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Labour Party Conference: Five key takeaways

As Labour concludes its annual party conference in Liverpool, Tom Frackowiak Partner and Head of the WA Financial & Professional Services practice outlines his five takeaways for business:

Five takeaways from Labour conference in Liverpool:

1. Conference momentum: Labour will be ecstatic with how the conference in Liverpool went! A record number of attendees, speeches from the Leader and Shadow Chancellor that landed a narrative focused on “national renewal” and rebuilding Britian, packed fringe events and receptions. The business community also turned up en masse to listen and engage with Labour’s vision for the UK economy. As one Shadow Minster said to me slightly tongue in cheek, “we are now the party of business”; having been in Liverpool it is hard to argue with that assertion.

2. Labour engagement will be difficult: Businesses in Liverpool were highly complementary of the efforts made by the Labour team to engage with their sectors, but many still struggle to secure individual meetings with Shadow Minsters and their advisers to have more detailed discussions on policy direction. Again, looking at the number of businesses in attendance in Liverpool this is unsurprising. Clear thought and consideration need to be given to how you achieve cut through! How is your business essential to Labour’s programme for Government?

3. So, listen to the words from conference: To get cut through, business need to show how they will help a Labour Government “build”, “invest”, “innovate” and deliver a “new direction for skills”. With aspirations to be a “Mission Government” how does your businesses corporate agenda align with Labour’s five national missions? Can this be framed in the short, medium, and long-term?

4. Still a lot of policy detail missing: While Labour has set out an overarching vision for Government there is still a lot of detail that businesses to hear for planning and investment decisions. Currently Labour’s ‘national wealth fund’ is doing a lot of heavy lifting for its economic vision for the UK economy. In sectors like financial and professional services – which only has four paragraphs in the final 112-page National Policy Forum paper – there is an eagerness and anticipation to know more.

5. Labour haven’t won the General Election: While clearly momentum is with Labour and national polling gives the Party a consistent double-digit lead over the Conservatives, there may still be over a year to go until a General Election. While there is a clamor from business to get to know Labour the General Election results of 2015 and 2019, plus EU Referendum should be a warning that election results can often ‘surprise’. Any strategic approach to advocacy and engagement should adopt a holistic or multi-stakeholder approach.

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Sunak shatters consensus on HS2 and opens new questions on UK transport policy

In the last 14 years we’ve had four General Elections, six Prime Ministers and nine Transport Secretaries. We’ve also had consensus among the leaders of the big political parties that HS2 is a good thing and needs to happen. Yes, it has been trimmed along the way, and phases have been delayed, but the idea has survived – and Ministers have been proud to talk about the benefits.

Yesterday all that changed when Rishi Sunak announced he was cancelling the rest of HS2 – everything except Phase 1 from Euston to just north of Birmingham. What’s more he didn’t just cancel it – the way he spoke about it was deliberately critical. HS2 is not just the ‘wrong project’ but the ‘ultimate example of the old consensus’. It’s difficult to imagine any Minister in this Government talking positively about HS2 again.

Here are a few reflections on what this announcement means.

First, the risk premium for new infrastructure in the UK. This is a public sector project but one that has been highly visible around the world. The inward investment strategies of some of our largest cities outside London have been based on it. A whole structure of advice and planning – the National Infrastructure Commission – started at the same time as HS2. Whatever the merits of the decision, investors will see it as another reason to be wary of government. They may think (unfairly) the UK just can’t do infrastructure well. Both major parties could usefully think about how to reassure them.

Second, it’s not just a consensus about HS2 that has gone: transport policy is now more unstable than at any time in the last 15 years. Expect to hear more from the Conservatives about car drivers and private individuals, less about active travel and modal shift; more about towns and suburbs, less about our biggest cities. There’s an obvious political dimension to this but the Prime Minister no doubt believes in it too. It’s also possible to discern another force at work: the Treasury, one institution that consistently opposed HS2. George Osborne overruled his officials when he was Chancellor, but it’s not difficult to imagine their advice to Rishi Sunak – the enormous risks of mega-projects, their poor returns compared to smaller schemes, especially roads.

Third, the Government has now created a huge range of hard questions by its commitment to Network North. Transport infrastructure is complex: it takes years to plan, get consents, design and build successfully. The plan includes everything from extending existing schemes (£2 bus fare) to new projects that sound just as challenging as HS2 (£12 billion for Liverpool-Manchester, over £2 billion for Bradford-Manchester). But the money that has been saved on HS2 would, mostly, not have been spent for years: when will these new projects happen, who will lead them, how will they be funded? Expect DfT to be busy for years answering these questions – and note caveats in the official document about costs, business cases, benefits and funding profile.

Finally, whatever happens to these plans, the transport sector needs to think long and hard about the story it wants to tell, and how to respond to this challenge. Even if Sunak’s term as PM is short, the story he is telling about transport is not going to go away – nor is that old consensus going to re-emerge.

 

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Railing against the consensus – Conservative Party Conference and Transport

After weeks of speculation, Prime Minister Rishi Sunak has used his keynote speech at Conservative Party Conference to wield the axe against HS2’s Birmingham to Manchester leg.

The announcement is the latest shift from the Prime Minister that impacts the transport sector and reiterates the prominence of transport issues as we head towards an election in 2024.

What happened at Conservative Party Conference?

HS2 cast a shadow across the Conference. Whilst rail featured heavily on the fringe – covering topics from rail reform, contracting, rolling stock and decarbonisation – the debate over HS2 predictably dominated discussion.

Leaks meant that industry, Ministers, backbenchers, and regional stakeholders all sought to make their case ahead of the announcement, with West Midlands Metro Mayor Andy Street unsuccessfully trying to fight a rearguard action. Many on the fringe and across the sector will be frustrated by how No10 has handled the comms for this announcement, especially considering reports first emerged weeks ago.

Sunak’s alternative to HS2 is the reinvestment of £36 billion into the new “Network North” plan. Spending will be spread across new road, rail and bus projects aimed to improve interconnectivity across the North and beyond. However, there is little to cheer for the rail sector with DfT subsequently confirming that only about 30 percent of the funding will go to rail, with the remainder for local transport and roads, and no new capacity for north-south rail passengers.

Whilst rail dominated Sunak’s remarks, Transport Secretary Mark Harper reiterated the government’s focus on motorists.

His ‘Plan for Drivers’ brings together 30 measures aimed at improving car journeys at expense of bus lanes, low traffic neighbourhoods and travelable 15-minute communities. It is the latest example of how the Conservatives want to project a ‘pro-car’ image, and position Labour as ‘anti-motorist’.

Other modes of transport – plane, maritime, active travel and more – were largely absent from the focus of senior politicians in Manchester.

The reaction to Conference

Sunak is realistic his announcements will not be welcomed by industry or many politically and predictably the immediate reaction has been largely negative. This was borne out by the criticism from prominent Conservative and Labour Party figures who have been quick to raise concerns and reflect doubt about the Network North alternative.

On social media, for every positive post there are three negative.

Stakeholder reaction

The Prime Minister’s gamble – like with the delay on petrol and diesel cars – is that it reignites support for the Conservatives among the voting public that he needs to win over in more rural and suburban parts of the country.  He will be cheered to see positive support from several Conservative MPs in critical swing seats in the North.

What to look out for from Labour Conference

Yesterday’s announcement is the latest attempt in transport policy from Sunak to create a wedge issue between the parties. Labour must decide if it will support the government’s plans or risk supporting a project widely recognised as poorly run at the expense of many alternative projects that the electorate may prefer.

Like with continued support for the 2030 ICE ban in favour of EVs, Labour is caught between a rock and a hard place. Labour will need to use the Conference to set out its plans and give industry more confidence about what the future could look like, without falling into the Conservative bear trap.

For business, the transport battleground will require careful navigation. To be heard, sectors will need to recognise the competing priorities of both parties and how their case can align with them without becoming the focal point of a new debate. This calls for a balancing act of discreet engagement married with public communication that builds support with both.

To discuss how to achieve this balance, please get in contact with me on jamiecapp@wacomms.co.uk.

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The roadmap to Party Conference

Labour’s National Policy Forum plays a leading role in shaping the party’s election manifesto.  

Chaired by Anneliese Dodds and made up of around 200 representatives of Constituency Labour Party, Labour Councillors, affiliated trade unions and socialist societies, and the Parliamentary Labour Party, it oversees the party’s Policy Commissions, and is currently drafting indicative policy documents ahead of the party’s annual conference in October. 

Over the weekend, the Labour Party held its first full National Policy Forum meeting since 2014. (Snap elections in 2017 and 2019 meant that under Corbyn, the policy-making process was expedited to ensure the Party could launch its manifesto on time ahead of respective general elections. Unlike his predecessor however, Starmer has had the benefit of having a long run-in to the policy making forum that will inform the basis of Labour’s next manifesto).  

This has resulted in greater transparency of the outline of the platform Labour will look to take to the next election. 

Whilst the meeting of the National Policy Forum is a private meeting of the Party and the manifesto will not be publicly available until Party Conference, LabourList obtained a full list of the draft policy platform earlier this year.  

In advance of the meeting, Starmer and Reeves have been keen to set the tempo by adhering unfailingly in their commitment to absolute fiscal discipline should they come to power, and have proudly declared that nothing in their manifesto will be uncosted. Starmer asserted to delegates that a Labour Government “is not a magic wand” to undo the last 13 years, recognising that his Party – should they come to power – will inherit a bleak economic outlook. This approach has not come without criticism, and accusations that Labour are not being bolder in their policy development led to major unions Unite and GMB walking out from what has reportedly been ‘hostile talks’ at the meeting. 

Despite concerns over controversial policies such as not scrapping the two-child benefit and promising revisions to anti-protest laws, the Labour Leadership saw off the more radical proposals from the left wing of the party, and avoided any formal votes on amendments; meaning that the draft policy document presented to members after this weekend will be the one debated at Party Conference this October*. 

Over the Summer period Labour will look to hone its messaging around these policies, consider how to market them to the electorate and ensure the rumblings from the more disenfranchised elements of his Party are addressed.  

Labour will begin to slowly change the dial from development of policy to consolidation of it, and businesses should be aware of the narrowing window between now, Conference, and into early 2024 to try and influence manifesto development.

For Starmer and his team, the weekend will bring relief. Despite some friction, he has a clear mandate from his Party and its delegates to take forward to Party Conference in October. Buoyed by the by-election victory in Selby, Starmer has done enough to knit together warring factions to present a united front to the electorate as the general election begins to come into view. 

* Whilst the manifesto would normally be based on elements of policy developed by the NPF and voted on by members at the party’s annual conference, there is no formal obligation for the manifesto to include policy put forward by the NPF and the party’s membership. 

Next Left, our recent Guide to Engaging with the Labour Party, sets out the party’s policy-making processes and timeline in more detail. 

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How can government and business collaborate to create ‘good’ economic growth?

I’m a great believer that there’s something you can call good economic growth. That’s growth which creates real wealth and good jobs, but does so in a way that is lasting and respects the greatest sources of wealth we have – the planet and its people.

There’s never been a time when bringing these things together has been more important – whether to improve the state of Britain’s economy, or to address the most profound challenges of climate change and biodiversity.

For all our recent turbulence, Britain has giant strengths. These can create immense opportunities when we bring them together well: not just great companies and entrepreneurs, but also some great public institutions including our universities, legal system, and the Civil Service. These are globally respected and have huge potential as sources of value.

Most of my 30 year career in and around Government was spent doing what I’ve just described – trying to bring Government and business together to create lasting benefit for society. Then I called it micro-economic policy, and it’s what I did at HMT for 15 years – whether getting private investment into infrastructure or creating a better tax regime for entrepreneurs. It’s also what I did on the Board at Ofcom: I spent 7 years helping to set up the regulator and then run it. It was also a big part of the nearly 10 years I spent as a Permanent Secretary, or CEO-equivalent, across the Department for Transport, Home Office, and for a little while the Department for Business.

In fact one of my proudest achievements as a Permanent Secretary was helping to shift the mindset at DfT so that it was a bit less focussed on extra concrete and steel – the traditional answer to transport problems – and more focussed on radical innovation. The UK’s strong story on EVs today can be traced back to the partnership we created a decade and more ago between business, government and academe: to my mind that’s a model for government and business working together.

Chairing WA’s Advisory Board now gives me the opportunity apply this experience to help WA’s team and clients. One of the reasons I was keen to join WA was that its own approach – the emphasis on collaboration – is really well aligned with my own. And real collaboration starts with really good understanding: not just of the policy challenges and constraints that might be faced by the firms WA advises, but the longer-term goals and the sense of opportunity.

And my hunch is that after the Election, whoever wins, that theme of good growth is itself just going to keep on growing.

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In Conversation with Steve Richards

WA Senior Adviser, broadcaster and journalist, Steve Richards and WA’s Head of Public Affairs, Marc Woolfson, provided their take on the latest developments in Westminster and Whitehall, and unpacked what this means for anyone seeking to engage with the Government and understand the potential priorities of a Labour administration.

This conversation is the latest in a series of discussions with senior political and media figures hosted by WA.

Yesterday morning, Steve shared his insights on the mood at No.10 before providing reflections on the Government-in-waiting and Starmer’s preparations to ‘take back control’ of the country.

We’ve outlined five key takeaways from the discussion below:

1. General Election still predicted for Autumn 2024

At the time of our conversation with Steve, the Privileges Committee had just released their report on how Boris Johnson misled the House. Following the resignation of Johnson and Nigel Adams over the weekend, Sunak now faces (at least) two challenging by-elections in Uxbridge and South Ruislip, and Selby and Ainsty. Amidst this upheaval, some in Labour are hoping for a snap election.

Steve, however, is still setting his sights on an election in Autumn next year. From his viewpoint, although there will be continuing challenges for Sunak arising from this event, Johnson’s exit from the Commons marks a significant diminishment of his political prowess and danger to Sunak.

Unless we see a significant closing in Labour’s lead, Sunak will likely delay the election in the hopes the tide will change by next year.

2. Zombie Parliament: Sunak’s five pledges

Beyond firefighting a constant stream of internal upheaval and scandal, Sunak remains focused – if not obsessed – on achieving the five pledges he set out in January (halve inflation; grow the economy; reduce national debt; shorten NHS wait lists; and stop the boats). Halving inflation by the end of this year is a must as Sunak cannot afford to approach an election with rising inflation rates.

As a result of this focus, there is talk of a ‘zombie parliament’ at Westminster. For the foreseeable future, activity in Parliament will mainly be used as a mechanism for building up to the election rather than to pass any weighty pieces of legislation. As an example, long-awaited proposed reforms to modernise the UK rail industry have fallen by the wayside.

Ultimately, there simply isn’t much legislative time available to the Government with preparation for the party conference in October, and long recesses pushing MPs back out to campaign in their constituencies.

Anyone seeking to engage with Government on legislation over the coming months may struggle unless it falls within the remit of Sunak’s five priorities.

3. Keir and Reeve’s cautious policy: Nothing without funding

Keir Starmer and Rachel Reeves are taking a cautious approach; every piece of policy is submitted to Keir’s office for scrupulous checking for any claims that might imply an increase in spending.

The party’s proposal to scrap ‘Non-Dom’ tax status – which Labour says costs the Exchequer £3.2bn – is increasingly the answer to almost any question about the viability of its spending plans.

But with Jeremy Hunt rumoured to be looking at announcing exactly this move in the Autumn Statement, effectively removing this potential uplift from Labour’s plans, Kier is especially nervous about any discussion on spending.

Labour is also being very quiet on their policy plans and recently rowed back on commitments in their green recovery programme and on universal childcare.

In line with this preference for fiscal responsibility, as well as Blairite influences at the heart of Keir’s team, Labour is driving their focus towards policies that symbolise change without spending money, including technology, innovation, and AI.

4. Labour and business: Now until Autumn is the prime time to engage with Labour

Between now and Conference is an important time for industry to engage with Labour if they are looking to shape the direction of policy.

Starmer wants Labour to look like the party on the edge of forming a Government by the time Party Conference comes around in October. Speeches will need to be policy-rich, trailing their manifesto, which is already being drafted.

Labour is sincere in its claim that its door is open to business. Industry interest in the party serves as a reassuring recognition that they are viewed as the next likely candidate to form a Government. If Starmer wants to realise his mission to get the economy growing faster than any other country in the G7, Labour will need close relations with businesses to achieve this ambitious goal.

Jonathan Reynolds (Shadow Secretary of State for Business and Industrial Strategy) is expected to announce further details of Labour’s industrial strategy at Conference, formalising their goodwill towards industry.

However, if in power, relations may be more strained as Reeves seeks to fill her funding gap, with the potential for businesses to face new ‘stealth taxes’. Industry will benefit from putting in the groundwork now, during a period when Labour is reticent to reveal any tax rises that may make headlines during the pre-election test period.

5. Public sector and unions: The challenge ahead for a Labour Government

Winning the election will only be the first hurdle for Labour. Should they win, they are set to inherit a challenging landscape, especially in the public sector.

Unions present a considerable challenge. Labour hopes relations will improve through greater goodwill and by restructuring who is involved in negotiations. However, as New Labour did in 1997, Starmer plans to stick with Conservative spending plans for the first two to three years, so will not have the money to meet the pay demands of the unions.

On the NHS, Labour’s plans have been ambitious but vague. Although they highlight scrapping non-dom tax status as a means to pay for recruitment into the NHS, internally, Labour knows this will not be enough. Moreover, Wes Streeting has asserted his ambition to ‘reform’ the NHS but has not defined this ubiquitous term. Internally the party is divided on their position over the use of the private sector to meet capacity.

Starmer is also acutely aware that he has U-turned on many of his leadership pledges, including plans to abolish university tuition fees. At present, the current model for higher education would not see much change, however, if in power, university schemes and the graduate tax are areas Starmer may revisit.

The theme of the first term of a Labour Government will be dominated by one question: where’s the money coming from?

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‘Stopping the 8am rush’ – Is the plan for recovering access to primary care an oversimplification?

The primary care access plan is finally here. A comprehensive plan to mull over but difficult to have a full view in the absence of the workforce plan. It is coined by DHSC as “the first step to address the access challenge ahead of longer-term reforms”, but this is not to undersell its transformative potential. Primary Care Networks (PCNs) are now fully focused on delivering this plan which spans the introduction of better phone and online systems, pharmacies supplying medicines for more conditions, and more staff and more appointments – anything else will be deprioritised.  

The plan has been widely praised as championing innovation. However, there is a feeling that the plan doesn’t duly assess the risks and benefits of what has been put forward and is perhaps an oversimplification from DHSC and NHSE.  

On a micro level, in this blog we explore the potential impact on access of changes to the role of pharmacy, the Investment and Impact Fund (IIF) and Quality and Outcomes Framework (QOF).  

Broadening the role of pharmacists presents both opportunities and risks

Pharmacy First has arguably elicited the strongest discourse and feelings both good and bad. Outwardly, a number of high-profile pharmacy leads are supportive of the initiative but there is cautiousness amongst the health sector. In conversation with David Thorne, Transformation Director at Well Up North PCN, he noted the following challenges:

1. Interoperability: It is vital that GP and pharmacy systems speak to each other, and we avoid the fragmentation that has bedevilled GP systems to date. Currently, robust systems are not in place to inform pharmacists of what medication someone is on to support their prescribing decisions ─ apart from placing faith in very early use of the NHS App. We need consistency and safe links, especially when looking to enable people to use a pharmacy distant from their GP practice.

2. Pharmacy closures:  In theory, the enhanced role of pharmacists could make primary care more accessible. However, data reports that pharmacy closures have disproportionally been in the most deprived areas of England ─ so there is a risk that positive changes to the role of pharmacists’ conflict with national priorities around health inequalities. One of the main drivers of the shortages of community pharmacists is the PCN recruitment of pharmacists to work in primary care roles.

3. Right Place, Right Role: Community Pharmacies may not be able to develop responsive clinical governance systems that adequately respond to case mix escalation, for example when superficially routine consultations escalate to issues of drug/alcohol misuse, mental health and safeguarding. How can we support pharmacists to develop the skill, time and governance systems to manage the types of conversations that GPs have?  Extensive training and public awareness will need to accompany these changes.

This is far from a done deal with negotiations on the £645 million supportive investment ongoing. Further, there will be a consultation on upholding patient safety considering greater prescribing powers for pharmacists.

Polling results conducted by WA communications in March 2023 of 1,000 members of the UK public highlight that whilst there is public support for a greater role for pharmacists, there is some way to go to building public awareness of the services pharmacists can provide.

A word of caution surrounding progressive changes to the IIF and QOF

Further details of the streamlining of IIF and QOF were announced within the plan. Redirecting £246 million of IIF funds represents a major shift with 30% to be awarded by ICBs (integrated care board), conditional on PCNs achieving agreed improvement in access and patient experience. DHSC/NHSE guidance is that access improvement plans should prioritise supporting those with the lowest patient satisfaction scores.

Local flexibility must be at the heart of the re-design of incentives, without arbitrary access quotas for certain groups such as ethnic minorities or LGBTQ+, which could lead to under-funding and deepening inequalities. It seems that DHSC/NHSE are cognisant of this, explaining that the plan is designed to move towards a “more equitable approach that will benefit all patients” and “does not call out specific cohort of patients” for that reason. This must be pulled through at an incentive level to ensure certain PCNs such as rural PCNs who may have small numbers of certain communities, are not caught out.

NHSE further announced that, through a consultation this summer, they will explore how to link QOF to key strategies such as the upcoming Major Conditions Strategy. Ultimately, ICBs new commissioning powers will mean ICBs very closely performance manage PCNs. This goes against the ‘neighbourhood’ aspect of integrated care reforms, which will only seek to become more complex as preventative care models are adopted.

