How might the next government affect British business?

0
A woman walking past a polling station, illustrating the general election

How might the next government affect British enterprise – and what will be the impact of the recent and upcoming French and German elections on the UK’s prospects for a good deal with the EU? As we head to the polls for the 8 June general election, Andy Silvester, the IoD’s head of campaigns and deputy director of policy, considers the key issues

At 10am on 18 April, as a sleepy Westminster settled back into the rhythm of a parliamentary week after the Easter break, an email dropped into the inboxes of the journalists who work in the press gallery that overlooks New Palace Yard. “The prime minister”, it read, “will be delivering a statement at 11.15am outside 10 Downing Street.”

The announcement was shared within seconds on social networks. The SW1 twitterati – the strange community of commentators, journalists, lobbyists and policy wonks who inhabit the digital halls of Westminster – launched into an hour of guesswork. Home rule for Northern Ireland? Military action? Surely, given how explicitly the PM had ruled out an election on The Andrew Marr Show only weeks before, she wouldn’t be asking the nation for a fresh mandate?

The bombshell came earlier than expected. The cabinet meeting in which Theresa May told her most senior colleagues about her decision ended prematurely. At 11.09am she emerged and announced that she was going to the country. For some, the reaction was summed up perfectly by Brenda, a member of the public interviewed in Bristol for a BBC News vox pop: “Not another one! There’s too much politics going on at the minute.”

She is not alone – more than one political journalist has thought much the same. Three national polls in just over two years is one thing. But if you add the Scottish independence referendum in 2014, the Scottish parliament and Welsh assembly elections in 2016, the ongoing saga of Northern Irish elections and the introduction of metro mayors and local elections in 2017, it seems that we’re becoming almost Swiss in our attachment to the ballot box.

As we approach the final days of the election campaign, it’s worth considering the main challenges that await the new – or returning – prime minister. It’s also worth asking how the election of Emmanuel Macron and the increasing likelihood of a fourth term for Angela Merkel might affect the prospects for a positive Brexit settlement for British business. But first, why did May renege on her pledge not to call a snap election – and why now? As the Today programme’s Nick Robinson put it to the PM, what was it about your 20-point opinion-poll lead that prompted the rethink?

It is easy to forget sometimes just how fragile the government’s majority is and the trouble this has already caused. It may seem like forever ago in political terms, but cast your mind back to the end of 2015 and the backbench rebellion against tax credits. This year we’ve seen a revolt against planned changes to national insurance – swiftly ditched. Combine that with unrest about proposals to increase the number of grammar schools and you can see the appeal of turning a substantial poll lead into a substantial majority. This would, the PM claims, give her a stronger hand in Brexit negotiations. That may be more campaign rhetoric than reality: while there’s no question that many on the continent had thought that the UK wouldn’t actually leave the EU, the realisation has dawned that the referendum result is not for turning.

Many politicians on the continent have observed that even a May majority of 100 or more wouldn’t change the more important numbers game: 27 nations against one. Whether a stonking Tory win would persuade the EU to enact some much-needed liberalising reforms that could benefit the UK remains up for discussion. The main benefit would probably be that a small band of hardcore Brexiters on the backbenches would no longer be able to hold her to ransom.

Theresa May campaigning for the general election

Theresa May’s conservatives are the bookies’ favourites

The timing of the Brexit talks has been a crucial element of May’s decision. It’s unlikely that much of substance can be agreed with our negotiating partners in Europe until Germany’s federal elections, on 24 September, are in the rear-view mirror. With the summer “out” for elections – poll results are less predictable when many people are on holiday – the run-up to July became the only period during which she could realistically pull the trigger. A 2020 UK general election would only have been 14 months after the official end of our Article 50 negotiations. It’s widely acknowledged that we can’t sign a trade deal with the EU until we have left and that there’s likely to be a transitional phase as we withdraw, in addition to an implementation phase as we move towards new arrangements, so that timeframe looked a little tight. In short, it would have been very difficult for May to go to the country in 2020 with our future relationship with the EU not settled. The working assumption among those in Downing Street is that – if the Tories secure the win that they and the bookies expect – having until 2022 to finalise a deal before the next election would give them some much-needed flexibility in negotiations.

