immigration as seemed best to its statesmen and voters. With no deal, Britain would be free to engage in a “bonfire of regulations” that would push Britain ahead of both the EU and the Obama-legacy United States as a destination for international investment, especially in financial services.
With no deal, Britain would be able to set its tax, environmental and other conditions at a level that would allow it to enjoy the robust 3-4% growth rates which would be possible for a country of Britain’s intellectual and technological capabilities, were the dead hand of government to be removed.
A bright future?
For Britain, Nirvana is finally within reach. But to achieve it, the British electorate must resist the siren songs of socialism, Scottish nationalism and bureaucracy-friendly “liberal democracy” and May must prove herself the friend of free markets that it is not yet certain that she is. Given the track records of the British electorate and of Teresa May herself, neither of those conditions appears all that likely to be fulfilled.
Martin Hutchinson is a GPI Fellow. He was a merchant banker with more than 25 years’ experience before moving into financial journalism. Since October 2000 he has been writing “The Bear’s Lair,” a weekly financial and economic column. He earned his undergraduate degree in mathematics from Trinity College, Cambridge, and an MBA from Harvard Business School.
This article was originally published on the True Blue Will Never Stain http://www.tbwns.com
The views and opinions expressed in this issue brief are those of the authors and do not necessarily reflect the policy of GPI.