As always, implementation will be the true test. The plan comes with no standardisation frameworks or action plans attached. This passes the buck to PCNs and/or ICBs to operationalise, which risks fragmentation in the absence of nationally led advice.

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In Conversation with Toby Perkins MP – Unlocking opportunities to ‘earn while you learn’

Last week, WA Communications hosted a roundtable with Toby Perkins MP, Shadow Minister for Further Education and Skills, to discuss Labour’s approach to skills and lifelong learning, with a particular focus on the party’s views on degree apprenticeships. Bringing together key players within the HE, apprenticeships, and skills sectors, the discussion highlighted the potential of degree apprenticeships​ for learners, industry, and the economy.  

Perkins shed light on Labour’s current thinking around the skills agenda, confirming the party’s support for degree apprenticeships, advocating for FE and HE to “work hand in hand”, and calling for more investment in skills. However, he also stressed that spending the current levy funding should be the priority. 

At the event, WA Associate Director, Lorna Jane Russell previewed WA’s latest education research report on degree apprenticeships, presenting the findings from original consumer polling and setting out the challenges – and potential solutions – to expanding these qualifications throughout the UK. We will launch these publicly next week. 

Key Insights from the Roundtable:  

1. Degree apprenticeships have the potential to be a valuable opportunity for policy in lifelong learning, especially in the context of increasing education costs and the skills shortage. However, they are still not widely available, and there is a lack of awareness about them among the public. There is also a perception gap about the prestige of degree apprenticeships, which may deter potential applicants. 

2. To increase access and participation in degree apprenticeships, there is a need for new models that can widen participation and increase access to industry placements, especially for disadvantaged students who are currently underrepresented within the sector. This should be coupled with initiatives to support young learners in making the transition from school into work, including greater support throughout the qualification.  

3. The government has adopted an employer-led approach to degree apprenticeships, which means less investment and fewer opportunities for students. This approach may also limit the development of new models that prioritise access and participation, rather than just meeting the needs of employers.  

4. Universities and skills providers alike want to see more flexibility and fewer regulatory burdens in order to widen their degree apprenticeship offerings. Employer investment in skills is also down, and the apprenticeship levy needs reforming to be more flexible and help SMEs attract apprentices.  

5. Finally, there is also a need for investment in upskilling the existing workforce to deliver future jobs in decarbonisation and technology. Degree apprenticeships could play a role in this upskilling effort by providing a pathway for workers to gain new skills while also earning a degree and gaining work experience. 

 So, what’s the upshot for the skills sector?  

The cross-party consensus about the need to invest in skills training and degree apprenticeships favours skills providers, though universities that work with employers to offer degree apprenticeship qualifications will benefit. 

Labour’s promise of flexibility in their approach to the apprenticeship levy presents significant opportunities for skills providers to expand their degree apprenticeship offerings, and for universities to access a new funding stream. 

However, higher education could lose out to FE and apprenticeship providers in post-18 education reforms, so they will need to demonstrate how they can work alongside skills providers and local FE colleges to play a critical role in delivering on the reskilling agenda. 

While for policymakers, degree apprenticeships have the potential to be a valuable opportunity for lifelong learning and addressing the skills shortage, more needs to be done to increase access and participation, support new models, and revise funding and regulatory frameworks to support students to ‘earn while they learn’.  

 

If you have any questions or are interested in learning more about WA’s education team, please contact Lorna Jane Russell, WA Communications, at lornarussell@wacomms.co.uk

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E-scooters at a crossroads

E-scooter manufacturers, providers, schemes and riders have been left waiting for certainty on their future.  

After last year’s Queen’s Speech, Ministers confirmed their intention to legislate on e-scooters, moving beyond the time bound and limited role e-scooters currently have. Two Prime Ministers and 3 Transport Ministers later, the future of e-scooters is back up in the air.  

The Transport Bill – that would have been the vehicle for legalisation and legislation – has been a casualty of upheaval at the heart of government. Now Ministers and officials are left having to bid for parliamentary time again, with even fiercer competition for time in the last King’s Speech of this government before an election.  

Despite the transformational role e-scooters could play for travel, particularly in urban areas, there is a risk that new decision makers have lost track of e-scooters’ congestion busting, cost saving and carbon cutting benefits. The Ministers, advisers and champions that secured the announcement from government have moved on, and the new crop have yet to make a full throated endorsement.  

In the face of this challenge, WA’s latest transport temperature check polled public attitudes to e-scooters to analyse the challenges in the road ahead.  

Whilst there is still a route to legalisation and legislation, we have found that more of the public is opposed to e-scooter legislation. It means advocates start on the back foot, and need to both convince the sizeable number of ‘don’t knows’ (one in four people) and address the concerns of opponents. Safety risks to other road and footway users is the most commonly cited reason for opposing legalisation, driven by persistent coverage of dangerous incidents.   

If these and other concerns are not addressed, the case for legalisation will diminish. Ministers, advisers and officials will either be unwilling or unsuccessful in their bids for time to act in the King’s Speech later this year, with Number 10 instead deciding to focus on less controversial and easier to deliver policies. 

In turn, Labour has been able to stay largely silent on the e-scooter debate. There is a narrow window to ensure Labour’s transport team prioritises e-scooters, to keep pressure on the government now and ensure it does not drop off the agenda completely should they win. 

The next 6 months are critical if the industry wants to escape the legal limbo it is in. Only by delivering a gear change in engagement can the industry secure its long term future and make sure that the key political decision makers in both the Conservatives and Labour understand the benefits e-scooters will deliver for their agendas.  

Doing so will help build a new consensus on the future of e-scooters, but missing this opportunity means the wheels could fall off completely.

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Will the ‘Back to Work’ Budget work?

Sunak and Hunt are emerging from a bruising few months.

The cost of living crisis, questions about the fiscal competence of the Conservatives, and languishing poll ratings meant the duo face a political and economic mountain to regain momentum ahead of an election.

Today’s Budget therefore had to serve two purposes. It needed to continue the government’s response to the immediate economic and financial challenges facing businesses and households. It also had to offer a plan for the future, responding to Labour’s recent polling dominance.

Hunt responded to this challenge with a lengthy statement, which put meat on the bones of the Prime Minister’s five priorities and set out a direction for how the government plans to grow the economy.

Here are our key takeaways from Hunt’s Budget:

Economic growth is the central mission of the government

The more positive fiscal outlook – driven by falling energy costs and wider economic changes – has given Hunt more headroom to act. He used it to focus on supporting businesses and driving economic growth, which has become the defining mission of the government.

He will seek to achieve this by supporting businesses that invest through the capital expensing policy, further support for life sciences and creative industries and even producing a ‘Quantum Strategy’. It reflects a more targeted, transactional approach to this government’s relationship with business and prioritisation of high potential and high growth sectors. For those that invest, or have a plan to do so, this government wants to help those plans come to fruition.

The programme for growth can only be delivered with business help

The flip side of this Budget is a reflection that the government has limited resources, time and money to make big things happen. Governments of the recent past would highlight big infrastructure programmes to drive growth and support the economy. Even Hunt highlighted these types of policies in his last statement.

This Budget strikes a different tone. Through a mixture of tax changes and funds, government wants businesses to work closely with central and local government to deliver its priorities. The new Investment Zones are the clearest example of this, with government wanting combined authorities, universities and businesses to work together to drive regional transformation. It means that whilst the Government has set an overall direction, it is now looking to others to fill in the detail and help make its plans a reality.

Stealing a march on Labour

Labour has been on the front foot, with Starmer’s national missions defining the early battleground for the General Election campaign. Hunt’s statement began the Conservative Party’s fightback, stealing his headline childcare policy from Labour. By capitalising on Labour hesitancy to release specific details, the government has now taken the initiative in this debate.

Questions on the pace, scale and ambition of the policy are likely to follow in the days and weeks ahead, but the biggest impact could be on Labour. This episode is a lesson for Starmer and his Shadow Cabinet. By not fleshing out their platform, they are now at risk of a significant ‘love bombing’ operation from Sunak and Hunt. For businesses and public affairs professionals, it means Labour may accelerate its policy development and programme of big announcements.

The election starting pistol has been fired

This budget will focus minds in the Government and Opposition. Hunt focused his statement on the audiences that could provide a route to retaining power. More money for red wall constituencies, support for older voters and backing for businesses that could help fill the party’s coffers set itself up for the coming battle.

Meanwhile Labour faces a wake-up call that the road to power will not be straightforward and that there is still fight left in the Conservatives. A mixture of targeted funding, retrenchment of core messages on the value of work and businesses and the assault on Labour’s programme is the clearest demonstration of how the Conservatives plan on rebuilding their political momentum.

Sunak and Hunt will hope this Budget is the beginning of a long road back from the dismal poll ratings they face, and for Labour marks the first stern challenge they have faced since taking a commanding lead. The reaction to the Budget will define whether this is a turning point, or another nail in the coffin of the Conservatives.

To find out how the Budget is landing, and what it means for businesses, you can join our Budget analysis webinar by signing up here.

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Scotland needs Labour and Labour needs Scotland

I attended the Scottish Labour Party conference in Edinburgh at the weekend. It took place two days after the shock news of Nicola Sturgeon’s resignation. As a consequence, the mood amongst delegates was jubilant. The overwhelming feeling was that change is coming and a belief that the SNP’s grip on Scotland is finally loosening.  A YouGov study in the days before the First Minister’s resignation showed 29% support for the SNP, 27% for Labour and only 12% for the Conservatives. Labour now strongly believes that with the hugely popular Sturgeon gone they will receive a further electoral boost.

However, despite the buoyant atmosphere, key figures were keen to urge caution. Pat McFadden, Shadow Chief Secretary, speaking at a Labour Friends of Scotland fringe meeting, stressed that the enormity of the task ahead in delivering a Labour victory could not be underestimated. And both leaders, Anas Sarwar and Sir Keir Starmer, warned against complacency in their keynote speeches. The focus was very much on the need for economic growth and the failure of both governments, SNP in Holyrood and Tories in Westminster, to deliver what the electorate needs and deserves.

Meanwhile, the infighting amongst the SNP leadership challengers spilled over into the Scottish media. Nicola’s announcement clearly took them all by surprise. Her deputy, John Swinney, ruled himself out almost immediately. Humza Yousaf, the Health Secretary, and Ash Regan, a former minister, threw their respective hats in the ring. Angus Robertson, rumoured to be Sturgeon’s preference, has said he will not run and Cabinet Secretary, Kate Forbes, the current favourite according to polls, announced her intention to stand earlier today.

Back in the conference venue, the First Minster’s “legacy” was much-derided. Scotland’s denuded public services, the parlous state of the economy, unprecedented levels of poverty and the worst drugs record in Europe were all laid squarely at her door. She, and by extension her Government, had failed the people of Scotland and it is down to Labour to provide solutions. And for once, it did not feel as if this was Labour Party delusion. New candidates for the next election, including former International Trade Secretary, Douglas Alexander, were credible and inspiring. The optimism and need for change amongst the delegates was palpable.

Scotland was Labour’s original Red Wall, losing 40 out of its 41 seats in 2015. Based on recent Scottish polls, and bolstered by UK Labour’s poll lead, it is not beyond the realms of possibility that the party could win 25 seats next year. The outcome of the next election now lies as much in Midlothian as it does in the Midlands. Anas Sarwar deserves enormous credit for this spectacular turnaround and I predict a host of senior Labour figures visiting the length and breadth of Scotland in the next 18 months now that this realisation has dawned.

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A guide to the challenges of 2023: A tell-all year

As the second week of 2023 draws to a close, it’s clear the year ahead will be rife with economic and political challenges.

WA Partner Rhoda McDonald was joined by WA Senior Adviser, broadcaster and journalist Steve Richards to discuss the issues that will dominate 2023.

Here are our key takeaways from the event:

Labour finding it’s feet

The Labour party enters 2023 with renewed enthusiasm. Starmer is keen to whip the Party in to shape and prove they are a Government in waiting. As he prepares for an offensive, there will be high expectations for his cabinet to perform, and with reshuffle rumours circling, there will be no room for idlers.

His team has largely been moulded by a new New Labour era, with some Blair flair, and it is clear that top of his agenda is modernising central government, stimulating economic growth, and reforming the British energy sector.

One of the key policy differences between the Conservative Party and Labour is around industrial policy – Rishi Sunak shows no great interest in an overarching Industrial Strategy, whereas Labour’s looks potentially very substantial, extending to light manufacturing, transport, and even retail, to underpin their ambitions for higher productivity and growth.

A Tory Party divided

Meanwhile the Prime Minister is tending to a wounded Tory party and attempting to rebuild political and economic stability. With wavering Tory voters, and the threat of a new Reform Party poaching his MPs, Sunak needs to be constantly appealing to the public and his backbenchers if he is to retain control.

Although Sunak appears to be relishing the challenge and leaning in to his role as the peace maker of the party, it is unlikely to be smooth sailing as the year kicks off with headlines dominated by strikes and pay disputes.

It’s all about the economy

The country’s economy is top of the inbox for the current Government and the Opposition alike. As Sunak’s forte, he is busy emphasising his brand as the fiscally minded Prime Minister who can stabilise the markets and bring public spending under control.

For Sunak the pivotal moment will come in the March Budget. The Prime Minister had prepared a draft budget during the leadership campaign, which was very business focused – looking at tax rates, business needs, and how to get people back into the workforce. As Corporation Tax rises take effect this year, against a background of a dire economic environment, the message of ‘growth, growth, growth’, and delivering the incentives needed to shape company and labour market decisions, are likely to be at the forefront when the Chancellor stands up at the Dispatch Box on 15th March.

On the other side, Labour are in the midst of deciding whether they follow a New Labour approach and stick to Tory spending plans, or to reinvent the fiscal wheel and risk further unease. Either way, the position they take will be determined by Shadow Chancellor Rachel Reeves.

Fixing the NHS

With the NHS hitting the headlines every week, healthcare reform will be a prominent issue throughout the year. The Government cannot shy away from the mounting pressure to act.

Having already passed the 2022 Health and Social Care Act, the Conservatives are unlikely to introduce new reforms this side of the election. However, talk of how to use the private sector and discussions of outsourcing are starting to snowball, with Labour saying they would consider this approach to relieve demand on the NHS.

Energy crisis

While the energy crisis continues and with geopolitical factors such as the war in Ukraine determining future supply issues, the Government is facing further spending pressures. The clock on household support is running down, and businesses are already feeling the pinch.

The risk for Sunak is inaction should the energy crisis become more acute. Although he has been avoiding Government intervention, he will be forced to change tact and avoid taking heavy fire from Labour as they seek to differentiate themselves.

The Deregulation agenda

With growth set to be the buzz word of the year, the regulatory landscape remains a battle ground yet to be won. As the realities of an EU regulatory bonfire threaten chaos, the Government is looking at lighter regulatory initiatives.

With businesses calling for clarity over the regulatory landscape, there are opportunities for both the Conservatives to make their mark and for Labour to carve out fresh ground for putting the UK on the front foot.

All eyes on GE2024

2023 is set to be the tell all year. Sunak and Starmer are facing the toughest set of challenges any leader, especially a newly incoming Prime Minister, have faced for decades. How they respond to and address the economic turbulence and address the nation’s discontent will ultimately determine their fate at the ballot box.

While Labour may be 20 points ahead in the polls, Sunak’s momentum over the summer appears to have closed a once-gaping gap. However, unless either party makes marked progress on the issues of the year, the prospect of a hung parliament with a minority government will become a looming possibility.

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The UK and France – A Family Affair

The UK and France are like siblings. They may love each other deep down but most of the time they seem to be fighting it out. Always trying to outdo the other.

So it has been since 2016 – the year of Brexit – when the UK and France seem to have been at constant loggerheads. Then President François Hollande famously declared after the Brexit vote that “there must be a threat, there must be a risk, there must be a price” to the UK leaving the EU. President Emmanuel Macron continued that hardline stance, constantly criticising the arguments of the Leave campaign, opposing extensions to the UK’s timetable for leaving the EU and holding multiple ‘Choose France’ business summits to secure investment from overseas.

Events reached a nadir when, in this summer’s Conservative Party leadership campaign, Liz Truss was asked whether she considered Macron a friend or foe. Truss hesitated, smiled and looked out to the audience. ‘The jury’s out,’ she declared to cheers from the room.

Macron was asked about Truss’ remarks that same day. He paused, let out a long sigh and stifled a smile. “I don’t question it for a second: the UK is a friend of France,” he said. His face afterwards erupted into a broad grin – recognition that this was but the latest development in a very long-running family saga.

With Prime Minister Rishi Sunak at the helm, the relationship has taken a turn. At their first bilateral meeting at the COP27 summit in Egypt, Sunak and Macron were the vision of brothers reunited. All smiles, handshakes and ritual back slapping. After the event, Sunak tweeted that the UK and France were “friends, partners and allies” – a pointed rejoinder to Truss’ characterisation of the relationship.

So what do the ups and downs of British and French relations mean for business? Should investors take note?

The evidence of the last few years points to a mixed and often counterintuitive picture. The political drama of the Brexit years, for instance, had little effect on trade volumes. In 2015, total trade between the UK and France stood at £65.1 billion. It rose after the Brexit vote to £78 billion in 2017, £82.9 billion in 2018 and £84.4 billion in 2019 but fell again to £67.1 billion in 2020 – the pandemic year.

The same variation exists for Foreign Direct Investment (FDI). UK outward FDI stood at £60.5 billion in 2015, rising consistently every year to reach £85.5 billion in 2020. UK inward FDI stock stood at £69.6 billion in 2015, before rising and falling in successive years to end at £69.1 billion in 2020. The French stock market, however, has overtaken the UK’s as Europe’s most valuable. The CAC-40 has grown by 47% since 2020 while the FTSE 100 has only grown by 16%.

Steady trade volumes between 2016 and 2020 suggest that trade opportunities created by the relative weakness of the pound outweighed any loss of confidence that resulted from political hostility between the UK and France. The rally of exchanges between British and French politicians during the Brexit years were simply par for the course for business – a continuation of the long and complex rivalry between two countries stretching back a thousand years.

The variation in inward FDI since Brexit may be more nuanced, linked to broader investor uncertainty about the UK’s future outside of the EU. The disparity in the value of the French and UK stock market is more structural, linked to the nature of the businesses listed on the CAC-40 and the FTSE100 as well as recent political upheavals in the UK.

The immediate economic future for both countries is difficult but in different ways. Inflation in the UK hit 11.1% in October while inflation in France reached 6.2%. Unemployment in the UK stands at 3.6%, rising to 9.8% among those aged 16 to 24, while unemployment in France stands at 7.3% rising to 18.3% among those aged 15 to 24. Political difficulties are also plaguing the French President, with his party working with a minority government in L’Assemblée Nationale and the IMF stating that the French government should stop its “whatever it takes” attitude to support households and businesses through the energy crisis.

For investors, the key to understanding the effect of British-French political developments on investments means assessing the likelihood that the intense rivalry between the two countries and the relationship between its political leaders translates into policy changes that affect the ease of doing business in either jurisdiction.

In the meantime, the UK and France may soon be fighting it out again, with a quarter-final match between England and France in the football World Cup not beyond the realms of possibility. They could yet have another opportunity to showcase their rivalry to the world.

If you would like to discuss the UK-France relationship in more detail please contact our policy specialist Thomas Sharpe on thomassharpe@wacomms.co.uk.

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Autumn Statement 2022: A double-edged sword for a nation in recession

Today’s Autumn Statement paints a mixed picture for the UK, with growth, investment and long-term ambition perching on a knife-edge as Hunt announced a swathe of real terms cuts to public services and immediate tax changes for millions.

The core measures – NHS funding, short-term windfall taxes, and efficiency reviews – all point to the tough decisions a Government facing down a recession has had to take and will undoubtedly reassure the markets. However, it will almost certainly come at a further cost to the Conservative Party’s poll ratings amid fresh criticism of their understanding of the real-world impact of their policies and the OBR forecasting the largest fall in real household disposable income on record.

For Labour, today’s statement presents an immediate opportunity to go toe-to-toe with the Conservatives on the long-term vision for the country, with many of the measures announced today not due to kick in until after the next general election.

It’s all about tax

As ever, tax – freezing it, cutting it and introducing it – is the dividing line between the Conservative and Labour parties, with Shadow Chancellor Rachel Reeves MP immediately jumping on Hunt’s plan to freeze the basic rate tax threshold until 2027-28.

Coupled with the decision to reduce the threshold for higher rate taxpayers by £25,000 a year, today’s tax announcements will prove to be an unpopular move for a Conservative Party which was re-elected in 2019, committed to a low tax economy. The Government urgently needs to repair its reputation with voters ahead of the next general election, but it is unlikely these measures will do so, as it provides an immediate opportunity for Labour to cement its poll lead by going on the offensive over rising taxes and falling living standards.

Cuts, cuts, cuts

For departments now facing reduced real term budgets and efficiency pressures, the door will be open to businesses, industry voices and campaign groups offering solutions which improve the outlook for key industries and make sound economic sense.

Whilst protecting existing budgets until the end of the spending review period in 2025 is a sign of the Government’s commitment to minimising the immediate impact of the economic downturn on public services, ultimately double-digit inflation putting immediate pressure on pay deals coupled with a 2.7% reduction in funding increases going forward, points to a difficult period for a public sector that is already under considerable strain. There are also clear plans for widespread public service reform in the not-too-distant future.

However, with many of these real term cuts backloaded to after the next general election, public spending will now be a difficult territory for both parties – and particularly the Conservatives – as they tussle over long term spending commitments with voters.