Despite the media focus, Brexit is not the only factor that prompted May to call this election. Manifesto commitments such as the triple lock on the state pension and the pledge not to increase VAT, income tax or national insurance have tied her government in knots. The prevailing opinion in the pubs of Westminster is that the 2015 Tory manifesto was largely concocted to fire up the base of the party enough to return it to power as a majority coalition partner, with many of the more costly and/or inflexible pledges to be negotiated away as a result. Whether this is true or not, only David Cameron and his chief election strategist, Sir Lynton Crosby, will know. Either way, a brief look at the country’s finances suggests such promises are not long for this world. The flexibility of a large majority on an explicitly May-ish manifesto could well empower her chancellor to make some significant changes on the domestic front with the implicit backing of the electorate.

But all this is based on one fundamental assumption: that the Tories will win. A victory is not nailed on, of course. Jeremy Corbyn and his team have done much of the policy running throughout this election, with proposals for more police and a manifesto that addresses key business issues such as skills and transport. The odds on Donald Trump were a lot longer at the start of his campaign than they are on Corbyn. The Liberal Democrats are mounting quite the charge on what is increasingly a single-issue campaign to avoid a hard Brexit. Their bid to win back seats in their former heartlands of the West Country and south-west London could still disrupt the electoral logic so beloved by the pollsters and the psephologists. 

Emmanuel Macron celebrates winning the French presidency

Emmanuel Macron celebrates winning the French presidency

The Macron effect

The clear short-term challenge facing whoever takes the keys to Downing Street on 9 June will be to establish a collaborative relationship with the EU. From May’s “constructive” (the UK take) or “disastrous” (the EU’s) dinner with EC president Jean Claude-Juncker to reports that our Brexit bill might be as high as £84bn, the mood of negotiations has returned to the bad old days of last autumn. This is a shame. The tone that May struck in her speeches at Lancaster House and at the World Economic Forum – of a Britain outside the EU but very much a collaborative partner – was more welcome.

In this context we should also consider the effect of Emmanuel Macron’s election to the French presidency. The youngest holder of the post is something of an unknown quantity, but the signs are that the former finance minister’s commitment to the European project is strong. One imagines he will work closely with Merkel, who is widely expected to secure her fourth term in September, to rebuild a Franco-German economic and political alliance that has floundered under François Hollande’s administration. While this at first glance seems to present a problem for whoever is in Downing Street, that may not in fact be the case. A pair of recently elected politicians from Europe’s two main driving forces could perhaps provide a valuable counterweight to those voices closer to the EU calling for the negotiations to be used as a warning to any other member state contemplating breaking ranks.

The new PM will, for political reasons, be keen to display early progress in two obvious areas: an agreement on EU nationals living here and UK citizens living abroad; and another to look for transitional arrangements at the end of the two-year period to allow negotiations to stretch for as long as is needed. Business backs both moves. EU nationals are doing much to fill companies’ skills gaps, while surveys of IoD members have continually shown that they would rather that the government takes its time to deliver a good deal for the UK, and seal a more wide-ranging free-trade agreement, instead of rushing to get something in place before a hard deadline.

Jeremy Corbyn campaigning in general election

Jeremy Corbyn has made much of the policy running with Labour

Home truths

While Brexit will dominate much of the PM’s first two years in office, the medium-term challenges have already been stated, in sometimes disarmingly frank language, in the industrial strategy consultation paper published in January by the Department for Business, Energy and Industrial Strategy. The document identifies a shortage of skilled workers, a surfeit of outdated infrastructure and a lack of productive collaboration between research institutions and business – among many other problems – as obstacles to growth.

