The UK and Europe

The politics of business

Peter Wilding / Nov 2017

Liam Fox and Amber Rudd. Photo: Shutterstock

Often business thinks that, despite all the political noise, a deal will happen. It is after all the rational, logical, business-like solution. Sage business leaders talk to me in conferences and media studios winking that it’ll be alright on the night and trade will continue as before. They are doubtless great at turning a profit but they could be wrong.

In his 1909 book, “The Great Illusion,” Norman Angell said that a great war would not happen because the economic costs would be disastrous. He forgot that politics and the people who practice it have other priorities than just keeping the flow of widgets unimpeded. The same illusion stalks Brexit because business is occasionally blind to the ideological forces which are driving the government to a no deal rupture. The 58 impact-assessed sectors which are troubled by the consequences of the UK leaving the single market and the customs union need to know three things:

1. Why does the hard brexit option survive?

2. What is the likelihood that the government will fall?

3. What is the likelihood that this or a new government will change its policy?

On the first point, business should not underestimate the ideological belief held by up to 100 core MP believers that short term economic pain is worth the perceived long term gain of remodeling the British economy as a low-tax, low-regulation entrepot. They welcome a US-UK trade deal which opens up American investment for further privatisations such as in the health sector. Doubtful Conservatives are persuaded that the party cannot resist Brexit not least because their members, voters, media and financial backers support it. After all, completing the Thatcher revolution is why they are Conservatives. It is the policy that dare not speak its name.

But what chance that this quiet revolution could happen? Quite high. Because, on my second question, the received wisdom is that, despite its woes, the government’s path to March 29th 2019 and beyond to 2022 is linear. However, business needs to look at the politics of December when the following events threaten the survival of the government: 

a)            The government loses key amendments in the Withdrawal Bill on the Brexit date, the  “meaningful” final vote, the Henry VIII powers, the ECJ jurisdiction and the abolition of the  Charter of Fundamental Rights

b)            The government fails to persuade the European Union that “sufficient progress” has been made on the three  phase 1 issues: money, Ireland and citizens’ rights

c)            The government could suffer further destabilisation as a result of further turmoil such as the potential resignations of Damian Green over the sexual harassment allegations and Boris Johnson over  the Nazanin Ratcliffe imprisonment. 

It is right that, for now, Theresa May is in the air raid shelter protecting the hard Brexit policy. All things being equal, the hard Brexiters will keep her tied to the mast until Brexit is delivered. But in politics things are never so easy. If one or more of these events occur, Theresa May’s command and control will be fatally shattered. She will be the captain of a rudderless ship without a chart or a vision. Boris Johnson, should he see that for him the only way is down, might seize the moment to abandon the government, denounce the PM as visionless, and declare a policy of walk-out to achieve his brave new world. It would only take 8 Brexiteers to join the 40 MPs already prepared to overthrow May and she is toast.

Cue a quick leadership election. In a battle between a hand-wringing former Remainer such as Amber Rudd and a bold Brexiteer demagogue there would be only one winner. At this point, there would be no compromise and no negotiation. The government might then stabilise, but the odds of a vote of no confidence in a government potentially deprived of the support of 30 Tory MPs and perhaps the DUP would soar. If at a 2018 general election Labour is returned to power, Brexit would die. Not least because, as current polls suggest, Corbyn would not achieve an overall majority. If the keys to Number 10 can only be his through a coalition with the SNP and the LibDems, then the price is the revocation or extension of article 50.

Even if none of the above occurs, and May resiliently survives as Callaghan and Major did in their own dark minority government days, 2018 will still be a minefield blocking the linear march to Brexit. So, on my third question, what is the likelihood that this or a new leader will change their policy? That depends on six indices which have been sleeping in 2017 but which may awaken. If they do, currently dormant MPs, fatalistically accepting the will of the people but against hard Brexit, might begin to change their mind:

·         Inflation: though stuck at 3% now, 2018 may see a consistent rise on food prices and other household items whilst wages still stagnate.

·         Unemployment: though down to 1.4m today, 2018 may see a rise whilst relocation and divestment decisions fill the newspapers.

·         The stock market: whilst rising now, the prospect of no deal or external events may cause a decline or crash. Not to mention increasing evidence of business problems or closures in MPs constituencies.

·         The pound: already at a low level, failure to progress in negotiations or government turbulence could force the pound down to parity against the euro.

·         Party opinion polls: with the parties’ polling at level-pegging, MPs have no incentive to question their leaders’ direction. 2018 may bring a significant shift against the government.

·         Brexit opinion polls: so far so steady, leavers still draw in 40% though those that feel Brexit is a bad idea are now consistently ahead. If this poll changes and delivers a bregret message, MPs will have to listen.

Of course, nothing might happen. But if one or more of these indices provide evidence that a bad deal departure would damage both the UK economy and its wider national interest, the day Parliament gets its vote on the promised Implementation Bill there is little doubt that it will be amended to include a clause either mandating the government to extend article 50 or revoke it altogether. If there is no deal on offer and therefore, as of today, no Commons vote, a constitutional crisis would most probably result. This will be the final battle between the hard Brexiters and those that seek a way out.

If a week is a long time in politics, the 17 months left before Brexit day is an age. Which is why now all CEOs must understand the business of politics. It is irrational, illogical and far from predictable.  

Peter Wilding

Peter Wilding

November 2017

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