Schools, the NHS and social care are cushioned

Additional funding and a public display of gratitude for schools has taken many by surprise, following speculation that the education budget would be amongst those facing a squeeze. The £4.6 billion additional funding announced today will go some way in plugging the funding gap the sector has long highlighted.

Pots of funding were also made available to the NHS and social care sector, totaling £8 billion next year. However, this was followed by an immediate double-edged sword of efficiency measures and improved productivity requirements, with a politically astute decision to announce a review by former Labour Health Secretary Patricia Hewitt to commence next year.

Having put the NHS and schools top of the priority list at the start of his speech, this double-edged sword of increased funding and pressure for future reform of the system is a microcosm for the Tory agenda.

The green agenda

Despite economic pressures, Hunt again reiterated the Government’s commitment to the 2026 COP agreement to reduce emissions, positioning the Sunak administration as more pro-environment than the Truss administration. But the energy and investment measures today suggest there is little meat on the bones for the green agenda.

A short-term windfall tax on energy companies and a new 45% levy on electricity generators might go some way in plugging the energy cost bill and reducing pressure on households, but coupled with a new tax for EV drivers, industry is likely to argue that this Conservative Government just made investment more difficult.

Difficult decisions ahead for everyone?

Taking today’s mixed bag of good news and downbeat outlooks as a litmus test for the debate ahead, there are difficult decisions ahead for senior members of both the Conservative and Labour parties as they consider their future economic policies in the run up to the general election.

The tax and spending picture outlined in this Statement will form the backdrop to an election campaign in which household budgets, long term growth and access to services are a central feature.

There are likely u-turns ahead from the Conservative Party and strongly worded criticism from the Labour Party, but ultimately with the economic realities difficult to ignore. Both parties will be in listening mode and looking for input on reform in regulated industries, the public sector and skills and innovation in order to build a blueprint for prosperity.

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Cabinet reshuffle: who’s who?

Rishi Sunak has reshuffled his Cabinet, looking to restructure government round his key priorities.  

With little positive movement in the polls and his government hit by a series of distractions in recent weeks, one hundred days in, this is Rishi Sunak’s attempt to regain momentum and refocus government on his core aims.

The Prime Minister has remodelled government to reflect the areas he wants to make progress on in the next 18 months. Taking over as Prime Minister at a time of economic crisis, making radical machinery of government changes before steadying the ship would have been difficult. He has long articulated his belief that the UK is lagging behind on science, innovation and technology, reflected in what is in effect intended as a new ‘department for growth’. On energy – the policy area that dominated BEIS – it has been clear for some time that the government’s focus is on energy security and resilience.

These reforms – and the ministerial appointments that accompany them – might theoretically be the right thing to do but the big question for the Prime Minister is whether they improve his political standing heading into the crucial election period. Major departmental and personnel changes take time and focus to bed in. They’ll be judged on whether they help meet the ‘five priorities’ the Prime Minister has set out, including driving economic growth.

This reshuffle provides an opportunity for businesses: making their case against these core priorities and helping the government meet their urgent need to show positive news and progress on delivery in these areas. New departments – and the ministers and advisers in them – will look for high impact, well-packaged ideas that align with government (and voter) priorities and create early wins.

To download the new cabinet chart, click here.

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Who’s in charge of resetting Government policy?

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‘The Grown Ups are back in charge’: Analysis of Post-Truss, and Rishi Sunak’s new Government

Last week it looked like Liz Truss’ legacy might not just be the smouldering remnants of the oldest democratic party in the world, but its possible extinction altogether.

Now, it seems her parting act has been something rather extraordinary – and for once, in a good way; the Conservatives now look, and feel, like they are in a more sane and unified place than for quite some time. No one is pretending the polls predicting almost total wipeout aren’t problematic, but the acute desperation that had set in amongst many Tories during the Truss tenure has dissipated, almost overnight.

Having sailed so close to disaster last weekend and the mad flirtation of a Boris return, it was almost as if by Monday afternoon the Conservatives realized they needed to re-find their collective marbles, sharpish. Their roar of approval as Rishi Sunak got to his feet at PMQs yesterday was in stark contrast to the awful, deathly, sickly silence of Truss’ later appearances.

As a first run-out, PMQs was quite spicy, with Sir Keir Starmer going straight on the attack over non-doms and the reappointment of Suella Braverman as Home Secretary, despite her having resigned over a security issue days earlier (watchers of the Westminster runes are suggesting ‘she will blow herself up sooner rather than later’). An occasional slight twitch of the PM’s right leg might have denoted some nerves, however, there was nothing here to cause him undue bother and the performance had his trademark polish.

So, to yesterday afternoon, back to building his team. Probably the biggest surprise of the Cabinet appointments on Tuesday was Penny Mordaunt remaining in the junior post of Leader of the House; she will have expected more – unless this is just a ‘holding pattern’ in expectation of Ben Wallace’s resignation from the Ministry of Defence if he doesn’t get the Truss-promised three per cent of GDP defence spending (allowing him to resign ‘on principle’, releasing him to go after the head of NATO job, which is what he really wants).

Michael Gove regaining his previous empire puts ‘Levelling Up’ right back up the agenda. We can expect Grant Shapps to bring his usual enthusiasm to BEIS and the role gives him ample opportunity to continue his energetic broadcast appearances. Mark Harper’s return to Government in the DfT is good news; he’s universally known as a safe pair of hands and as being ‘all over the detail’. Steve Barclay’s reappearance at health means he knows what to expect, but that doesn’t make the scale of the challenge ahead any less daunting, compounded (as everywhere) by spiralling inflation.

Across the board, there is a real desire to get back to some kind of ‘business as usual’ after this summer and autumn of psychodrama, and real recognition of the need to deliver on a domestic agenda, if the Conservative Party is to claw itself back out of the electoral oubliette in which it’s managed to land itself.

Sunak’s backroom team is also extremely important – not least if they are to swerve the huge structural weakness in Truss’ team; that she didn’t have anyone who understood economic and fiscal policy. Sunak himself, and Liam Booth-Smith, his Chief of Staff, think in Excel – so that issue is at least overcome. As a clear sign of how differently this incarnation of Government is viewed by the markets, they remained overall stable when it was announced the new Autumn Statement would be delayed by three weeks, taking place in November. Imagine what would have tanked if Truss had tried to pull that one off?

Truss’ own Chief of Staff Mark Fulbrook (of Sunday Times ‘under investigation by the FBI’ headline fame) still seems intent on demonstrating real ill-judgement. His suggestion that Truss should reward her N10 team in a resignation honours list has not gone down well. That’s without going so far as to question whether those short-lived advisers would even really want it. Talking to them in the aftermath, ‘bruised’ is the word that comes up time and again. One noticeably leaner advisor darkly joked his smaller waistline was down to ‘the Liz Truss stress diet’.

There is a largely prevailing sense of being embarrassed by having been involved in any of it, and a desire to quickly leave the whole sorry period behind them.

The Government is crossing its fingers and toes, hoping they can do the same with the last three months in the public’s mind.

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Back from the brink? (And a brink it was.)

As Conference got going on Sunday, one MP reflected in expectation of the PM’s speech later in the week that “The best she can do is just drone on for an hour”.

Liz Truss did an awful lot better than that in her speech on Wednesday. After what had been a torrid few days up in Birmingham, it looks like she has possibly just about clawed things back from the brink – though exactly how much breathing space it has really brought her very much remains to be seen. It is unlikely it will have done enough to completely reset where the Conservative Party currently finds itself – which, for the avoidance of all doubt, is certainly not in a happy place – whilst the polls remain so completely dire.

However, the mood in the hall as she delivered her closing note yesterday to CPC22 was positive, buoyant even, and there was plenty of enthusiastic clapping during her speech. She had an incredibly tricky three-fold task to pull off: reuniting warring Tories who are at sixes and sevens over the 45p tax U-turn and benefits uprating; convincing the public the Government is on their side, and steadying the markets.

It’s the economy, stupid

To work backwards through the three – that last one she has seemingly pulled off. The overall economic backdrop remains pretty grim. ONS figures put growth at 0.2% (we are mercifully not in recession – yet), inflation is running at 9.9% and the Bank of England interest rate is 2.25%. But the pound is – at the time of writing – remaining somewhat steady at around $1.13. Those markets received this speech an awful lot better than they did the ‘mini-Budget’ a couple of weeks ago. The clearest possible message was sent to them as the PM unequivocally committed to the Bank of England’s independence in setting interest rates, and that she and the Chancellor would continue to work together ‘in lockstep’.

To some degree it is her own fault that there has been so much speculation over the last few days that Kwarsi Kwarteng would have to ‘fall on his sword’ – she after all had told broadcaster Laura Kuenssberg on Sunday that scrapping the 45p was a ‘decision the Chancellor made’.  He is safe for now, but over the last few days has certainly shown little of the ebullience that is his leitmotif, and it will be indicative to see how quickly it returns.

His own keynote speech on Monday was extremely flat and without any announcements. He spoke again, as the PM did in her speech, of the commitment to fiscal responsibility and running a tight ship. But we don’t as yet have any more detail as to how and where more paring in public spending might land. The ‘lean state’ that Truss spoke of yesterday arguably already looks pretty skinny, and former Civil Service colleagues in various departments are extremely nervous about the ‘efficiency savings’ they are expecting to be asked to make.

In terms of total managed expenditure, the three big beasts are the Department for Work and Pensions, the Department for Health and Social Care and the Department for Education. Looked at in the round, the only real place to go for potential ‘savings’ is DWP (of which more later). Any savings from other departments – a few hundred million here, a few hundred million there – will not be sufficient to cover what the Government’s mini-Budget set out, but will still be painful.

‘We have got your back’

There were some very solidly traditional Conservative messages in the PM’s speech: the Party will always be one of low taxes; when the state plays too big a role, people feel smaller; backing business to the hilt; hard work must be rewarded and our children given a better future; our greatest days lie ahead.  It just about avoided slipping into pure sloganism bingo. There was nothing here to scare the horses, and it will have been of reassurance to the Party faithful, and the Government will hope, to the wider public.

Because it’s otherwise been an oddly policy-lite Conference – with the announcements that have been made being of a slightly motley nature, and largely in any case overshadowed by negative headlines about internecine warfare.

There was some ‘red meat’ stuff about expanding tagging for offenders and maintaining protecting single sex spaces in prisons – and the proposed curbs on public sector strikes have gone down well with the faithful and right-of-centre/middle ground media. Expanding the small business threshold from 250 to 500 employees should help cut the costs of regulation for nearly 40,000 businesses – though it is slightly less clear what replacing the existing GDPR regime with a British data protection scheme might yet achieve.

Notable by absence was anything of great note in the energy/environment space. A commitment to delivering a ‘world-leading first fusion energy programme’ by building a prototype fusion power plant by 2040 felt quite small-fry, in the scheme of things. There was also an announcement about increasing the Environment Agency’s maximum fines for water companies that illegally release wastewater and sewage from £250,000 to £250 million – but very little mention of Net Zero.

It should be noted, also, that the Government’s three priorities have changed. They used to be growth, energy bills and the NHS.  They are now ‘GROWTH GROWTH GROWTH’ – though the Health Secretary and Deputy PM Thérèse Coffey did come in for a good dollop of praise from the PM, and a reiteration of the commitment to two-week GP waiting times. There has also remained throughout Conference a (verbal at least) commitment to the Levelling-Up agenda.

Keeping the show on the road

Many MPs just didn’t bother to go to Conference, and some of those that did (and are certainly not usually of the rambunctious variety) were a mixture of bitterness, anger and something akin to resignation (“it’s fatal, the damage has been done”).

These are the same folk who will be returning to Parliament on Monday – and will be needed to support the PM’s agenda as it further takes shape. If planning reform – as the PM yesterday intimated – is to be one of the first big ticket items, the whips are going to have their work cut out. On that front, enforcing Party discipline seems rather much focused on the ‘stick’ side of things at present. If a few carrots don’t materialize, things are going to fall apart very quickly.

Even leaving aside the backbenchers (it was only ever a matter of time before big beasts Gove and Shapps went rogue) the fact Cabinet at this point seems to be only somewhat loosely keeping things together is extremely problematic.

Admittedly the PM was the one who drove a coach and horses through the notion of collective responsibility when she let drop that Cabinet hadn’t discussed the 45p rate.  But even so, to have a serving Cabinet Minister in the form of Penny Mordaunt apparently pre-rebelling over the benefits reform (and whether uprating is pegged to wages or inflation – the former amounting to a cut in real terms) before any decision has been announced is quite something.

The latest YouGov polling puts Truss at minus 59 approval rating (Boris’ at the end was minus 53).  So, the Conservatives have three options. One: leave her there and hope things get ‘better’. Two: somehow engineer a coronation replacement and cross fingers that the country wears its fifth PM in six years. Three: throw it all up in the air, call a General Election, force Labour to take control and deal with the world as it is, with the gamble of it ensuring they only serve one term.

Options two and three do as yet still feel drastic, but the Conservative Party does somewhat, at times, have the propensity to shoot itself in face rather than the foot.

Conference might be over, but the PM’s problems certainly have not gone away.

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Brave new world: Farming solar

Sitting in the audience at a recent agri-tech conference, listening intently to a panel of farmers discussing the future of farming, I was struck by how much of the conversation was centered not on harvest, yields or livestock, but instead on photovoltaic power stations i.e., solar farms.

The Fenland farmers, sitting on acres of expansive flat fields, boasted that photovoltaics left them without hefty energy bills in a cost-of-living crisis. The vertical farmers, growing herbs and salads in soilless conditions inside vast warehouses, insisted that photovoltaics reduce the carbon footprint of their otherwise eye-wateringly energy-intensive manifestation of farming. The eco farmers, down-sizing their productions to reduce the intensity with which they farm their land, claimed that diversifying is more sustainable for them and for the environment. “I truly believe,” one farmer told the conference, “that solar is the future of farming.”

There are clearly some advantages to solar farming agricultural land. It can provide, or contribute to, the farm’s energy usage, which is not to be sniffed at during an energy crisis. Any surplus energy generated can be sold back to the grid, generating crucial revenue for an industry where fewer than half of all farmers make any profit. Solar panels generate consistent yields and can be a more reliable source of income than crops or horticulture, which are increasingly affected by the changing climate and volatile weather conditions. And there is truth to the sustainability argument that reducing intensive cultivation increases future performance.

Farmers argue that they can also generate income by using the land simultaneously, commonly referred to as ‘agrivoltaics’. Sheep can graze underneath solar panels and free-range chickens can roam. Less sun hungry crops can be planted below and among raised photovoltaic panels and some fruit and vegetables can be grown. The lanes in between rows of panels can be used to increase biodiversity by planting pollinator habitat and native vegetation, providing ecosystem services. It sounds idyllic.

I found myself wondering if, given this proclamation for the future, any of them were concerned about the recent appointment of Liz Truss as Prime Minister. The answer was no. But perhaps they should be.

The expansion of solar power emerged as a campaign issue for the final two candidates in the Conservative Party leadership race. Both Liz Truss and Rishi Sunak warned of solar panels filling the UK’s highest quality farmland, joining a chorus of fellow Conservative MPs who have recently described solar projects as perils for rural communities and food supply. Truss told one hustings event “Our fields should be filled [with] our fantastic produce…[they] shouldn’t be full of solar panels, and I will change the rules.”

This idea is not new. For months, backbench Conservative MPs have been speaking out against new ground-mounted solar power projects, often citing local campaigns against projects in their constituencies. Among them is Matt Hancock, a former energy minister, who stood with local campaigners to protest a 2,500-acre solar farm in his constituency.

The government’s energy security strategy, published in April, contained various measures to deal with the UK’s energy crisis and achieve its Net-Zero targets. This included a pledge to increase solar power capacity up to five times by 2035. However, it also included language to appease those sceptical about ground-mounted solar, pledging to “consult on amending planning rules to strengthen policy in favour of development on non-protected land, while ensuring communities continue to have a say and environmental protections remain in place.”

Politics is not the only challenge for farmers to be aware of. Obtaining a sensible cost and timeframe for the connection of a newly constructed solar farm to the National Grid can derail a project. Some estimates place the earliest connection availability for new projects at 2028-2030. Reports of solar farms sitting unused because there isn’t capacity in the grid to transmit the electricity are not uncommon, according to the National Famers’ Union. Where capacity exists, the costs can be prohibitive.

Solar photovoltaics offer a versatile and scalable solution that warrants serious thought as part of the agriculture industry’s ambitions to reach Net Zero. However, solar farms are being refused planning permission in Great Britain at the highest rate in five years and proposals that would have cut £100m off annual electricity bills have been turned down in the past 18 months. Of the 27 proposals declined between 2019 and 2022, 19 are in Conservative constituencies, which are typically in the rural shires of the country. So clearly, the politics matters, and farmers looking to enter the brave new world of solar farming would be wise to pay attention.

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‘Where’ve yer bin?’ – how Truss lost the battle for local media

When your first appearance on the media since a major economic intervention causes you to tank in the polls and face mutiny from your own MPs, then it is probably safe to assume it hasn’t gone well.

Despite many Truss detractors claiming that this was a move of arrogance – underestimating the journalistic prowess of local hacks – there was more strategic thinking at play by the Truss camp. The premise made sense when faced with a ‘Westminster Bubble’ rebellion and days before Tory conference – bypass the bubble and get straight to the people that matter – the voters.

However, if ever there was an example of a well thought through comms strategy with poor delivery, this was it. With a little more preparation, maybe some of the disasters could have been averted.

So what went wrong?

Local journalists are connected to the concerns of their local readers or listeners in a way that national journalists never can be. While the national news outlets are the scene setters of the national mood, the regional reporters are the ones with the ability to get under the skin of the real-life impact on voters. Truss simply wasn’t prepared for the local-level questions fired at her by, for example, BBC Radio Lancashire. A by-election due there soon will be dominated by fracking – banned at present but which Truss wants to allow, but only with ‘local consent.’ Presenter Graham Liver leapt on this, asking ‘what does local consent look like?’  before pointing out that the local MP, Mark Menzies was anti-fracking. Similarly, on BBC Leeds she was asked for her thoughts about the Leeds bus services. Being able to answer these kinds of a local-level questions is a must for anyone going up against regional press – Truss simply wasn’t over the detail.

With the Prime Minister only having a few seconds between each interview – and within such a short time-frame – she was on the back foot from the start. Had she appeared on one of the flagship BBC Programs, the scope for longer, more in-depth questioning would have been greater, but the fight would have been fairer. The presenter and their producers would have worked up questions in advance; Truss’ media SpAds would be working from the opposite side, anticipating the obvious questions and nailing down their defensive messages.

The reality of the situation was far from ideal for Truss – whilst she was bounced from one interview to another, the producers at each of the radio stations were able to revise questions in real time, pointing out flaws on answers given only minutes or even seconds before. With her final interview kicking off on BBC Radio Stoke at 8:52am, this gave the Stoke presenters nearly an hour of prep time where Truss wouldn’t have been able to consult her media advisors. Far from getting into any kind of ‘flow,’ the PM was left running around in circles and tying herself in knots.

The format of the regional programs didn’t just give journalists the upper hand on the questioning – it also created the perfect short sound-bites for digitally savvy national media, with the opening ‘where’ve yer bin’ question from BBC Leeds shared embedded into national articles far and wide. In what rapidly became a national media blood bath, even the pro-Truss Telegraph struggled to defend the performance, while the Independent led with a simple ‘Seven best local radio takedowns of Liz Truss as she fails to defend ‘disastrous’ mini-budget.’ In a world of clicks and shares, the articles practically wrote themselves.

While Truss isn’t renowned for having the media flair of Johnson or even Sunak’s smooth delivery, it was something she was widely reported to be working on, with her performance throughout the leadership contest getting markedly better. However, this interview round showed a Prime Minister still clearly uncomfortable in front of a microphone, and lacking Johnson’s flexibility and ability to pivot away from difficult questions.

The result was a stilted performance that, by the fourth round of questioning started to sound more like an actor rehearsing their lines than the bold, trailblazing leader of the Tory revolution that party members voted for.

 

 

 

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Is Labour Back?

There is a clear change of mood within the Labour Party. This year’s Conference didn’t feel like a party still riven with the internal battles of recent years. Keir Starmer has complete control of the National Executive Committee and party machine, the ‘grownups’ are running the show and the suited young men and women, and corporate sponsors are back in force.

Importantly, following the Conservatives’ disastrous fiscal event and consequential Sterling crisis at the end of last week, there is also genuine belief seeping back into the assembled activists, councillors, MPs, and shadow ministers, that their years of opposition could be coming to an end.

Some key take-outs included:

As things stand, and buoyed by commanding leads in all polls, Labour look set to form the next government. This comes with huge expectations and pressure. They need to be providing their answers to the overwhelming challenge facing the country, which are only set to get worse over the next 12-18 months.

For business, it’s no longer just about just ‘paying attention’ to Labour, it’s engaging with the people, priorities and policies that are looking increasingly likely to be those of the next government.

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Fantasy economics or Frankenstein’s monster?

Billed as a ‘mini-Budget, the Chancellor’s fiscal statement in Parliament this morning turned out very much not to be that.

It amounts to the biggest package of tax-cutting measures since 1972 – even bigger than Nigel Lawson’s in 1988, which had been trailed as the ‘scene setter’ in the newspapers this morning.  Kwasi Kwarteng really wanted to keep some of his ‘surprise’ powder dry for that moment when he abolished the 45% tax rate for the highest earners.