Addressing these issues will not be an overnight fix. Those seeking – or promising – quick solutions should rein in their expectations. Structural weaknesses emerge over time and they take time to solve, but solve them we must. The new government has to act on responses to the industrial strategy consultation as soon as possible. Ensuring that we have a skilled workforce for the future requires decisions for the medium and long term, of course, but these need to be taken soon. Changes to education can take decades to filter through to the workforce. Addressing the lack of lifelong learning among adults, which is a cultural issue as much as a policy one, will take more than a flicked switch to solve. Just because policy levers pulled today won’t necessarily have an effect tomorrow, that doesn’t make their pulling any less prudent.

On infrastructure, the new government must do more to get the balance right between immediate upgrades and longer-term strategic planning. Often the temptation is to concoct what Sir Rod Eddington, author of a 2006 government report on the future of British transport, once called grand projets, which take years to get off the ground because they are so large and complex. In a world of limited resources, such projects can distract from the more urgent requirements. The need to upgrade rolling stock on suburban lines, lengthen platforms and speed up electrification is obvious on the rail network. But, with business people still predominantly using roads as their main mode of transport, the government should work with councils and local enterprise partnerships to identify and resolve pinch points. Such medium-term upgrades rarely make the headlines, but they often make more of an impact on productivity than those in Whitehall might think.

On housing, the new government should take advantage of its five-year window to make the radical changes desperately needed to fix a broken planning system. A wise elder statesman of Westminster once remarked that the trick to surviving in politics was: “Whatever you do, stay out of planning.” Sage as that advice undoubtedly is, we can no longer ignore the fact that we simply don’t have enough houses sufficiently close to economic centres in places where people want to live. Changes here are never popular, but they are necessary. The announcements made under the previous government simply do not go far enough. When the parties next go to the ballot box in five years’ time, any rancour over “heavy-handed” decisions on house-building is likely to have been forgotten.

Of course, it is not always easy for politicians to make such decisions. Electorally, few are rewarded for long-termism. That’s why the new government should prioritise working with businesses, charities and opposition parties on the defining long-term challenge of the 21st century: how to respond to the fourth industrial revolution. Fears of job losses as a result of new technology have been around for centuries. While the Luddites are the most famous opponents of progress, they are certainly not the only group of people to have resisted technological advances in a futile bid to maintain the status quo. What makes the innovations we are currently seeing so dramatic is the sheer pervasiveness and speed with which they are disrupting traditional working patterns. It’s this universality that prompted Andy Haldane, the Bank of England’s chief economist, to predict that 15 million jobs are at risk of being lost to automation.

Tim Farron campaigning in general election

Tim Farron’s Liberal Democrats oppose a hard Brexit

In the long run, each bout of worry in past generations about technology-induced mass unemployment has proved misplaced. In every round of technological change, some jobs have been lost, but ultimately more have been created. Yet that is no reason for taking a hands-off approach to the automation revolution. If we are to come out stronger as a result of these innovations, the new government has to move ahead of the curve straight away. We need to be particularly mindful of the impact of technological change on certain industries – from coal mining to warehouse work – and the fact that they tend for historical reasons to be the main drivers of employment in the surrounding areas. The new government must focus on identifying parts of the country most at risk of job losses as a result of technological change and work with local authorities and training providers immediately, rather than in a few years’ time, to help people reskill for roles more likely to provide gainful employment in the longer term. Burying one’s head in the sand is no longer an option.

It seems unbelievable that only two years ago you could find articles predicting that, after the Scottish referendum and a lengthy election campaign, it would be time for David Cameron to enjoy the fruits of his electoral success. George Osborne was the chancellor, rather than the editor of the Evening Standard. If the past few years have taught us anything, it’s that politics remains unpredictable – to borrow a phrase, all that is solid melts into air. For whoever is PM on 9 June, when it comes to addressing Britain’s challenges, speed is of the essence.

Andy Silvester is the IoD’s head of campaigns and deputy director of policy

@silvesterldn

Have your say by joining IoD’s Policy Voice via iod.com/policyvoice

More on the general election

The general election is a chance to influence the terms of Brexit, says IoD chair

2017 forecast: where does the economy go from here?

About author

Andy Silvester

Andy Silvester

Andy Silvester is the IoD’s head of campaigns

No comments

Time limit is exhausted. Please reload the CAPTCHA.