Here on one hand the Government is talking about eye-watering levels of borrowing that will be needed to help with everyone’s energy bills – costing in the region of the furlough scheme, or more.  Traditionally the Conservative Party has defined itself as being for ‘fiscal responsibility and prudence’.  Anyone who remembers the last few General Election narratives would be forgiven for thinking this incarnation of the Party to be an entirely different beast.  What happened to those so-familiar ‘don’t hand the nation’s credit card back to the ones who maxed it out’ and ‘don’t hand the car keys back to the ones who crashed it in the first place’?

The Government’s argument runs that borrowing powers used ‘responsibly’ are justified.  One wonders where they are drawing the line, given that criticism of the last Labour Government and its handling of the global financial crisis.

We then on the other hand have these gigantic tax cuts of £45 billion, including a boost for bankers with the lifting of the cap on their bonuses, that abolition of the top rate of income tax for the highest earners, more ‘sticks’ to encourage those on benefits to get back into work, the cancelling of corporation tax … all this felt very ‘Tory’ in a very definitely not Cameroonian way.

‘Growth, growth growth’ is the mantra being used to lash – to whatever degree of success – the overall package together.  It is all banked on achieving a sustainable trend growth rate of 2.5 per cent.

 

‘Go big or go home’

The Shadow Chancellor Rachel Reeves’ landed a blow in Parliament in her response to Kwarteng, likening him and the Prime Minister to ‘two desperate gamblers in a casino chasing a losing run’.

Was she right?  Is any of it sustainable?

The £60 billion cost for the help with energy bills (by the Government’s own admission, a figure which is liable to fluctuation – and some have put at well over £100 billion) is hopefully a one (two year) off.  But this is an enormous commitment to have made, without a great deal of a sense of an exit strategy.

Then, look at the £45 billion of tax cuts that have been promised.  These are sums which will be ‘gone’ from Government finances within a couple of years as they all come ‘on stream’.  What happens to the year-on-year debt if the gambled-on growth not only isn’t as resurgent as aimed for- but fails to materialize at all.  There are huge variables at play here; the continuation of the war in Ukraine, another vicious variant of Covid, some new Nostradamus-esq upheaval- or indeed as indicators are suggesting, a sterling crisis.

The pound is at a 37-year low against the dollar.  The UK 10 year government bond yields (interest rate government borrows at) are now at 3.38%, the highest level since 2011 – the cost of all this borrowed money is already rising.

 

If all the economists were laid end to end, they’d never reach a conclusion

The Bank of England (with its new interest rates announced yesterday, to dampen inflation) doesn’t seem to agree with the Treasury and Government (who have announced all these tax cuts, that could push inflation up) and no one really knows what the Office of Budget Responsibility thinks (as it won’t be publishing its full economic and fiscal forecast before the end of the year).

If Kwasi Kwarteng’s claims this morning that ‘this is a new era’, and ‘fiscal responsibility remains essential’ were met with some derision, neither did Rachel Reeve’s proclamation that ‘Labour believes in wealth creation’ land particularly plausibly.

Her response has left Labour in a bit of a difficult position.  They have also committed to significant help with energy bills. But whilst they may not agree with the Government-styled ‘growth-promoting’ measures, they have yet to offer up any alternative – whilst also citing the last 12 years as being an ‘economic failure’.  They may well yet need a ‘third way’, to coin a phrase.

We may well, as some economists have said, be in a recession already.  So what matters in the run-down to the election in 2024 is whether this ‘gamble on growth’ has started to kick in, and what people feel in their pockets, from their income, and other tax cuts.

Bonkers or Brilliant?

This is very much the question that is doing the rounds on Conservative MPs’ WhatsApp groups.

I’ve had it described to me by a former colleague as “Watching Liz and Kwasi is like when you are on a plane, and the air stewards’ smiles just stays resolutely in place as the oxygen masks come down.  I can’t tell if it’s terrifying … or in some ways deeply reassuring that everything’s going to somehow be ok.”

One suspects the pound and the polls will show that pretty quickly.

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Who’s in charge of fixing crisis Britain?

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Descent into the fire

The next in our series of insight pieces from Amy Fisher looking behind the scenes of the Conservative leadership campaigns.

As predicted this time last week, things have gotten very personal, very quickly indeed. Only Tom Tug in the debate last night really made any attempt to try to point out the circular nature of the firing squad. This was of course in the context of his own pitch as being a ‘clean start’ – which, irrespective of what happens in the next vote amongst MPs later today, already has more than a whiff of the ill-fated Theresa May’s ‘strong and stable’ slogan.

A large part of what has tipped this over into toxic warfare have been the televised debates themselves. Why any of the candidates agreed to do them is a bit baffling.

Whilst the public at large might rail against this, it’s a simple truth that until it is whittled down to the final two candidates (this week) and then the final winner (by 5th September), it’s only the MPs and Party members that really matter- in the sense it’s only they that have an actual vote in who becomes the next PM.

TV hustings also take an inordinate amount of time in preparation (not that Truss’ performance yesterday in reading her closing statement necessarily bore this out). Why haven’t the candidates instead spent their time more aggressively wooing Parliamentary colleagues?

These debates are also extraordinarily high risk – something Sunak and Truss have, belatedly realised: the next one (scheduled for Tuesday) has now been canned once they said they would not take part. How on earth did none of the advisers spot that each candidate being able ask another a question, as per last night, was going to going to be anything other than mutually assured carnage? The truth is that a lot of them are inexperienced and untested in either/both policy formation and/or campaigning. It did make for great TV though.

On the advisory front, I’ve been a little surprised by Penny’s lack of real detail on the fiscal/economic front. I would have expected her to have shown a bit more concrete thinking on the growth agenda. She’s being advised by Gerard Lyons, who at one stage was seen as a credible contender for Governor of Bank of England after Mark Carney.

I don’t wish the above to look as though I am jumping on the ‘get Penny bandwagon’. It’s just that having risen so spectacularly at the end of last week, the wheels seem to equally quickly be coming off the bus. I have to admit that I’m sceptical of over-hyping the use of ‘dark arts’. The problem with the furore about her views on trans’ rights and today’s story that she met the Muslim Council for Britain is that (a) she does seem to have previously held a position on self-identification that the Party just won’t wear, and (b) she did by her own tweet confirm she, well, met them.

So, the two “favourites” remain Rishi and Liz. There is no doubt at all that each camp will have been doing ‘due diligence’ on the other; the only question being when the material is deployed for maximum effect (read: damage).

Of course, there are some ‘true believers’ in each of the camps. But the reality is most of the Party are trying to game the least-worst option. In any number of Tory WhatsApp groups and exchanges over the weekend, the phrase ‘end of days’ is one appearing time and again. An ex-minister I spoke to over the weekend told me “Now we’ve gotten rid of Boris, none of it’s good. But it was a Hobson’s choice that he had to go”.

It was always going to be a Herculean task for the Conservatives to win a fifth term in 2024. To channel Boris, it’s a very real possibility the Party will make it a Sisyphean one by spending the summer tearing itself apart.

 

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Who will define Conservatism in 2022?

Down to the last two leadership candidates, the country will now see a string of nationwide hustings for Conservative Party members, meaning an intense (and, at times, uncomfortable) summer-long debate. Like it or not, the choice of the 160,000 Tory party members will define what it means to be Conservative in 2022.

As the two candidates, former Chancellor Rishi Sunak and current Foreign Secretary Liz Truss, go head-to-head, their policy announcements to date promise to take the Party in two distinctly different directions. Who wins will determine the road ahead for Conservatism up to the general election and beyond.

Perhaps most fundamentally, the candidates differ on their approach to tax and spend, butting heads on who has the most legitimate claim to Thatcherism 2.0.  Both want to create a smaller state with (eventually) lower taxes but differ on when and how to implement these. Sunak advocates fiscal responsibility, vowing to tackle inflation before making any cuts. Truss would cut taxes on day one as Prime Minister, with an Emergency Budget and new spending review paving the way, presumably, for shrinking government departments.

Without a doubt, the cost-of-living crisis will be one of the next Prime Minister’s biggest challenges, and how the candidates tackle it will likely define their premiership. With the exception of Sunak, all of the candidates in the race made commitments to do more to support people. Sunak has remained adamant that the best thing he could do to combat the cost-of-living would be to curb inflation. If he wins, he will come under huge pressure to go further.

On Brexit, neither camp will want to appear to the Party membership to be taking a soft approach towards the EU. Behind the scenes, however, the Northern Ireland Protocol is another area of key difference between the two candidates and will redefine the UK’s relationship with Europe. Sunak, after three years in the Treasury, remains alert as ever to the economic impact of policy decisions, and leans towards compromise. Truss, conversely, wants to cement her position as the hardline Brexiteer despite (or because of) voting remain in 2016.

Ultimately, this is a fight for the right of the Party. Sunak wants to distance himself from Boris Johnson’s high-spend ‘Cakeism’, while Truss seeks to woo the traditional heartland with immediate tax cuts. The challenge for both candidates, upon becoming Prime Minister, will be to unite a party that includes the European Research Group, Red Wall and One Nation Tories, and everyone in-between before the next general election.

 

Tax and spend

The candidates have already clashed bitterly on tax and borrowing. Sunak has branded Truss’ policy socialist, whilst she has argued that he would push the country into a recession.

Sunak insists he is a low tax Conservative. However, he will not make specific pledges to cut taxes until inflation is brought under control. In truth, he cannot plausibly pledge tax cuts now, having overseen some of the largest tax rises in recent years. He’s standing on a soapbox of fiscal responsibility, advocating low spend with future cuts on the horizon when the time is right.

Truss, on the other hand, would cut taxes on her first day in office. She has so far pledged to reverse Sunak’s increase to corporation tax and National Insurance, costing the Treasury over £30 billion. She would generate fiscal firepower by paying back the £311 billion Covid debts over a longer period – treating them akin to Second World War loans.

It is difficult to see how two political heavyweights with such opposing economic ideology could work together in a cabinet of collective responsibility. It is highly unlikely that either candidate will serve in the other’s government, instead retreating to the back benches or (in Sunak’s case if he does not win) from politics altogether. The bigger concern for the Conservative Party is whether MPs can unite around the winner to support the implementation of their fiscal policy. Whichever path is chosen, the Parliamentary Party must wholeheartedly support it if they are to stand the chance of winning the next election. If voters get any whiff of squabbling under the new leadership, the new Conservatism may end up being defined by its time on the Opposition benches.

 

Environment

The environment, in particular the 2050 net-zero target, had all the candidates in this race equivocating to a greater or lesser degree. Eventually, all of them pledged to support the 2050 net zero target.

While it is likely that the long-term target will remain untouched, the short-term route towards this goal looks set to be abandoned or revised, in no small part due to the cost-of-living crisis. Sunak has pledged to increase renewable production (offshore rather than onshore) and build more electric car charge points, though he has yet to announce any detailed environmental plans. As Chancellor, he largely avoided talking about net zero and some accused him of blocking green policies that had any associated spending implications.

Truss committed to net-zero reasonably early in the contest, securing the backing of notable green Tories including Vicky Ford and Simon Clarke, both of whom have cited her support of Cop26 as one of their reasons for supporting her. So far though, she has pledged to ‘pause’ green levies on energy bills to save households £153 each to help ease the cost-of-living crisis. She also wants to lift the fracking ban. As Foreign Secretary she rarely bought up environmental issues in speeches or with counterparts, and as Environment Secretary she cut subsidies for solar farms calling them ‘a blight on the landscape’.

The biggest challenge for both the candidates here is that the party membership is at odds with the wider electorate on this issue. A recent poll in The Times puts the environment at the bottom of the top ten concerns of party members, and a YouGov poll found that only 4% of members believe net zero should be a priority. Contrast that with an April poll that put broader public support for net zero at 64%. It’s true that the race for leadership means the candidates have to focus on the first group, but if they want to be serious contenders in the next general election, then what?

 

Levelling Up

There has been a distinct lack of enthusiasm from any candidates for Johnson’s flagship ‘levelling up’ agenda. This may be a decisive move to distance themselves from his premiership, but they have not indicated what they would do for the Red Wall that won them the last election so decisively. Neither candidate wants to make commitments that would be costly to the public purse, and broadly speaking they both want to focus on reducing spending and shrinking the state.

So far, Sunak has committed to keeping a Cabinet Minister for levelling up and has promised to ensure that every part of England that wants a devolution deal gets one. He has also pledged to devolve powers on business rates to mayors and look at the devolution of post-16 education. He said he will work closely with local leaders on the future of transport investments, including Northern Powerhouse Rail.

Truss has promised to create ‘low tax zones’ across Northern England with low business rates and few planning restrictions, making it easier and quicker for developers to build on brownfield land.

Both candidates have committed to the Northern Research Group pledge card but must try harder than this to incorporate the Red Wall into their new Conservatism if they want to count these votes at the next election.

 

Brexit

Sunak voted Leave and his voting record has been consistently pro-Brexit. At the Conservative Party Conference last year he said “I believe the agility, flexibility and freedom provided by Brexit would be more valuable in a 21st century global economic than just proximity to a market.” He has said he will create a Brexit Delivery Department tasked with reviewing all 2,400 laws inherited from the EU. He wants to scrap and replace GDPR, overhaul laws governing the City of London, and speed up clinical trials. It is thought that he might move on the Northern Ireland Protocol and seek compromise with Brussels, though giving any suggestion of doing so at this stage in the leadership contest would be extremely high risk.

Despite voting to remain in the EU in 2016, Truss is seen, counterintuitively, as the hardline Brexiteer. She wants to reform the European Court of Human Rights but is prepared to withdraw from it if necessary. As Foreign Secretary, she introduced a Bill to unilaterally override some post-Brexit trade rules for Northern Ireland. Her supporters claim she plans to drive forward regulatory divergence from the EU, including overhauling business regulation to spur a more dynamic economy.

It’s hard to believe this is still an issue for voters six years on, but perhaps the Conservative Party will never be able to shed its complicated history with Europe. Nevertheless, the candidate that wins the leadership race will be responsible for forging a new relationship with the Continent, and how they do so in the next couple of years is likely to redefine the Party.

 

The missing piece?

Both candidates were participants in the outgoing incarnation of government. This should, in theory, make it a little awkward to disavow everything it has done. Although, it has seemed to trouble Truss rather less, leaving Sunak sharply and repeatedly reminding her of the notion of ‘collective responsibility’.

The candidates need not deny its achievements. But they do need to acknowledge the elephant in the room: that the leader that won them an 80-seat majority was ousted by Conservative parliamentarians less than three years later for serious and serial questions over the ethics of his Government, and of himself. Conservatives fundamentally believe in upholding the unwritten constitution and its conventions, but events of the Johnsonian era have undermined one of the central assumptions of our country’s democracy: that the Prime Minister acts as the guarantor of ethical government. In order to build a new, resilient Conservativism, they must reassure voters that this will never happen again.

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Sunak V Truss – A Defining Contest For The Modern Conservative Party

And then there were two. In the final round of the Conservative leadership contest, Boris Johnson’s longest serving Chancellor, Rishi Sunak, faces the current Foreign Secretary, Liz Truss.

During the early phase of the Conservative leadership contest, there was a lot of talk about the need for a clean break with the past. Indeed, for one day last week at Westminster there was almost an assumption that Penny Mourdant would be the next Prime Minister. That was before her indifferent performances in the TV debates and the onslaughts from other camps, including the stridently pro-Truss Daily Mail. In the end, the MPs chose the two most experienced and best known candidates.

There is though, a significant twist. In this topsy turvy contest, Truss is running as the ‘change’ candidate even though she is the longest-serving minister in the cabinet. During a remarkable interview on the Today programme this morning, she argued that there had been a misplaced economic consensus for twenty years, thereby distancing herself from the policies of the Conservative governments since 2010. Her big pitch is for tax cuts to be implemented from “day one”. Specifically, she would reverse the National Insurance rise and the planned increases in Corporation Tax. Her belief, not widely shared amongst economists, is that such a move would trigger economic growth and avoid a recession. She also claims that the tax cuts would reduce inflation, whereas Sunak has argued repeatedly that the opposite would happen. Inflation would rise.

In fairness to Truss, she is speaking truthfully when she insists that she argued against the NI rises in cabinet last summer. She said then in private what she now declares in public, that the additional spending on the NHS or social care could be paid for by borrowing. I am told that Boris Johnson had also hoped originally to pay for his still vaguely defined social care plan without increasing taxes. In frantic meetings a year ago, Sunak insisted that if Johnson wanted the additional cash it would have to be paid for through a tax rise. Johnson agreed reluctantly. In his final Prime Minister’s Questions yesterday, Johnson could not resist a dig at ‘the Treasury’ when he told MPs that his successor should sometimes challenge that mighty department’s tight spending orthodoxies.

Johnson and his allies are out to stop Sunak. Apparently, there was talk of little else at his farewell party at Chequers on Sunday.

Yet here is another twist. In some quarters Truss is presented as the ‘Thatcherite’ candidate while Sunak is portrayed as the ‘centrist’. But Thatcher never did what Truss is pledging to do. For Thatcher tax cuts had to be paid for. It was not until 1988 that her Chancellor, Nigel Lawson, cut the top rate of income tax. She had been Prime Minister for nearly nine years by then. Truss’s approach is much closer to President Reagan’s in the 1980s. Reagan funded tax cuts from increased borrowing. In a contest largely defined by the 1980s Truss is a ‘Reaganite’.

Sunak is the Thatcherite candidate, even though some of Thatcher’s most ardent admirers in the parliamentary party are backing Truss. Like Truss he wants to implement tax cuts, but only when he has addressed inflationary pressures. This produces another oddity about the contest. Although Sunak resigned from Johnson’s government and spent a lot of his time when he was Chancellor engaged in tense disputes with Number 10, he is the one seen more widely as the ‘continuity’ candidate. This is because inevitably he is not going to disown his economic policies.

Sunak’s pitch is very different to the one that Truss is making. Already he has made clear that only he can win the next election for the Conservatives. His supporters also argue that because Truss plans to make sweeping changes she will be obliged to call an early election to secure a new mandate. Party members dread an early election. In interviews later today and in the coming days Sunak plans to argue that the Conservatives’ reputation for economic competence is the key to their appeal. If they lose that with unfunded tax cuts, they are finished for the time being.

As a result of this fundamental divide on the right of the Conservative party over when to cut taxes, there will be big consequences arising from this contest. If Truss wins, Sunak and his close supporters will struggle to support her new government’s economic plans. How can they vote for policies in the Commons when they have argued they are ‘fairytale’ tax cuts that will fuel inflation? In the longer term, I suspect Sunak would leave British politics at the next election. He would not serve in a Truss cabinet. Conversely, although throughout her career Truss has been a much more flexible politician than Sunak, it will not be easy for her and her closest allies to back Sunak’s economic policies this autumn if he wins. The leadership contest is a symptom of a division over how to achieve economic growth and there will be no resolution when a new Prime Minister is crowned in September.

There is one final twist. Both candidates seek a smaller state in theory. Yet almost certainly whoever wins will begin by spending more. To take a precise example, the hugely influential financial guru, Martin Lewis, is already calling for an emergency package this autumn when the new energy price cap is announced. The night before Sunak unveiled his most recent programme of financial assistance, he phoned Lewis to check that he was doing enough. He wanted Lewis’ backing and feared further opposition. No new Prime Minister will want to have Lewis as an enemy. There will be further help with fuel bills.

More widely the next election will be moving into view. A new Prime Minister will be in no position to cut spending on the NHS in advance, nor resist demands for increases in defence spending. There is also the thorny issue of social care. The additional spending from the NI rise is being spent largely on the NHS. How is the new Prime Minister going to find additional funds for social care or will they dump this commitment? What about ‘levelling up’, a concept that neither Sunak nor Truss is as enthusiastic about as Johnson?

The Conservatives need to retain some of those red wall seats if they are to win next time. To do so the new government will have to spend more money rather than cut departmental budgets. But for now, there is a single target audience, the party membership. Every word uttered in the next few weeks will be aimed at pleasing the members alone. They will elect the next Prime Minister.

Polls suggest Truss is well ahead. Sunak knows he has little time to sway the membership. Most are likely to vote early in the contest. He and his team plan to work around the clock for new week or so as the ballot papers are sent out. Sunak will need to be at his most persuasive. Polls on the ConservativeHome website suggest early tax cuts are the members’ top priority. Truss is pledging to give them what they want as well as delivering better public services.

When Johnson used to pledge tax cuts and higher public spending, he acknowledged he was a ‘cakeist’. He would have his cake and eat it. Such an approach was the main source of tension between Johnson and Sunak. Now Sunak must go public and put his case for what he describes as fiscal conservatism. Polls suggest he is the more popular candidate with the wider electorate. That is rarely a decisive factor in Conservative leadership contests.

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The last days of Boris Johnson and the leadership contest

Normally Tory MPs are entirely relaxed about an outgoing Prime Minister staying on during a leadership contest. Indeed they welcome what is often seen as a smooth transition. Now a lot of them are disturbed that Johnson is still in Number Ten and might be there for a couple of months. The context explains why. Johnson is going because an army of ministers and MPs said that he and his operation could not be trusted. Yet they are allowing a figure they do not trust to remain in office over a period in which quite a lot could happen, from developments in Ukraine to strikes in the UK. They fear what Johnson might do. More fundamentally this is a government in paralysis as the economic crisis deepens. No one knows who will be Prime Minister and Chancellor by the time of the Autumn Budget or what their economic policies will be. The same applies in all other departments. The new Levelling Up Secretary, Greg Clarke, had told his senior officials that he will only be in post for a few weeks.

 

The key meeting will be on Monday when the newly elected 1922 Committee meets to decide the form and timing of the leadership contest. The chair, Sir Graham Brady, has made clear they have no powers to remove Johnson immediately but they can determine the amount of time he has left as PM by deciding on the timetable for the contest. Those MPs keen to be rid of Johnson and the paralysis as soon as possible are calling for a short contest that is over “within weeks”. Others are less sure pointing out that the election of a new Prime Minister should not be rushed. My sense is that the first round where only MPs have the vote will be concluded speedily, by the start of the summer recess. Probably the final two candidates will be given until early September before the final vote of party members. A new Prime Minister and government would be in place for the return of parliament and the Conservative conference.

 

Most immediately, expect a large number of MPs to declare that they plan to stand. Already the number of declarations is in double figures. Farcically this is the weekend when MPs can fantasise that it might be them that can seize the crown. Around a third of the former cabinet are contemplating a bid and an array of backbenchers. Conservative leadership contests rarely go to plan, but I can report that quite a few MPs are saying “it’s time for a soldier”, referring to the likes of the Defence Secretary, Ben Wallace, or the backbencher, Tom Tugendhat. But there is little point speculating until the field is narrowed a bit after this coming weekend of indiscriminate and delusional displays of personal ambition.

 

Almost inevitably the pitch of all candidates will be towards a more rigid form of fiscal conservatism compared with Johnson’s ‘cakeism’ support for the hard Brexit and a battle over the Northern Ireland protocol, combined with a new focus on standards in public life. The membership is more or less the same as the one that elected Johnson in 2019. Although if they go for Wallace it would be quite a leap in some respects. Wallace was a remainer and has not become an evangelical convert like Liz Truss.

 

The challenge for whoever wins is to square the circle. A lot of Tory MPs want tax cuts and higher public spending on defence, levelling up, NHS and social care, and local transport provision. Johnson’s coalition of red wall former Labour voters and traditional Tories in the south was bound by Brexit, his personality and his ‘cakeist’ approach that drove Rishi Sunak to despair. How will Johnson’s successor keep that coalition intact, not least when by-elections suggest that it is already fraying? This political background becomes more complex given the current state of the economy. Treasury officials I speak to fear a recession will be difficult to avoid. Then there is the thorny issue of the fuel price cap rising again in the autumn. A fiscally conservative Chancellor will be reluctant to borrow more, but he or she will probably have to in order to further ameliorate the ‘cost of living crisis’.

 

There will be a new Prime Minister and government in place by September. Until then there is a vacuum unless the 1922 committee decide to shrink the timescale of the contest to a couple of weeks, not impossible but unlikely. Boris Johnson answering questions at Prime Minister’s Questions in the Commons next Wednesday will be as weird as last week when he spoke as if he had years more in power.

 

The race to succeed Boris Johnson is wide open, with candidates from across the party jockeying for position. Ahead of the election kicking off next week, WA has mapped out the process that will determine the next Prime Minister, and the key runners and riders looking to lead the next Government.

You can download the full briefing here:

Who replaces Boris Johnson? 

 

 

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The Government’s Food Strategy: a fork in the road

In the build up to the Government Food Strategy, the Prime Minister promised bold action to address the problems in the UK’s food system. This week, health and sustainability campaigners have voiced their disappointment that not all of Henry Dimbleby’s recommendations are being adopted, including the proposed salt and sugar tax.

Seemingly ‘hollowed out’, the publication is seen by many in the agri-food sector as a holding response for a serious long-term strategy that has been conditioned by Conservative backbenchers who the Prime Minister considers key to his survival. In other words, a tactical short-term response to a set of political pressures. Published against a backdrop of the cost-of-living crisis, the effects of the war in Ukraine, and recent party politics, the Food Strategy represents a notable departure from long-term priorities such as environmental sustainability and tackling obesity. Instead, the Strategy focuses on technology and innovation, job creation, productivity. In short, the government sees growth in the UK’s agri-food sector as the remedy.

The government says it is backing British farmers to boost domestic production, increase employment and grow the economy

At the heart of this shift is a concern about food insecurity. Not necessarily as a result of climate change and other environmental concerns (although those can’t be ignored for much longer), but from the impact of the war in Ukraine on food supplies and prices. As a result, the government has pivoted away from longer standing political priorities and is now focusing on plans to strengthen the resilience of supply chains and boost domestic production to help protect against future economic shocks and crises.

While wars don’t necessarily create trends, they do tend to accelerate them. In the case of the war in Ukraine, it has rapidly accelerated the desire of Western governments for freedom from supply chain dependence on Russia and China. It has also increased the trend for food nationalism globally which has lengthened the list of countries Western governments can no longer rely on for food imports as a result, and it has sped up trends towards market intervention. The last significant spike in food prices was in 2010/2011 following a heat wave in Ukraine which impacted crop harvests and can be seen as a catalyst for riots in middle income countries and the Arab Spring, the effects of which are still being felt. The impact of today’s crisis has the potential to be far greater and will be felt particularly acutely in the UK because we have relied so heavily on global markets for cheap food imports.

Agri-food: a growing sector

While new funding programmes to drive innovation will be welcomed by the sector, the government is playing catch up with investors who have recognised the potential of agrifoodtech in recent years.

As with most modern industries, technology plays a key role in the operation of the agri-food sector. However, the pace of innovation has not kept up with other industries and, according to research conducted by McKinsey, agriculture remains the least digitized of all major industries.

The industrial agri-food sector is also much less efficient than others and more susceptible to the demands and constraints being placed on it. A growing global population, climate change, environmental degradation, changing consumer demands, limited natural resources, food waste, consumer health issues and chronic diseases all mean the need for agrifoodtech innovation is greater today than it ever has been, and creates opportunities for entrepreneurs and innovators to create new efficiencies in the value chain. Many of the agrifoodtech start-ups attracting investors are aiming to address some of these challenges, identifying innovative solutions to issues such as food waste, CO2 emissions, chemical residues and run-off, drought, labour shortages, sugar consumption, distribution inefficiencies, food safety and traceability, farm efficiency, and unsustainable meat production.

According to the 2022 Agrifoodtech Investor Report, $57.1 billion was invested in agrifoodtech companies in 2021, an increase of 85% on the previous year. 2021 also saw the UK’s highest ever deal flow with UK-based deals reaching £1.3 billion in value, the highest since data has been collected and up from £1.1 billion of investment in 2020. The UK sits 5th in the global ranking of deals by country, just behind Germany, India, China and the USA, though the UK government has set out its intention to be a world leader in this space. While investment in so-called ‘upstream’ technologies (such as on-farm tech, tools and services) remains high at around $20m, there is a shift beginning to emerge, with interest now moving towards farm management software, indoor farming, ag-biotech (such as gene editing), and e-grocery (which attracted a third of all global sector investment).

The new normal

The challenges with our food system such as supply, distribution and pricing have been propelled by the pandemic, complicated by Brexit, accelerated by the war in Ukraine, and intensified by the cost-of-living crisis. In many ways, this has created a completely different backdrop for the UK’s food system than when Henry Dimbleby published his recommendations to government almost twelve months ago. Many commentators will argue this is why the Government Food Strategy appears to have been watered down in comparison with its original intentions.

Nevertheless, many investors have already recognised the importance and opportunity the agrifoodtech sector presents in terms of investment potential, with many more likely to follow suit. The changes and challenges to the food system we are witnessing today are not temporary. Rising prices, food nationalism, and supply chain challenges are not a blip in the road, they are the new normal. This reality means the agrifoodtech sector is likely to provide an abundance of opportunity for private equity to back exciting, innovative, and high-impact ideas that deliver the ground-breaking change in our food system that campaigners are calling for.  Although this Food Strategy gives the agri-food sector ideas to work with and push the government on, it is also clear that we are now unlikely to see a properly considered long-term strategic response to food insecurity this side of the election.

 

To discuss the government’s Food Strategy in more detail, please email Thea Southwell Reeves on theasouthwellreeves@wacomms.co.uk.

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WA Explainer: What is the Northern Ireland Protocol and why is the government trying to change it?

Many people thought (or hoped) that the need to keep up with Brexit stopped in 2019. As the WA Investor Services team and other seasoned Westminster watchers will tell you, Brexit has been bubbling under the surface since the initial deal was signed, with the UK and EU locked in ongoing, and not entirely productive, negotiations ever since.

Now, after months of hinting at the need for more dramatic action to break the negotiating deadlock, the government has published the highly controversial Protocol Bill, which it argues will solve some of the issues that the current Brexit deal has created in Northern Ireland.

The Bill has huge consequences for UK-EU relations, the stability of power sharing in Northern Ireland and Prime Minister Boris Johnson’s own political fortunes. With all that in mind, we’ve put together an explainer of the position of the UK and EU on the Northern Ireland protocol, what the Bill seeks to change, and what it will mean for both sides in the future.

What is the Northern Ireland Protocol?

The Northern Ireland Protocol is the part of the Brexit deal that sets out special customs and regulatory arrangements for Northern Ireland in light of its land border with the Republic of Ireland, an EU country. Both sides agreed that avoiding a ‘hard border’ between the Republic and Northern Ireland was a key priority. The eventual compromise was to create a customs border in the Irish Sea, rather than on the island of Ireland. Goods crossing into Northern Ireland are checked as though they are entering the European Union. Northern Ireland must, in certain areas, follow the jurisdiction of the European Court of Justice (ECJ).

In return, both sides agreed that Northern Ireland businesses would have access to both UK and EU markets without the need for further checks. This arrangement appears to have resulted in economic benefits for Northern Ireland. Data from the Office for National Statistics shows that the only regions in the UK to have seen GDP recover to pre-pandemic levels are Northern Ireland and London, though Northern Ireland recorded the largest drop in GVA of any region in Q1 2022.

The current terms of the Protocol are strongly opposed by Unionist parties in Northern Ireland, who argue that the presence of a customs border between Northern Ireland and the rest of the UK undermines the union. The Democratic Unionist Party (DUP) is now refusing to form a new power-sharing government in Northern Ireland until a solution to its concerns is found. Despite this, the Protocol is not universally opposed in Northern Ireland. On 13 June, 52 out of 90 members of the Northern Ireland Assembly wrote to Boris Johnson to “reject in the strongest possible terms your government’s reckless new protocol legislation”. The letter is an indication that the government’s proposals do not guarantee an end to Brexit-related tensions in Northern Ireland.

What is the government trying to change?

The government is arguing that the current agreement undermines the Belfast/Good Friday Agreement in Northern Ireland and creates additional, unnecessary bureaucracy for businesses trading between Northern Ireland and the rest of the UK. Protecting the Agreement is key to the government’s reasoning for introducing the Bill. In a summary of its legal position on the protocol, the government said it is relying on the “doctrine of necessity,” which it argues would “lawfully justify non-performance of international obligations” because of Northern Ireland’s “genuinely exceptional situation.”

The Bill proposes to override some parts of the protocol unilaterally. Under its proposals:

Can the government secure the changes it wants?

Johnson has been criticised by opposition parties and some Conservative MPs for seeking to override a deal he only agreed to in 2019. The UK government has argued that the deal has had “unforeseen consequences”, particularly for the stability of the Good Friday Agreement. Some MPs are also concerned about the legality of the Bill. Others are concerned that the UK’s actions will undermine its international standing, particularly as it still seeks to negotiate trade deals with major developed and emerging economies.

As a result of these concerns, the Bill will face a challenging journey through Parliament before it can become law. This process is likely to take months. It is extremely likely that members of the House of Lords and MPs will seek at least to amend the Bill to water down some of the proposals.

The key political test for Johnson, however, will be whether he faces a significant rebellion from his own backbenchers. The European Research Group (ERG) of pro-Brexit MPs have also yet to give the Bill their backing and plan to scrutinise the Bill line by line before announcing how they will vote. It is likely that at least some of the One Nation group of Conservatives will vote against the Bill over concerns that it breaks international law, but they will not have enough votes to defeat the Bill alone. If a broader coalition within the party chooses to rebel on the issue, and Labour chooses to vote against the Bill, there is a risk it could be defeated. However, the size of Johnson’s majority and the lack of organised opposition to Johnson or the Bill itself within the Conservative Party make a rebellion of the necessary size difficult to achieve.

What is the likely response of the EU?

The EU is strongly opposed to the UK’s current action and has stated that there will be serious consequences if the UK moves to change the Protocol unilaterally. In the short term, expect the EU to put forward revised proposals of its own to try to continue dialogue between the two sides. Continuing negotiations are supported by the UK and EU, and therefore we are likely to see ongoing talks take place even while the UK government seeks to pass the Protocol Bill.

The European Commission is also expected to relaunch legal action against the UK, which was previously paused to allow for negotiations between the UK and EU over the Protocol to continue. The EU argues that the UK has already failed to implement large parts of the existing Brexit deal, breaching the terms of the agreement. This process is unlikely to move quickly, but provides the EU with an option of escalating its response.

The EU’s response is likely to be limited to continuing negotiations and its legal proceedings for now, but a significant escalation can be expected in the event the Bill passes in its current form. The EU has been clear that it will trigger a full-blown trade war with the UK — something neither Johnson nor his chancellor Rishi Sunak wants in the middle of the cost-of-living crisis. Compromise remains in the interests of both parties, so the government will hope that the Bill will push the EU into changing its position, rather than expecting the Bill to pass in its current form.

Where do we go from here?

The government has sought to play down the scope of the Bill, with Boris Johnson labelling its proposals as “a trivial set of adjustments”. In reality, Johnson sought a more moderate version of the Bill after Chancellor Rishi Sunak and Health Secretary Sajid Javid raised concerns about the consequences of the original, more hardline version of the Bill proposed by Foreign Secretary Liz Truss. However, fresh from a bruising vote of confidence in which 41% of his party unsuccessfully tried to unseat him, Johnson has been forced to move back closer to the original proposals tabled by Truss. Johnson’s changing position is indicative of the political position he finds himself in. Weakened by the vote, Johnson will now be more vulnerable to the views of his own backbench MPs, making government U-turns – and inconsistent policymaking driven by their views – more likely.

The proposals are also extremely likely to have diplomatic consequences. The EU has warned that the Bill undermines trust between the two sides and makes finding a compromise harder. US President Biden has also warned that the UK’s actions make it less likely that a UK-US trade deal can be agreed. Although the UK’s actions are likely to cool UK-US relations, a trade deal was already unlikely, with lead UK negotiator Crawford Falconer admitting in May 2022 that negotiations had “stalled”.

Johnson is likely to find it extremely difficult to compromise on the Bill to break the impasse with the EU while retaining the support of pro-Brexit backbenchers. This, rather than legal challenges at home or in the EU, is likely to be the real flashpoint of the legislation. Johnson risks finding himself in the same position as former Prime Minister Theresa May, caught between the demands of the party and the need for a workable solution with the EU. The Bill begins the process of establishing whether he can find the solution Mrs May could not to the question of the Northern Ireland Border,  but is unlikely to settle it.

To discuss the government’s approach to the Northern Ireland Protocol, please email Lizzy Cryar on lizzycryar@wacomms.co.uk.

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Hanging in the balance? What we can learn from the local elections

Boris Johnson lives on to fight another day. The local election results were bad for the Conservatives but not good enough for Labour. Johnson’s MPs are not terrified enough to remove him in the immediate aftermath. I suspect the elections were never going to be the trigger. Leaders can always point to a success somewhere in the country. In his case, Johnson notes that parts of the so-called ‘red wall’ are holding firm.

This does not mean Johnson is safe for the long term. Over the weekend I spoke to several Tory MPs alarmed at the collapse of support in London and the south of England. They fear a fatal dynamic, the Liberal Democrats gaining seats from them in some parts of the country and Labour doing the same elsewhere. Their anxieties deepen when they reflect that the cost of living crisis is likely to intensify.

Johnson’s first substantial response to the election losses takes the form of tomorrow’s Queen’s Speech, a legislative programme composed with the next election in mind. The forthcoming Brexit bill is emblematic. Nearly all the initiatives aimed at moving away from EU regulatory frameworks have already been announced. By putting them together in a bill, Johnson seeks to make Brexit a defining issue once again.  Similarly, I am told that some of the proposals that will be included in a ‘levelling up’ bill do not necessarily require legislation. The theme is what matters as much as the content. For businesses wondering what the dividing lines will be at the next general election, Johnson’s words in the Commons tomorrow afternoon following the Queen’s Speech will provide part of the answer.

What is not in the Queen’s Speech is also as significant as the content. For all the huffing and puffing there will be no bill clearing the way for the government to unilaterally disown the Northern Ireland protocol. Even Johnson at his most populist does not want to alienate the Biden administration and the EU in quite such a provocative manner, not least with the Ukraine crisis far from resolved. Even so, expect renewed ministerial attempts to renegotiate the protocol in the next few weeks, accompanied by threats to trigger Article 16.  The other ‘missing bill’ on housebuilding is also a sign that Tory backbenchers are becoming more muscular. Johnson’s plans for what was one hailed as a “house building revolution” are dumped as a result of the insurrectionary threats from Conservative MPs in the south of England.

The calm ceremony of the Queen’s Speech will be in marked contrast to the wider political storms. Politics has rarely been more topsy turvy. For months there was speculation about whether Boris Johnson could survive ‘partygate’. Now there is a near panic at the top of the Labour Party about Keir Starmer’s fate being in the hands of the Durham police.

We do not know what the police will decide in its reopened investigation. But if Starmer survives, shadow cabinet members reflect privately that there are already lessons for him arising from ‘Beergate’. The first is that he will face hostile newspapers that are out to get him and to hail Johnson. Although he has sought to be as inoffensively ‘centrist’ as Tony Blair was in the run up to 1997, he is not going to enjoy a similarly supportive set of newspapers. The Daily Mail, The Sun and The Telegraph have played down Johnson’s partying and propelled Starmer’s work meeting in Durham to the top of the political agenda. At the very least they have succeeded in neutering Starmer. He was due to give interviews at the weekend and attend an event today at the Institute of Government. To the bewilderment of some in the shadow cabinet these were cancelled. If Johnson gets more penalty notices while the Durham police continue their investigation, Starmer’s response will be impossibly constrained. I have spoken to several shadow cabinet members who are genuinely worried about this development and what it might portend. Even if Starmer is cleared, he knows he must be prepared for a newspaper onslaught similar to that experienced by Neil Kinnock. His media operation will need to be much more robust in the face of inevitable further attacks.

The local elections suggest that a hung parliament is a possibility after the next general election. This would mean a minority Labour government or a Lib/Lab coalition. None of the other parties would do a deal with the Conservatives. For businesses trying to make sense of the current wild political context perhaps the most useful comparison is with the two elections in 1974 that took place during an economic crisis even deeper than the current one. There was considerable disillusionment with both major parties then and their leaders. The Liberal party was enjoying a revival and in a minor way so was the SNP in Scotland. The February 1974 election produced a hung parliament and the October election a few months later gave Labour a tiny overall majority. Over the last weekend Number 10 carried out an effective spin operation suggesting Johnson was fairly pleased with the election results. If he was, he must be delusional.

Perhaps the most significant results were in Scotland and Northern Ireland. The SNP wins every election in Scotland almost as a matter of course. Some Tory and Labour MPs wonder whether this will change until there is a second referendum. Nicola Sturgeon can always deploy the Westminster resistance to another poll as a weapon: Scotland votes for independence but Westminster won’t allow us to have a referendum. Labour is taking comfort from coming second in Scotland and some at the top of the party dare to hope it might win a few more seats there at the next general election.

The rise of Sinn Fein in Northern Ireland was perhaps inevitable following Johnson’s chosen Brexit route. Although he protests about the subsequent protocol, he was the one that proposed a border between Northern Ireland and the rest of Great Britain. There would have been no such barrier under Theresa May’s Brexit deal. Inevitably Northern Ireland’s economy moves closer to Ireland’s and is more distant from the rest of the UK, not a bad context for Sinn Fein to make its moves. This does not mean a united Ireland is a feasible prospect in the near term, but it becomes part of a destabilising mood in which a significant number of voters in Scotland and Northern Ireland want to break away from the UK. Johnson is not well placed to address the situation as his presence and conduct fuels the mood.

The key developments to look out for in the coming months are the Gray report and the end of the Metropolitan police investigation, the outcome of the Durham police investigation, embryonic leadership campaigns on both sides, a reshuffle if Johnson survives the Gray report, but above all the build up to Rishi Sunak’s budget in the autumn, a pivotal event and one made more demanding by the failure of his Spring Statement. On many fronts get ready for a turbulent summer and early autumn.

 

Steve will be unpacking what the government’s legislative programme will mean for businesses and, in the wake of the local elections and  what we can expect from the next parliamentary session in the latest WA webinar at 9am on Wednesday 11th May. You can register to join the event here.

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Boris Johnson is Safe… For Now

On the surface Boris Johnson commands the support of nearly all his MPs. He will derive some comfort from this public display of loyalty. In terms of his future, the relationship with the Conservative parliamentary party is all that matters. Quite a lot of voters may tell pollsters that they regard Johnson as a ‘liar’. Normally calm constitutional historians and Archbishops may fume. Parts of the media and Twitter can be in uproar. But, as long as Johnson keeps his MPs on board he can carry on. The power to remove him lies with Tory MPs alone. During his post-Easter statement to the Commons, the first since he received his penalty notice for the birthday party in Number Ten, only one backbencher called on him to go.

But the surface does not tell the whole story. Over the bank holiday I phoned several Tory MPs including a few who are uneasy about  their Prime Minister becoming a ‘law breaker’. They told me they would not contemplate for a single second speaking out in public against Johnson before the local elections. Their party members are spending their spare time campaigning energetically and they would not undermine such effort by condemning their party leader. They would never be forgiven by activists if they did so. In other words the May local elections are a big protective shield for Johnson and also a threat. In advance of the vote, quite a lot of Tory MPs feel they have no choice but to suspend judgement. Any critical quotes would help Labour. That does not mean their support is guaranteed if the Conservatives perform poorly in the elections.

As has been the case since ‘partygate’ erupted, the mood of the Tory doubters in the parliamentary party fluctuates on a near daily basis. There have been times when they were ready to make a move against Johnson. On other occasions they are resolved not to do so. Ukraine is another factor fuelling the changing judgements, although from my conversations this is becoming less potent compared with the fact that that important elections loom. Political parties are at their most tribal during a campaign. There is another reason why the mood constantly changes. Many of the MPs, especially those from the ‘red wall’, are new to national politics. Suddenly they face the most daunting of decisions, whether or not to remove a Prime Minister. They do not quite know what to think or what to do.

In reality the parliamentary party divides into three sections. There are the Johnson loyalists who will stick with him even if he receives more penalty notices and the Sue Gray report is damning. There is a tiny minority for now calling for him to go. In the middle there is a significant section waiting to see what happens next. That includes some ministers who are unsure how this is going to play out. All are loyal for the time being except for the significant resignation last week of Lord Woolfson, a Justice Minister. It’s easier for peers to resign when local elections are being contested. They are above the electoral fray. In some cases Johnson cannot assume that loyalty will endure across the government after the May elections.

The strategy in Number Ten, a more nimble operation after recent changes, is clear. They call for “perspective” as Johnson focuses on Ukraine, the cost of living crisis and his plans for dealing with the migrant crisis. Johnson’s every move is made with his own survival in mind. He and his new inner circle know he is not safe yet. Johnson seeks to be the indispensable ‘man of action’, visiting Kiev earlier this month and off to India this week. After his act of contrition in the Commons he delivered a different more upbeat performance to his own MPs at a private meeting, linking his plan to send migrants to Rwanda with an attack on the BBC and the Archbishop of Canterbury, suggesting they were soft on Putin. This is a classic Johnson tactic, seeking to tick several boxes in a single assertion. He knows most of his MPs approve of the Rwanda scheme, admire his approach to Putin and are angry about the BBC and the Archbishop. After the May elections Johnson plans to unveil a Queen’s Speech that will again be aimed at pleasing his MPs with bills on ‘levelling up’ and other legislative items that he will claim represents the ‘people’s priorities’.

But Johnson and his advisers are not wholly in control of events. The metropolitan police investigation continues without any indication of which party is being scrutinised and when the next penalty notices will be handed out. No one in Number Ten knows when the investigation will end. When it does the Gray report will be published and, on the basis of her interim findings published earlier this year, it will be damning. In his Commons’ statement Johnson focused only on the Number Ten birthday party. If charged for other events he will have to find new explanations. Johnson has a distinct capacity for climbing out of deep holes. But he is not entirely lacking in self-awareness. Indeed he can be introspective and melancholic at times. Mostly I hear from his allies how he is robustly determined to keep going  but one did note that this crisis is getting Johnson down. With his ‘Churchillian’ sense of destiny, being the first prime ministerial law breaker was not meant to be part of the narrative.

The context is as much a key to his fate as the scale of the law-breaking. If the Conservatives do badly in the local elections and Labour soar, Tory MPs will begin to worry about whether they will lose their seats. The elections next month might not be as clear cut as that. They rarely are. But then there is the Wakefield by-election probably to be held later in the summer, a big test for both Johnson and Keir Starmer.

There are some other big themes that will dominate the coming months. The IMF has forecast that the UK economy will suffer the weakest growth out of the G7 countries. Rising inflation is destabilising for even the strongest of governments and the Johnson administration is fragile. The collapse in the standing of Rishi Sunak might have removed a leadership rival but any government needs a Chancellor with authority when the economy is weak. The dynamic between Johnson and Sunak will be pivotal. At the moment both are vulnerable. Usually one has been in a stronger position than the other. Sunak’s spring statement was framed when the Chancellor was at his most assertive as Johnson fought for his political life. In the past Johnson’s deeper interventionist  instincts have tended to win out because he was in a strong enough position to prevail over his Chancellor. For now at least they dance together after Sunak decided to stay on rather than resign after receiving his penalty notice and with Johnson currently too weak to sack him. If Johnson emerges safely from ‘partygate’ he might be tempted to appoint another chancellor, but none of the options are straightforward. The likes of Liz Truss and Sajid Javid share Sunak’s fiscal conservatism. Javid’s tax affairs are also attracting media interest.

For whoever is Prime Minister and Chancellor this autumn, the budget will be a moment of great significance for the economy and the future of this government. There could well be a further economic statement from Sunak this summer although he is keen to avoid one, wanting to focus on his budget and not give the impression of ‘panic’ reactions before then. Sunak has spent some time studying what happened in the 1970s when inflation raged more wildly than now. He noted that there were endless emergency budgets that tended to fuel further panic.

Even so the autumn is a long way off. There will be many twists and turns before then.

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Are women finally being heard?

Women in the UK are becoming increasingly vocal about the challenges they face in their healthcare and the unjust variation in access to services. When the Government opened their consultation to inform a Women’s Health Strategy in Spring 2021, over 110,000 respondents took the opportunity to make it known that the system does not work for them. Following years of campaigning, it comes as no surprise to women and those in the women’s health community that an overwhelming 84% of people felt their voices are simply not being heard when they seek health care.

By demonstrating an interest in women’s voices and their experiences, recognising failures in the system, and committing to developing a Women’s Health strategy, the Government has taken a positive initial step, albeit an ambitious one. There is no disease-specific focus and no target patient population, unlike other policy areas. This challenge affects 51% of our population and includes natural, life course events that women have, for many years, been told to just live with. With publication of the strategy imminent, the Government now need to demonstrate that they are willing to not only listen to women’s voices but to implement action based on what they are saying.

Women continue to face challenges when it comes to choices about their own bodies. Ongoing variation in access to abortion care, a full range of contraceptive choice, and a holistic range of menopause treatment options, all impact on women’s freedom to choose the treatments that work best for them. The Government’s commitment to prioritising the menopause in the upcoming strategy and cutting prescription costs for Hormone Replacement Therapies (HRT) in response to the Menopause Revolution campaign is hopeful. However, the Government’s initial attempt to reverse progress made in at-home abortion during the pandemic despite women citing a clear preference for this to continue, suggests more need to be done to prioritise women’s voices, choices and rights in practice.

In addition to not being heard, a fragmented system and the pandemic backlog have resulted in services that are increasingly difficult to navigate, leading to the most vulnerable falling through the cracks. Upcoming system reforms focusing on the integration of care offer opportunities to take a patient centered approach and reduce inequalities in outcomes. The Government is also expected to advocate for the establishment of ‘women’s health hubs’, which aim to enable access to all required care in a one-stop shop, in line with calls from advocates including the Primary Care Women’s Health Forum and Royal College of Obstetricians and Gynaecologists. Despite the promise of better integration locally, fragmentation is continuing at a national level. Abortion has been removed from the Women’s Health Strategy and is expected to feature in the upcoming Sexual Health Strategy. With a wider interest in health inequalities, the Government must recognise the connection between these elements of healthcare and align planning nationally to support local areas to integrate care.

Committing to a women’s health strategy is a promising step in the right direction for this Government and has offered women long overdue hope. Action in response to prominent campaigns, such as the Menopause Revolution, to change the way women can interact with the system allow us to believe that the challenges women have faced for far too long could be overcome within their lifetime.

The Government have a real opportunity to ensure women have their voices heard. To do this, they must recognise the challenges they face, capitalise on system reforms to integrate care, collaborate with the women’s health community, and most importantly, commit to funding appropriate and immediate action. In a health system and economy designed by and for men, the time for meaningful, impactful change, is now.

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A day late and a dollar short? Unpacking Sunak’s bid for a global crypto hub

On 4 April 2022, Rishi Sunak announced the government’s ambition to turn the UK into “a global hub for crypto asset technology” as part of the Treasury’s plan to create a new crypto regulatory package.

The government’s headline proposal is to integrate stablecoins (cryptocurrencies linked to traditional currencies or assets) into the payments system, enabling people to use them like conventional currency. The government is also looking to explore ways to catalyse a domestic crypto asset market by making the UK tax system more “competitive”. The Financial Conduct Authority (FCA) plans to conduct an industry-wide consultation in May this year.

Speaking at a financial technology conference on 4 April, the Economic Secretary to the Treasury, John Glenn, said that the government is “going to prioritise” blockchain technology, and could even issue debt and borrow money using the approach. He pointed to the UK having fewer regulators than the EU and US which would enable the UK government to “move very nimbly” in achieving its goal.

However, the government’s renewed focus on crypto may come too little, too late for businesses in the rapidly growing sector, with many having already left for greener regulatory pastures following the FCA’s foray into crypto regulation.

Crypto businesses have faced a rocky road to FCA compliance so far

The FCA became the anti-money laundering and counter terrorist financing supervisor for crypto asset firms from 10 January 2020. Firms that were already operating in the UK prior to the date were directed to register with the regulator by 10 January 2021. Many firms were unable to complete the application process in time, which led the FCA to create the Temporary Registrations Regime (TRR). The regime enabled firms to continue trading if their application had commenced before 16 December 2020 and was still undergoing assessment.

From 10 January 2021, the FCA mandated all existing crypto asset businesses in the UK to be registered with the FCA, or in the process of doing so via the TRR, which was due to close in July 2021. However, delays by the regulator in clearing the TRR resulted in the deadline being extended to 31 March 2022, and then extended yet again – for applications of “all but a small number of firms” that still had not been fully processed. The FCA explained that delays in the registration process were a result of the complexity, and often poor standard of applications it receives, while also pointing to the impact of the pandemic in restricting the regulator’s ability to conduct visits to the companies for the earlier delays.

In January this year, Lisa Cameron MP, chair of the UK parliamentary group on crypto and digital assets, criticised the regulator in how “the lack of clarity from (it) has presented huge challenges to firms in terms of business certainty,” with firms “actively leaving the UK as direct result of the FCA’s approach, costing the UK in terms of jobs, talent and revenue.” Recent research from YouGov shows that growing number of companies are moving to other markets “to ensure they can continue offering crypto services to Brits, but from outside of the new UK regulatory regime,” as the FCA rules still allow companies to serve British clients from bases like Luxembourg, Germany, and Switzerland.

Speaking at a City Week 2022 event on 26 April, FCA chief Nikhil Rathi argued that many businesses fell short of the FCA’s standards for provisions to prevent and identify harm. He added that the regulator looks to work with firms to support their efforts towards compliance and that this “should not be interpreted as anti-innovation.” Blair Halliday from Gemini (a crypto exchange given the green light by the FCA), explained how the FCA’s approach “gave firms that really have that desire to seek regulatory approvals something to demonstrate as a key differentiator.”

The FCA announced a three-year strategy focused on improving outcomes for consumers earlier in April this year. The strategy directs the regulator’s Head of Digital Assets to “build and lead a new crypto department that will lead and coordinate the FCA’s regulatory activity in this emerging market” with, for the first time, published outcomes and performance metrics that the regulator will benchmark itself against. The strategy’s stated focus is on the prevention of serious financial harm for consumers, with online fraud and scams increasing in tandem with growing crypto ownership – latest research shows 1 out of every 5 people own some form of cryptocurrency today.

Will the government’s new approach finally provide the clarity crypto firms have been calling for?

Both policymakers and businesses have been openly critical of the speed and effectiveness of the FCA’s approach and its impact on the sector, with the back-and-forth between the regulator and the industry widely reported in the media as the final deadline for the TRR approached. Several of the UK’s best-known crypto businesses, including payments app Revolut and digital asset custodian Copper, were said to be left in limbo as they awaited the FCA’s verdict on their applications.

Peter Smith of Blockchain.info, one of the UK’s most prominent crypto businesses, welcomed the government’s plans as a “course correction” but lamented how “more than 90% of the sector has left the UK for more progressive countries in Europe.” A similar sentiment was shared by Charles Hayter, of data provider CryptoCompare: “the proof is going to be in the pudding with how the government eases the blockages our industry has faced.”

Investors looking at businesses in the sector should note that while the Chancellor’s announcement may point towards a more flexible, pro-business approach to regulation, it came in stark contrast to the Governor of the Bank of England Andrew Bailey calling crypto the “new front line for scammers” while warning that fraudsters are exploiting digital asset technology, on the same day as Sunak’s announcement, reflecting the emphasis on consumer protection in the FCA’s three-year strategy. Despite the Chancellor confirming that the Treasury will look to work with the industry in developing the future regulatory framework, it is evident that the government must do more to ensure firms can “invest, innovate and scale up in this country.” The new new crypto regulatory package must instill confidence, not confusion, for businesses in the sector if the government’s dreams of a global crypto hub are to come true.

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Mid-term blues or the next step in Boris Johnson’s demise?

With a significant set of local elections taking place across the UK, what are the key takeaways and what does this mean for the stability and direction of the government?

Conservatives down across the country

Despite the Conservative Party’s best attempts to manage expectations over the losses they were likely to face – talking about 800 seats at risk, far beyond what was ever likely – this set of election results is towards the upper end of disappointing outcomes.

The political realignment seen in recent years has been reinforced by this set of election results. The Conservatives were able to stem the losses nationally by holding on – and even making gains – in Leave voting heartlands, particularly in the midlands. However, it was a very different picture in Scotland, London, other metropolitan and urban areas – losing seats in Greater Manchester and Hull – and in large swathes of southern England, the so-called ‘Blue Wall’. In these areas – particularly places like Oxfordshire, Cambridge and Somerset – the party predominantly lost out to the Liberal Democrats.

Labour moving forwards, but slowly

In a mixed night for Labour, the party’s shown progress but the results also highlight the huge mountain it still has to climb. Winning control of councils covering target seats in both southern England – Crawley, Worthing and Southampton – as well as in the so-called ‘Red Wall’, including Cumberland which includes three marginal constituencies allows it to show that it’s building momentum and give some confidence to members that Starmer will enable the party to grow its seats total at the next General Election.

However, the reality is that it’s not currently doing enough to win a majority in 2024 – or before, if speculation is to be believed. Analysis of these results show that translating the national vote share into parliamentary seats would see a hung parliament, with no party even close to a majority. With Labour more easily able to secure the support of other parties, they’re more likely to be in the driving seat but these results will be a reality check for those expecting a Labour majority government in two years’ time.

Other opposition parties have been the main beneficiaries

With Labour improving but not making major gains, it’s the Liberal Democrats and the Greens who have been the main beneficiaries. Over recent election cycles, the Lib Dems have established a much greater foothold across much of southern England, reinforced by these results. For both parties this will build confidence amongst activists ahead of the next General Election, with the Lib Dems likely to go into the upcoming Tiverton by-election feeling bullish.

A constitutional crisis on the horizon in Northern Ireland?

One of the most significant – although largely ignored set of elections this side of the Irish Sea – has been those to the Northern Ireland Assembly. Although the results are still coming in, Sinn Fein are likely to emerge as the largest party for the first time, with the DUP consolidating their position, the liberal Alliance making major strides forward and the more moderate UUP and SDLP the main losers.

With significant concerns over the Northern Ireland Protocol – and perhaps unspoken the prospect of a republican First Minister creating pressure for a border poll – the DUP are likely to refuse to enter power sharing, resulting in the prospect of direct rule from London, fresh elections and a potential constitutional crisis. Unionists will be hoping this will place pressure on the UK government to act definitively on the protocol, making clear to the EU that it’s not sustainable.

What does this all mean for the government’s future direction?

Boris Johnson will come under renewed pressure from his backbenchers to deliver a policy agenda and style of government that will reattract soft Tories in the ‘Blue Wall’ who have wavered to opposition parties. Ultimately this is where the majority of his MPs hold their seats – there will be an increasing cohort of nervous faces in 1922 Committee meetings worried that these results could be replicated at the next General Election.

However, while the Conservatives did reasonably well in the so-called Red Wall, they still need to consolidate. The government faces a critical question as to how to manage the tension between the varying priorities of different voters and constituencies in its electoral coalition.

With interest rates rising and inflation set to reach 10% by the end of the year, the government will come under renewed pressure to act on the cost of living. Next week’s Queen’s Speech is likely to be judged as to how far the government is acting on this.

In the short term this set of election results is unlikely to give Johnson’s critics the cover they need to move against him. However a series of poor by-elections results in the Summer could provide an incentive.

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Tax Rises Now, An Income Tax Cut To Come

Rishi Sunak has just delivered one of the oddest economic statements in recent years. Sunak punctuated his speech to MPs with warnings from the Office for Budget Responsibility that we were living through a period of “unusually high uncertainty”. Indeed, as confirmation of the gloomy economic climate, the OBR’s growth forecasts for the coming years were revised downwards. Ominously, the Chancellor made clear that these forecasts had not considered the consequences of the war in Ukraine. Sunak was blunt. He acknowledged the economic situation could “worsen”.

Yet he felt the need to stride through the foggy future and announce a cut to the basic rate of income tax in 2024. The strange announcement is illuminating for several reasons. For businesses wondering when the next election will be here is a big clue. Boris Johnson and Sunak are targeting 2024 and not an early election next year. They seek a campaign following a tax-cutting budget.

Usually a pre-election tax cut is kept as a surprise until the very last minute to propel a governing party towards a campaign. But, given today’s announcement, two years before implementation, there will now be no surprise in 2024. The far-off pledge shows that Johnson and Sunak are alarmed by the commentary about their tax-rising policies over the last couple of years. As worried Tory MPs have noted, the duo have presided over more tax rises already than Blair and Brown did in ten years. For different reasons both Johnson and Sunak needed some good news now about a cut in income tax. As a result, they announced it early. Johnson wants to keep his job; Sunak would like to be Prime Minister. They tried to give Tory MPs some distant good news, but the pledge is both politically and economically risky. Will they have to find other surprises by 2024? Will the cut seem credible then?

The measures that take immediate effect are broadly unsurprising: a cut in fuel duty and the lifting of the threshold before National Insurance is paid. Some Tory MPs were delighted that the threshold was raised by £3,000, higher than they had anticipated.

But on the whole Sunak did the least possible in the short term. He knows he will have to do more in the autumn when he delivers his official annual Budget. This was only meant to be an economic update, but there has not been a single statement from Sunak during a period of economic calm. This was no exception. He had no choice but to deliver in effect a mini budget.

Looking ahead Sunak could not have been clearer as to how businesses can engage with government in the run up to the Autumn Budget. If he has had a distinctive theme as Chancellor, it is his search for a ‘business-led recovery’. This was the main topic in his Mais lecture, delivered on the day Russia invaded Ukraine and therefore largely overlooked. Sunak had spent huge amounts of time on the lecture, traditionally regarded as the address that defines Chancellors. In his statement to MPs, he expanded on the Mais lecture, telling them he was exploring “tax cutting options” that encourage the private sector to “innovate”, invest in vocational training, spend more on R and D, and on capital investment. He plans a big package of fiscal reforms this autumn and will be consulting with businesses in the coming months. Sunak sees these reforms as a way of addressing the UK’s relatively low productivity and to boost economic growth when the economy is weak.

I sense he genuinely wants to engage with businesses as to how this can be brought about. He has not yet decided on the tax policies that he plans to unveil in the autumn budget.

For businesses wondering how Labour will approach the next election, the Shadow Chancellor, Rachel Reeves, provided several answers in her response. She adopted a similar approach to that of Gordon Brown when he was Shadow Chancellor in the run up to the 1997 election. In her case she attacked Sunak’s National Insurance rise and accused him of wasting taxpayers’ money in spending billions on useless equipment during the pandemic. Brown did the same in 1997, arguing for ‘fair’ taxes rather than ‘higher’ taxes and pledging ‘competent’ spending rather than wasteful expenditure. Reeves also accused Sunak of ignoring the needs of businesses. Like Brown, Reeves wants to be seen as a pro- business Shadow Chancellor. She is keen to engage with business and is struck by how businesses are increasingly keen to engage with her.

For now, the return of inflation has some advantages for Sunak. Higher prices mean higher tax receipts. This has given him some wriggle room to play the fiscal conservative that also intervenes by spending money. But those benefits do not last very long. Soon public sector pay claims will soar in order to meet rising prices. High inflation can also undermine already low levels of economic growth. Inflation – more than any other economic factor -tends to destabilise governments. Sunak is keeping his fingers crossed that he has done enough in the short term. Some Conservative MPs are not so sure. The OBR’s official forecast is that this year, real household disposable income per person – or living standards – will fall by more than at any time since reliable data was collected. His promotion shortly before the pandemic means that Sunak has endured a turbulent time as Chancellor. Arguably the biggest storms are still to come.

 

 

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Statement of Intent: Rishi goes from spender to saver…for now

This article originally appeared in Real Deals on 24 March 2022. 

 

Rishi Sunak might have hoped that his first truly post-Covid fiscal statement could be one brimming with sunny optimism. With the Perspex screens, masks and social-distancing markers gone from the Commons, he perhaps imagined enjoying his time in the spotlight buoyed by impressive growth figures, record employment and harmony throughout the land.

Instead, as the Chancellor rose to deliver his Spring Statement he was faced with an unenviable challenge. Rising energy prices, global disruption to supply chains –exacerbated by the Russia-Ukraine war – have driven up living costs to the point of crisis. Add to this the threat of inflation creeping into double digits before too long and Sunak’s task begins to look Sisyphean.

With this context in mind, it was crucial that the Spring Statement needed to outline the government’s plans for addressing immediate economic imperatives and set out a coherent plan for tackling the economic headwinds that threaten to cause economic hardship for millions over the coming months.

And that’s what we got, to an extent. Sunak’s approach sought both to meet the short-term challenges which the economy faces and to demonstrate something of his own ideology in charting a course for the longer term. Since he took office in No.11, the Chancellor has had little opportunity to set out his stall as a true fiscal conservative. This Statement was a marker, outlining a multi-year plan towards economic strength and sustainability, and looking beyond immediate tax rises and medium-term tax cuts.

Saving today, but more spending likely in the autumn

Sunak’s tone was, for the most part, sombre. He repeated the government’s commitment to provide military and humanitarian resources to Ukraine and to ongoing sanctions on Russia, but warned that this would not be cost-free. He told MPs to prepare for the economy and public finances to worsen – “potentially significantly”. The OBR feels similarly, and has revised its GDP growth forecasts downwards, to 3.8% in 2022 and 1.8% in 2023.

Sunak set out headline-grabbing plans to raise the National Insurance Contribution threshold by £3,000 – bringing it in line with the income tax threshold – alongside a drop in fuel duty by 5p per litre for 12 months, and exempting energy efficiency measures from VAT. The Chancellor will use these as clear examples of the additional – decidedly Conservative-sounding – support he is offering.

He has deliberately chosen not to capitulate to those calling for another spending spree to handle the cost of living, instead choosing to save and to leave a clear “margin of safety” to create fiscal headroom. This has not gone unnoticed. The RAC has already called the fuel duty cut “a drop in the ocean” and the Institute for Fiscal Studies has expressed concern about support for those on means-tested benefits. This may come with a political cost. Sunak has gambled that the benefits of focusing on tax cutting outweigh the risks, but with even the Daily Telegraph focusing on the coming cost of living crisis, there is every chance that Sunak will be forced to revise his fiscal strategy.

Charting a low-tax course

In tone and emphasis, this was a very different Sunak to the one who delivered the Budget last October. Where that Budget made large spending commitments – raising the budgets of every government department – the Spring Statement acknowledged that rising inflation will mean that the real-terms increases will now be less than anticipated. Where last year’s Budget revolved around the ever-present phrase “Levelling Up”, this time the Chancellor didn’t say those magic words once.

Instead, the Chancellor unveiled his new “Tax Plan” – an approach to reduce and reform taxes for people and businesses, with more detail on measures due in the Autumn Budget. The publication of the Plan signals a clear direction of travel for the Conservatives for the remainder of this parliamentary term, and the rationale seems clear: the Chancellor wants to keep backbenchers concerned about the tax burden becoming too high on side. His ambition to lower the basic rate of income tax by 1% by 2024 is a sure sign that reducing the tax burden on voters will be a key part of the Conservative strategy at the next election.

But the government will need to walk a careful tightrope over the next two years. It will have to provide enough support to those in immediate need, maintain sufficient headroom to deal with further uncertainty, and still offer enough eye-catching policies to the electorate to reverse their current deficit in the polls.

The Chancellor has been clear that engaging with businesses will be key to the success of this plan. He has long sought a “business-led recovery” and is likely to provide ample opportunities for businesses to make their voices heard as the next Budget approaches. With changes to R&D tax credits, reductions in investment taxes and new incentives for employee training all under consideration, investors will want to make sure that their portfolio companies think carefully about the changes that they would like to see, and develop clear strategies for conveying those ideas to the government over the coming months.

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Rishi’s recipe for growth: private sector investment

Capital, people, ideas. A simple strategy but one built on much thought and observation about the future direction of the global economy, and Britain’s place in it. These are the strategic priorities outlined by Rishi Sunak in his Mais lecture last Thursday. To be more accurate, the word ‘private’ should be added as a critical pre-cursor to all three words.

This was the heart of Sunak’s ambition, to incentivise much greater private sector investment in all three areas. Sunak’s position as a free-market enthusiast was never in doubt and this belief in the benefits free markets deliver sits at the heart of his political and economic philosophy. As such it is unsurprising that his core aim is to lift private investment rather than deploying the power of the state. This approach will be challenged as pressure grows for intervention to soften the impact of rising inflation and the cost of living crisis but his starting point is fundamentally fiscally hawkish.

But what does this tell us about Sunak’s likely approach to policy development in future and key questions around tax and spending priorities?

No un-funded tax cuts

This message was unambiguous. Sunak wants to cut taxes but emphatically does not believe that all tax cuts automatically pay for themselves. Indeed, the unspoken message here was more about tax rises coming down the line. The example cited was Thatcher and Lawson in their first term – fixing the public finances before going on to deliver lower taxes.
There is already intense pressure from the Tory backbenches to scrap or delay the national insurance rise due in April. It is clear the Chancellor will resist those calls if he possibly can given the premium he is placing on strengthening the public finances. This will be a key test of the strength of his resolve, and political positioning ahead of any future leadership bid.

Capital: options to drive more investment

The Chancellor acknowledged that a ‘cloud of uncertainty’ over Brexit and Covid had played a part in holding back business investment but set out his ambition to turn that around now that the cloud had passed. He accepted that low corporation tax on its own had not been enough and indicated that cutting taxes on business investment will be a future priority. Capital allowances are the most obvious tool to deliver this which is likely to be good news for manufacturers.

People: promoting lifelong learning

Consistent with his central theme, the message was that the state is playing its part with an upbeat analysis of the state of schools and university education in the UK. The gap in the Chancellor’s view is the provision of adult technical skills and the need to promote continuous lifelong learning. He wants to see much greater investment from the private sector in upskilling the UK’s workforce.

He pledged to ‘reform the complexity and confusion’ of the current technical education system, noting people currently must navigate a menu of thousands of different qualification options at levels 3 and 4. Reform is clearly on the agenda. Beyond this, he noted he would examine whether the Apprenticeship Levy ‘is doing enough to incentivise businesses to invest in the right kinds of training’.

There will clearly be opportunities for business to inform the Treasury’s thinking on how best to incentivise skills investment, with greater flexibility in the Apprenticeship Levy a potentially valuable outcome.

Ideas: more R&D required

Once again, Sunak’s diagnosis is that the state’s contribution is already generous enough and the gap that needs to be filled is from the private sector. His vision is optimistic, believing new technology such as artificial intelligence can significantly boost productivity across multiple sectors of the economy. However, he was ambiguous on the mechanism for delivering this.

The tax regime is the clear focus for intervention and Sunak strikingly noted that despite apparently generous R&D tax reliefs available in the UK, ‘business spending on R&D amounts to just four times the value of R&D tax relief. The OECD average? 15 times.’ Clearly the level of the reliefs isn’t the only issue and the Treasury is likely to take a close look at how these reliefs are structured and what more can be done to reform the current approach.

This is likely to open up interesting opportunities for knowledge intensive industries, but those that currently benefit from R&D reliefs will need to be alive to the potential impact of change to the system.

Where’s the green agenda?

Many suspect (and are concerned) that the Chancellor is less interested in the green agenda and decarbonisation than some of his Cabinet colleagues. This speech didn’t assuage those worries. There was no focus on climate change or environmental issues. Indeed, the words ‘green’, ‘sustainable’ and ‘carbon’ didn’t feature at all, with only a passing reference to climate change and a single reference to electric vehicles and offshore wind as examples of areas where productivity increases could be found.

Of course, there will likely be other occasions where he seeks to burnish his green credentials, particularly as he will need a coherent green narrative in the event of any future leadership bid. But this speech tells us is that Sunak’s priority as Chancellor is first and foremost restoring the public finances and driving growth via private sector investment. Where green initiatives and decarbonisation help deliver this, he welcomes them but ‘green for green’s sake’ doesn’t appear to be part of his core focus.

What does this mean for companies seeking to influence the Treasury?

There are three core points to consider from this speech:

  1. If you have suggestions on how to incentivise greater private sector investment in the three priority areas (capital, people, ideas) the Treasury will listen and you have a great window of opportunity this year to shape the Chancellor’s thinking.
  2. If you are already planning investment in the UK then be sure to break down that investment and highlight how it will contribute to these three areas: don’t just give the headline figure, provide examples of the new buildings or machinery you plan to build; outline your skills investment strategy and how it will upskill your workforce; shout loud and proud about the any R&D initiatives you are bringing to, or growing in, the UK.
  3. This Chancellor does not believe that increasing the scale or involvement of the state is the answer to driving growth. So any requests for additional funding or more regulation will simply not cut through unless supported by a clear narrative about how this will incentivise greater private investment.

The Chancellor has a plan, and it centres on businesses investing more. This means the voice of business will be critical in shaping the future economic strategy of this Government.

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Sorry, not sorry

Little more than two years since Boris Johnson won a near landslide election victory he is in deep danger. In this blog I’ll outline Downing Street’s strategy aimed at saving Johnson and why a significant number of Conservative MPs and party members do not believe it will work. I’ll also highlight three other big themes in 2022 that will shape British politics whether Johnson survives or not.

At Prime Minister’s Questions Johnson sought to square a circle. He knew he had to issue an apology, but that the contrition had to be extremely limited. If he had apologised for attending a party, he would have had to resign for misleading the House of Commons, irrespective of whether he broke his own lockdown rules. Instead, he said ‘sorry’ for the way the garden gathering was perceived, admitted he attended but that he regarded it “implicitly” as a work event. Then he hid behind the shield of the investigation being conducted by the senior civil servant, Sue Gray.

The Gray report forms the second part of Number 10’s strategy. Johnson and his closest allies hope that Gray will take a limited view of her remit. She will investigate what happened without making judgements on whether Johnson broke the rules. Johnson’s allies point to her brief. She has been asked to conduct an investigation and not to answer the question “Did the Prime Minister break his own rules?”

On this assumption of Gray’s narrow responsibilities, Number 10 may well prove to be correct. She is a civil servant. Arguably it is not her role to reach a judgement on whether Johnson is lying when he claims he regarded the garden party as a work event. On this basis, Johnson dares to hope he will be able to claim that the investigation clears him of misconduct and mendacity. In the meantime, he has sent out cabinet ministers to defend him on the airwaves, although all are struggling to do so effectively. Jacob Rees Mogg has generated further waves describing the party’s leader in Scotland as a lightweight.

Number 10 do not know for sure what Gray will conclude or when her report will be completed. I have spoken to several politicians investigated by Gray in the past, or who have worked with her. They broadly concur that while she is forensically independent, she will not choose to be the judge over whether Johnson broke the rules and lied about doing so. We will know soon enough. If she does reach such a conclusion, Johnson will resign immediately. If she does not do so he will try to keep going. Johnson is ferociously competitive and seeks a ‘Churchillian’ legacy, Churchill being his great hero. He does not want to be forced out in this shaming context.

The problem with Number 10’s strategy is that the Gray report is bound to be damning even if it is written in measured prose and avoids overt judgments. We know enough already without waiting for Gray’s investigation. Johnson has admitted there was a garden gathering and that he attended. Voters have decided it was a party even if Johnson has not. So have most of his MPs and party members. There is also much speculation at Westminster that there are more revelations to come. Even if that proves not to be the case, there has been plenty of material already.

More immediately the airwaves are punctuated by Tory voices calling on Johnson to go. This is not that unusual. There were plenty of Conservatives demanding that Theresa May went. But note that she did indeed resign in the end. In Johnson’s case his authority over his government and party was derived solely from his ability to win elections and remain popular. After the Conservatives gained Hartlepool in a by-election last summer, he was the most powerful Prime Minister in modern times with no figure in the government or beyond daring to scrutinise him critically. Blair had Brown as a mighty counter. Cameron had to work with the Lib Dems in a coalition. May led an unruly party in a hung parliament. Johnson was master of all he surveyed. Now the Conservatives are ten points behind Labour in the polls and a majority of voters believe Johnson should resign. His mighty authority over his party has collapsed.

The only mechanism that removes Johnson is in the hands of Conservative MPs. If fifty five of them send letters of no confidence to the chair of the 1922 committee, Graham Brady, Tory MPs will vote on his leadership. Theresa May endured such a vote and won, but it was only a fleeting victory. I doubt if Johnson could survive such an insurrectionary move. I know a few of the MPs who have sent in their letters. They are from the older generation in the parliamentary party, ministers from the Cameron era. They had sent in their letters before the latest revelations about the garden party. Brady will never even hint at how many letters he has received, but he will have had a few more in recent days. Neither Sunak nor Truss will seek to overtly topple Johnson, but their much-delayed tweets of support on Wednesday night were one of many signs that they are making feverish calculations about a possible leadership contest.

Whether Johnson stays or goes, this will be a testing year for the government on several other fronts. Sunak had hoped that the coming twelve months would be one of fiscal consolidation. He seeks to hail prudent management of the economy in this mid-term phase so that he has the space for credible pre-election tax cuts. Although Johnson agreed with him in their discussions last year that he would need to keep a tight rein on public spending for now, there are already counter pressures. Sunak has told Gove that there will be no additional money for his levelling up white paper. The publication of the white paper is seen by Johnson as a pivotal moment. One of the many reasons that the much-delayed White Paper will focus on devolution of power is because such constitutional reforms do not cost money. Gove has brought in Andy Haldane, formerly from the Bank of England, to advise him. I suspect Haldane’s private view is that much higher levels of investment are required to make ‘levelling up’ work. Sunak won’t give them an additional penny for now. Nonetheless Sunak will reluctantly spend more in other areas. The government will intervene to cut energy bills and that will cost additional cash in the short term at least.

The NHS will be the other big theme, whether Coivd fades or rages once more. Johnson and Sajid Javid are acutely aware that the backlog of operations, the record-breaking waiting lists, could become a huge issue at the next election. But even with the substantial tax rise being implemented in April they are not confident that the delays can be addressed speedily. Meanwhile the national insurance rise was supposed to pay for elderly care in the long term. Will ministers go into the next election arguing that they are transferring the additional cash from the NHS budget to pay for social care? If not, how will they pay for social care? More widely Javid inherited a White Paper that will introduce further sweeping reforms of the NHS, not all of which he fully supports. These will be big issues for whoever is Prime Minister.

Finally, the year is a challenge and an opportunity for Keir Starmer. An opinion poll lead is a gift for an opposition leader. The media will take him more seriously. He and his Shadow Cabinet will be viewed as a potential alternative government rather than as a bunch of losers. If he rises to this newly elevated perception, the poll lead will feed on itself. If he does not do so, Johnson will not be the only leader in trouble. His challenge will be to connect policies to broadly expressed apolitical values such as ’respect’ and ‘prosperity’. This is not easy, but Starmer has the huge boost of facing a government that appears vulnerable for the first time since the December 2019 election and he is performing more confidently.

The fate of Johnson is not yet decided. For certain, the cost of living, the internal debate in the Conservative party over whether the government should cut taxes or spend more, the future of the NHS and the performance of Starmer will be big themes in 2022…as the next general election moves in to view.

 

Steve Richards is a new member of WA’s advisory board, providing political intelligence and strategic counsel to WA’s extensive client roster. Over the last few turbulent years, it has been imperative for clients and organisations to have unrivalled political intelligence to inform their businesses. This year looks to be no less tempestuous and, consequently, Steve’s insights will be invaluable for all WA clients. 

 

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More bang for our buck, please: the government wants more out of R&D tax credits

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Navigating the NSIA: which way for M&A?

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An historic opportunity…for more of the same? A look at post-Brexit procurement trends

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Solvency II reforms: a key Brexit win for the government?

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A lifelong commitment? What to expect from the Lifetime Skills Guarantee

Skills are a key part of the government’s agenda, seen as vital for unlocking its ‘Levelling Up’ commitments in the light of skills shortages in areas like engineering, IT, and accounting. These shortages are long-standing. A 2018 study by the Open University found that skills shortages were costing UK companies £6.3 billion a year due to factors such as training and additional recruitment costs.

The government has acknowledged these shortages, and the need to ensure the education and training system is able to cope with the ever-increasing demands placed on it. In a foreword to the January 2021 White Paper on skills, the then Education Secretary Gavin Williamson indicated that more opportunities for training needed to be made available. As part of its response, the government has introduced a new policy – the Lifetime Skills Guarantee. It hopes that this initiative will address changing skills needs and employment patterns by giving people the opportunity to train and retrain throughout their lives.

What is it?

The Prime Minister announced the Lifetime Skills Guarantee in a September 2020 speech. The scheme covers a lot of ground policy ground. Pledges include increasing investment in FE colleges, introducing a lifelong loan entitlement, and a new funding system for higher technical courses. Only two policies, however, are being funded by the National Skills Fund: a new Level 3 qualification offer for adults and the extension of digital skills bootcamps.

The qualification offer, which commenced in April 2021, aims to give all adults without a Level 3 qualification (equivalent to A level) access to a fully-funded course. Previously, only adults under the age of 24 could access funding. The courses are taught by a range of state and private providers.

The government maintains a list of eligible courses, with 379 currently listed, and has made digital, engineering, health, and construction qualifications a clear priority with 37, 51, 54, and 66 courses available respectively. Whilst course lists are subject to review, investors in training providers that deliver these courses are likely to be particular beneficiaries of the scheme.

A high priority, and a long-term solution for a long-term problem

The Lifetime Skills Guarantee tackles big challenges, and the government has devoted significant effort to implementing it. The Guarantee was referenced multiple times in last month’s Budget, which also included a wider commitment to increase spending on skills by £3.8 billion by 2024/25 – a cash increase of 42% compared to 2019/20. These are not small pledges. The government has expended serious political capital on addressing the problem of skills shortages and, given this emphasis, is likely to release further funds in future years to support the scheme.

Announcing the Guarantee, the Prime Minister also made clear that the initiative is intended as a long-term scheme, rather than a short-term remedy to fill immediate skills gaps – that the nature of learning demands time and resources. He suggested that other countries have had an advantage over the UK when it comes to skills and technical education “for 100 years”. Indeed, the government’s Skills and Post-16 Education Bill confirmed that the planned rollout of the Lifelong Loan Entitlement, another major Guarantee commitment and one that aims to make it just as easy to secure loans for higher technical qualifications as for full-time degrees, remains over three years away in 2025.

Considering the CBI’s October 2020 analysis that predicted around 90% of employees would need to reskill by 2030, if the government is serious about this issue– and all indications suggest it is – then funding for initiatives like the Level 3 offer is likely to be enduring. The fact that only £375 million from the £2.5 billion National Skills Fund has been allocated for 2021/22 reinforces this. There are an estimated 11 million people who would be able to access the free qualifications under the Level 3 offer. Given the political weight the government has placed on these Level 3 offers – literally labelling them a ‘Lifetime Guarantee’ – the £95 million that is currently funding courses over 2021/22 is very likely to represent a prelude to further funding in the future.

The outlook for investors

The Lifetime Skills Guarantee is a key piece of the government’s education agenda. Both the Prime Minister and the Chancellor have been personally involved in its roll-out and have alluded to long-term planning happening in this space. This suggests that scheme will benefit from ongoing investment, particularly in sectors which government has identified as priorities. Technicians, engineers and social care professionals are consistently namechecked by ministers as occupations that the country lacks, and current course lists reflect this. Providers with speciality in these areas look set to benefit from the increased demand that funding from the scheme is likely to stimulate. As a result, investors in the technical education sector will want to monitor the government’s developing thinking closely in order to identify potential opportunities from future funding allocations for the scheme.

 

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The Competition and Markets Authority: new powers and new roles?

The article below was written by Pauline Guénot, a member of WA’s Investor Services practice.

The Covid-19 pandemic has had a profound impact on every part of the UK economy, and this has generated an ever-more complex raft of challenges to which the Competition and Markets Authority has had to respond. The watchdog has had to address, at short notice, new issues facing consumers and businesses in response to restrictions and new ways of working. It reported this year that its increased casework volume had gained “refunds for thousands of holidaymakers, secured landmark changes for leaseholders and given increased protection to people arranging funerals for loved ones”. As businesses and regulators begin to focus on the post-pandemic environment, attention has turned to ensuring that the CMA remains fit for purpose in the longer term.

Digital regulation post-pandemic

As the UK’s competition regulator, the CMA already has a wide-ranging role. Its powers include investigating mergers that may reduce competition, studying entire markets or sectors where consumer problems have arisen, and sanctioning businesses and individuals which it finds taking part in cartels or other anti-competitive practices. Proposals currently being considered by the government may expand and enhance its remit further.

Among the most significant proposals focus on digitisation. The pandemic has increased the CMA’s emphasis on digital markets, with consumers spending more and more time online. Since the beginning of 2021, it has targeted all but one of the Big Five tech giants, opening different investigations into suspected breaches of competition law in digital markets: into Amazon and Google over the numbers of fake reviews on their sites; into Facebook over its collection and use of advertising and single sign-on data; and into Apple and Google for their privacy settings.

In April 2021, the government launched a new digital regulator within the CMA, the Digital Markets Unit. It is initially operating in “shadow form”, on a non-statutory footing, but the government has committed to introducing legislation when parliamentary time allows to formalise its authority. The DMU will be responsible for overseeing the UK’s digital regulatory regime; it will have a duty to promote competition and innovation, holding powers to regulate, investigate and ensure compliance from digital firms. The government has launched a consultation that will remain open until October 2021 to seek external input on its proposals for the new regime. These include proposals that would designate companies with “substantial market power” as having “strategic market status”. Such companies would be subject to an enforceable code of conduct, and to potentially greater interventions in their M&A activities. Investors in such companies will want to monitor these developments closely to understand the precise implications on their portfolios.

New powers for the CMA

Alongside a focus on digital markets, the growth in the number and value of private equity funded buyouts in the UK more generally has spurred debate as to the CMA’s overall ability to protect consumers and employees.

There has been speculation over possible CMA interventions in a number of markets with a significant private-equity presence. Concerns about private equity interest in UK supermarkets including Morrisons and Asda, for example, prompted the chairman of the Business, Energy and Industrial Strategy Committee, Darren Jones MP (Labour, Bristol North West) to write to the CMA’s Chief Executive, Dr Andrea Coscelli, questioning whether it had “insufficient oversight or powers to intervene when new owners act irresponsibly”, particularly in relation to private-equity owned businesses acquiring significant debt.

Dr Coscelli’s response stated that the CMA’s statutory functions covered merger control and market studies/investigations, and that its powers of intervention on the basis that an asset is highly leveraged is very limited. He did, however, add that a study can be launched if the status of providers appears to affect the price and quality of their services, or their financial resilience. While this reply did not itself outline his stance on possible reform, the CMA has already suggested that a stronger and more flexible competition and consumer protection regime would make its work more efficient.

In July 2021, the government announced that enhancing the CMA’s powers to tackle anti-competition business practices was under consideration and opened the consultation “Reforming competition and consumer policy”. The government’s proposals would enable the CMA to conclude investigations faster and impose stronger penalties for non-compliance. Breach of consumer law could entail a fine of up to 10% of the firm’s turnover; civil fines could be given to businesses that refuse to collaborate or that give misleading information to the regulators and penalties could be imposed for companies that do not comply with the CMA’s investigations equating to up to 5% of annual turnover, plus daily penalties of up to 5% of daily turnover while any non-compliance goes on. The length of court processes would also be reduced as the CMA could accept binding, voluntary commitments from businesses at any stage of its investigations, aiming at delivering quicker results and lower costs.

While these proposals signal stronger powers for the CMA, the government has also proposed removing mergers between small businesses with a turnover of less than £10 million from the CMA’s control. The government envisages that this change will allow the CMA to focus its efforts on larger players, and it aligns with its desire to remove some of the bureaucracy within which smaller businesses must operate more widely. Dr Coscelli has welcomed this balanced approach suggesting that the plans “take forward many of the CMA’s suggestions for a swifter, stronger and more flexible competition and consumer protection regime, which will protect consumers and enable businesses to grow and thrive.”

The government consultation is open until 1 October 2021, and, while legislation is unlikely before 2022, investors will want to pay close attention to the development of the government’s approach and prepare their portfolios for any changes in the regulatory landscape, as well as to identify those areas which the government is most enthusiastic to see grow.

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Video: A critical year for the UK’s economic recovery. What matters most?

2021 will be a critical year for the UK’s future, with a smooth and secure economic recovery not guaranteed. The action by government, regulators and businesses will shape the route back to prosperity and the outlook for consumers and the wider economy.

On Tuesday 9th March, WA brought to together an expert panel, chair by WA’s Rhoda Macdonald, to discuss these issues in the wake the government’s roadmap for easing lockdown and Budget, and hear their perspectives and experiences:

Our expert panel explored the year ahead for the UK including:

 

To receive a link to the webinar’s video, please complete the form below.

 

 

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Telling your Net Zero story: communicating the critical role of the energy sector in the transition

COP26 in Glasgow this November will see the eyes of the world focus on the UK. The UK’s green ambitions – and action – are under significant scrutiny. The regular drumbeat of announcements from across government aimed at supporting the green recovery and the UK’s transition to Net Zero are testament to this.

But it is not just government aiming to set their own narrative ahead of COP26. Businesses – particularly those in the energy sector – also have a need to communicate around the summit and to tell their own story on the contribution they are making to achieve the UK’s legal targets by 2050. Brands need to show consumers and other stakeholders that they are doing the right thing. They need to shape the policy frameworks that government is developing that will achieve these ambitions. They need to explain to investors, employees, and customers what the transition means to them and how they are adapting their businesses to reflect this. While the transition to Net Zero presents many opportunities, it also isn’t without its challenges.

All of this means that for businesses in the energy sector, communicating about Net Zero is not as simple as just sharing good news and showing you are ‘green’. Different audiences all have different needs and priorities. They need to hear nuanced messages in different ways. Understanding these complexities and responding to them through simple communications is not easy.

Here we share our thoughts on how best to engage with these different audiences:

Customers

To date, the transition to Net Zero has been largely theoretical for most people. It has focused on how energy is generated rather than how it is used. Where it has been about usage – for example transport decarbonisation – change is still at a relatively early stage and it has had limited impact on people’s lives. This will inevitably change. Net Zero will become a lot more intrusive in people’s lives very quickly – the decarbonisation of heat is just one example of where business must take the lead in explaining to their customers what is happening, why it is happening, and how it will impact peoples’ lives.

Heat decarbonisation could see the mass installation of hydrogen boilers and/or electric heat pumps with old boilers and hobs eventually replaced with lower carbon alternatives. Consumers will be looking to their energy suppliers and other well-known brands – manufacturers and network operators – to guide them through this period of change and uncertainty. They will be looking to these businesses for clarity on what heat decarbonisation is likely to mean for them and their families, what they need to do, when, and how they will be supported.

Consumers risk losing trust in suppliers and others in the sector if they feel they’re not getting the advice they need. The challenge is that not all of these answers are known yet and there is disagreement within the sector about the best pathway to take. In the interim, businesses in the energy sectors have a role to play in explaining the different options and showing that they are actively championing the needs of consumers.

Policymakers

The key milestones and direction of travel on the transition to Net Zero will be set by government. While business has a critical chance through innovation to shape the approach of the UK to decarbonisation, it will ultimately have to align with the policy and regulatory framework.

Communication to policymakers needs to balance two dynamics: what businesses need – whether that be a supportive tax or regulatory framework – and what they can offer. The offer could be innovation that makes it easier for the UK to meet its Net Zero objectives, or it could be jobs. But critically it needs to go beyond narrow business interests and fit into the government’s political agenda: supporting ‘levelling up’ and promoting Global Britain, for example through exports.

Crucially your approach needs to be about talking to more than just BEIS. The shift of industrial strategy policy from BEIS to the Treasury enhances their existing interest in how innovation supports regional investment, and the policy frameworks required to achieve this. But other departments beyond the Treasury can also play a key role as champions for a supportive policy environment and will be keen to hear what you have to say, be that the Department for International Trade on exports or MHCLG on ‘levelling up’ and investing in communities.

 Communities

Net Zero has dovetailed with the government’s ‘levelling up’ agenda. There is a drive to root the transition to a low carbon economy in particular places. The focus on Teesside and the Humber reflects the Conservative Party’s electoral priorities as well as the contribution these areas can make to decarbonisation – in both cases decarbonising industry and as hubs for offshore wind development.

Businesses need to reflect this in their communication. But just suggesting that green innovation will lead to investment in these regions is not enough. It needs to be specific: what will this mean in practice for people living in these places? How many new or higher skilled jobs will be created? How will this investment support local young people – through training – to access high-skilled, long term jobs? How will it upskill existing employees or help them transition from jobs in high carbon sectors to new ‘green’ industries? How will this improve the local communities, high streets and living conditions of people there?  People like Ben Houchen, the Metro Mayor for Tees Valley, are important advocates to have in making this case, but ultimately you need to be persuading local people and not just their elected representatives.

Employees

The transition to Net Zero means significant opportunities, but it also means change for some parts of the energy sector. This is likely to lead to uncertainty for those working in these sectors, particularly in oil and gas. By explaining to their employees what the transition is likely to mean for them and how they plan to help them benefit from these opportunities, employers can show empathy and demonstrate they genuinely understand people’s concerns. This may require reskilling or a focus on training. Employers can tell a story to their staff about how the transition will bring value to them not just the planet or the UK economy more broadly. Importantly, employees aren’t just workers but they are also consumers, part of local communities, and possibly even shareholders in the businesses they work for. Your employees can be your greatest advocates.

 Shareholders and investors

The rise of the ESG agenda highlights that investors recognise the importance of Net Zero. However, the policy and regulatory developments to drive progress towards these targets will still likely to lead to questions for them. Much of the policy detail in certain areas of energy decarbonisation is still to be defined; in some areas there are still more questions than answers. Businesses in the energy sector are having to manage this ambiguity and are seeking to provide clarity to investors as to what the likely pathways to Net Zero are.

In heat decarbonisation for example, government has been careful to date to be seen not to pick technology winners. This could leave shareholders unclear of the implications and therefore at risk of making the wrong choices. It makes it even more important for businesses to paint a picture of the opportunities and risks, and to interpret what policymakers’ choices will mean for them. It’s a circular process: your conversations with investors provide insights to share with policymakers on how best to unlock private capital and investment through a well-designed policy framework.

Concluding thoughts

 

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Watch webinar: Hospitality & the Leisure Economy – The Bounce Back

Covid 19 has had a huge impact on the UK’s hospitality and leisure sectors with businesses being forced to close for months. These sectors represented approximately 9% of UK GVA heading into the crisis and helping them bounce back quickly once it is safe to reopen services will be critical to kickstarting the UK’s economic recovery.

On Wednesday 24th February, WA brought together an expert panel, chaired by WA’s Marc Woolfson to discuss these issues and hear their perspectives and experiences:

Our panel explored how the industry and government must work together to support the recovery of this important sector.

The discussion included a question and answer session with the audience.

To receive a link to the webinar’s video, please complete the form below.
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What can we learn from the proposed NHS Standard Contract for 2021/22?

What can we learn from the proposed NHS Standard Contract for 2021/22?

NHS England has published a consultation on its proposed changes to the NHS Standard Contract for the financial year ahead. The final document will be used by Clinical Commissioning Groups and NHS England to contract for all healthcare services bar primary care. The focus of any changes often provides important insight into system priorities for the coming year and the strength of conviction behind them.

With 2021/22 set to be another uniquely testing year for the NHS, one might expect measures to mitigate the impact of COVID-19 to dominate the contract. Instead, there is a sense of defiant ambition, with clear signals for providers to push on with other key NHS and government priorities.

With this year’s consultation now live, here are four key takeaways for the year ahead:

 

1. Don’t get left behind as the NHS pushes on with system transformation

The Contract for 2021/22 shows that NHS England is not letting up in its push for system transformation. It includes several steps to establish more collaborative relationships between commissioners and providers, the most symbolic of which is the removal of financial sanctions for providers that fail to achieve national standards.

This is a significant step towards reversing the transactional, almost adversarial relationship that has proliferated between commissioners and providers over recent years, instead encouraging more collaborative system-level action to identify and address the causes of poor provider performance.

The cogs of system transformation are well and truly turning again so engagement with NHS leaders will need to focus on how to support the achievement of their newly framed outcomes in the most direct way. Additionally, the prospect of major health legislation is looming large for the first time in almost a decade, providing an important opportunity to think bigger picture.

 

2. Get serious about delivering ‘Net Zero’

In October, NHS England published its report on Delivering a ‘Net Zero’ National Health Service, which set out the interventions required to achieve just that, ‘Net Zero’. Yet, the report itself had no legal standing on which to enforce its recommendations or incentivise action.

The inclusion of stronger targets on the reduction of harmful greenhouses gases and air pollution in the proposed Standard Contract for 2021/22, and a requirement for providers to identify board-level officers accountable for delivering ‘Net Zero’ commitments, is a clear indication that NHS England is serious about driving this agenda forwards.

The NHS will increasingly expect everyone who works alongside it to demonstrate that they are also serious about reducing their environmental impact. Medicines, medical devices, services and care pathways can all be made more sustainable. Clearly communicating what you are doing in this space could start to deliver a commercial advantage as pressure builds on providers and health systems to make rapid progress.

 

3. Offer a helping hand on health inequalities

Commitments to reducing health inequalities have been somewhat of a stalwart in NHS policy over recent years. The delivery of coordinated programmes at a local level that actually move the needle have not been so common. This was brought into stark relief by the disproportionate impact of COVID-19 on people of Black, Asian and Minority Ethnic backgrounds.

To create greater accountability at a local level, it is proposed that the Contract include a requirement for each provider to identify a board-level executive responsible for overseeing their actions to address and reduce health inequalities. With broader government and public focus on health inequalities brought on by COVID-19, the pressure on these individuals to demonstrate progress will be palpable.

Those working alongside the NHS should place increasing focus on how they support providers and health systems to address health inequalities. At a time when resources are stretched, we may find that some are actually more open to industry support in delivering staff training programmes, new capacity or improvements to patient pathways, but they’ll have to be able to justify the time investment. Demonstrating how you can contribute to reducing health inequalities could help to secure support for your joint working projects.

 

4. Communicate the benefits of remote consultations and management

Following the rapid up take of video and telephone outpatient appointments during COVID-19, the NHS is now trying to cement their use into everyday clinical practice by requiring all providers to offer patients (where appropriate) a choice between remote and face-to-face consultations. The hope is that this choice will be maintained in primary care too, where uptake of remote consultations has also rocketed.

However, to truly support clinicians and patients to select remote consultations in the long-term, the NHS will need to place additional value on health technologies that support effective remote monitoring and management.

Before some slip back into old habits, the wider health sector can play a role in crystallising broad clinical support for this new way of working. Arming your field force and spokespeople with clear, real-world evidence of how your technology is reducing the need for labour intensive, face-to-face clinical interventions could provide clinicians with the confidence to continue their transformation.

 

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Sustainable returns? Trends to look out for in ESG in 2021

Introduction

Evaluating investments on the basis of environmental, social and corporate governance (ESG) principles has been one of the most visible trends in the investment industry over the last few years. A far cry from the familiar, straightforward screening of traditional “sin stocks”, investors are increasingly demanding a much deeper read of a company’s ESG procedures – from staff welfare and internal governance to supply-chain risk and climate action – in order to assess the sustainability of their returns.

Across the world, the proportion of investors applying ESG principles to at least a quarter of their portfolios has risen sharply from 48% in 2017 to 75% in 2019. The Covid-19 pandemic has brought questions of sustainability to the fore, and looks set to reinforce the trend towards greater awareness and uptake of ESG principles. An estimated 200 new funds in the United States with an ESG investment mandate are expected to launch over the next three years, more than doubling the activity from the previous three years. ESG-mandated assets could grow almost three times as fast as their non-ESG counterparts in the coming years, so that they make up half of all professionally-managed investments by 2025.

This growing trend represents a clear opportunity for investors, yet the consensus of a number of studies and surveys is that the significant variety of approaches to ESG incorporation by investment management firms, regulators, and investors means that its full potential is not being realised. Below, we assess some of the key issues which investors will want to bear in mind when formulating their strategies.

Changing regulatory environments

Over 170 ESG-related regulatory measures have been proposed globally since 2018. This marked increase (it is more than the number of proposals from 2012 to 2018 combined) is a measure of the pace of change in this area and the level of regulatory focus upon it.

The traditional approach in the US, for instance, has been the SEC’s principles-based approach to company disclosure, which applies equally to ESG-disclosures as non-ESG. There, are, however, increasing calls for a more prescriptive approach for ESG, along more “European” lines.

In the EU, sustainability risk has been integrated into MiFID II, AIFMD and the UCITS framework. The changes will dictate how market participants and financial advisors must integrate ESG risks and opportunities in their processes as part of their duty to act in the best interest of clients. It is small wonder, therefore, that 97% of European institutional investors now say that they interested in ESG investments.

The UK is expected to retain an approach similar to that of the EU after Brexit. In December 2020, for instance, the FCA set out proposals to promote better disclosures on climate risk from premium-listed companies and will publish a consultation paper in early 2021 with a view to widening the scope of these measures. The Government is due to consult on measures in the Taskforce on Climate-related Financial Disclosures framework, which would oblige large listed and private companies to disclose the risks to their businesses from climate change. Influential investors have also urged the Government to consult on the idea of introducing mandatory “say on climate” votes for shareholders at AGMs, somewhat akin to “say on pay” votes.

Whilst different regulators have taken different approaches, the overall trend is for more stringent ESG disclosure requirements, with ESG more firmly integrated into the investment advisory and decision-making process. International frameworks, including that drawn up by the Sustainability Accounting Standards Board (SASB) are gaining influence in developing consistency in ESG reporting across companies. Indeed, many companies have already identified the value placed on ESG transparency by investors, and are using these frameworks for reporting and disclosure which goes beyond the requirements set by regulators.

The role of technology

As the amount of ESG data available to investors has increased, so too has demand for analysing it. Spending on ESG content and indices rose by almost 50% between 2018 and 2020, indicating the scale of growth in the field.

The trend has been for investment management firms increasingly to develop their own capacity for gathering and processing data, but emerging technologies including Artificial Intelligence are likely to hold the key to extracting material ESG insights as the volume of data increases. AI engines can, for instance, be used to sift through unstructured data – which may not have formed part of a company’s formal disclosure – with a view to uncovering further material information. Such tools are potentially very powerful, but investors and investment managers would do well to keep an eye on the potential for regulation in this area, given the creation of the Centre for Data Ethics and Innovation in the UK and the EU’s forthcoming legislative proposals on AI.

Emerging technologies also have a large role to play in addressing environmental questions – and are thus a significant contributor to the “E” in “ESG”. Here, again, AI is an important field – with promising applications from energy monitoring and control systems to automation in agricultural production. Alongside it sit emerging technologies in energy generation, including carbon capture, small modular reactors and nuclear fusion.

The impact of Covid-19 on ESG trends

The ongoing coronavirus pandemic has had a profound effect across the economy, with Governments playing much more interventionist roles in economic affairs than they might have envisaged pre-pandemic. The UK Government has spent almost £300bn on coronavirus measures, and the EU has agreed its €750bn Recovery Fund. Recovery plans unveiled to date – whether the UK’s Ten Point Plan or the EU’s Green Deal – have set clear ESG priorities and could, therefore, represent significant opportunities in sectors including clean energy, building technology and electric vehicles. In addition, an increase in demand for hygiene and diagnostic technologies may be a boost to the life sciences sector.

The logistical challenges which the pandemic has presented to many firms may bring about a renewed focus on supply-chain risk. Faced with a sudden shock, the vulnerabilities of many widely-dispersed supply chains were exposed, and this may galvanise efforts by companies to “reshore” some elements of production. To achieve this will likely require greater spending on advanced technologies including AI and robotics if moving production necessitates a move away from low-cost manufacturing elsewhere.

Perhaps the most obvious post-pandemic trend is the move towards remote working and digital commerce. For many, these have become embedded into daily life and will doubtless have long-standing social implications well into the future.

The opportunity for investors

The trend towards ESG investing is here to stay. It is an area of intense regulatory focus and the pandemic has heightened interest further still.

This growth represents a substantial opportunity for investors who can fully integrate ESG principles into their investment process. Such integration is likely to go beyond a mechanical exercise in completing an ESG “checklist”. Rather, it is likely to be a robust, thorough due-diligence process, illuminating past sustainability risks and providing a real picture of how target companies conduct their operations. Using the ever-increasing amounts of available data, and the evermore sophisticated technologies available to harness them, investors can gain deeper insights into their target and portfolio companies than ever before, and have the opportunity to generate genuinely sustainable returns.

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Balancing the health of the nation with the health of the economy – 10 key takeaways

On 15th October WA hosted an event exploring the difficult decisions facing government in balancing the health of the nation with the health of the economy.

With a second wave of Covid-19 upon the UK and much of Europe, political, media and public pressure is building, and a difficult winter is approaching.

We brought together an expert panel to consider the issues, hosted by WA Director Caroline Gordon. The speakers included Tom Newton Dunn (Chief Political Commentator and Presenter at Times Radio), Poppy Trowbridge (former Special Adviser to the Chancellor and WA Advisory Board Member) and Dr Jonathan Pearson-Stuttard (Epidemiologist at Imperial College London).

It was a wide-ranging debate (watch here if you missed it), but what were the key takeaways?

Here are our top 10 points made during the discussion:

 

1) The prosperity of a nation is inextricably linked to the health of a nation:

The pandemic has taught us the value of public health cannot be underestimated. A legacy of Covid-19 must be a proper review of how we approach public health and what we ask of the NHS.

 

2) Devolved and regional politics has grown in power:

With healthcare devolved to national governments and Metro Mayors exercising influence over local lockdowns, leadership over the pandemic has often come from politicians not based in Westminster. What will this mean for the Government’s agenda beyond Covid-19?

 

3) Government is still stuck in campaign mode and not thinking long term

It’s no great surprise that a government of campaigners would think in campaign terms, but their focus has been too short term and the messaging too ambitious. With the pandemic creating complicated and long-term challenges they need to find a more nuanced way of communicating.

 

4) The libertarian principles of the Government are holding it back from decisive action

The restrictions being introduced to manage the spread of the virus are unprecedented for any democratic government, but they particularly jar with the PM’s brand of libertarianism. That conflict, manifested in hesitation and delays about enacting measures, has surfaced repeatedly through the crisis.

 

5) No 10 and No 11 have been closely aligned, but that could be fraying

There has often been tensions between the inhabitants of No 10 and No 11 Downing Street, but in Boris Johnson and Rishi Sunak there has been unusual harmony up to now. That consensus, however, is coming under strain with the Treasury keen to focus on keeping the economy moving and resistant to overly restrictive measures. How this relationship plays out could come to define the rest of this government’s term, particularly with the Chancellor being tipped as the most likely successor to the PM.

 

6) Internally government realise ‘Test & Trace’ is not working

With no clear vaccine timetable or even the promise that one will work, NHS Test and Trace is the only route back to a degree of normality. A fully functional test and trace system was the only reason SAGE agreed to the unlock over the Summer, but the Government’s centralised approach has been beset by problems. Whilst they have not publicly admitted it, quietly they are beginning to shift people and resources towards local test and trace approach which has been much more effective.

 

7) The government could do a lot more to help businesses navigate the crisis

Government offloaded too much responsibility onto businesses and were not clear about how long restrictions were likely to be in place. This uncertainty has meant businesses can’t plan effectively and many have taken an understandably cautious approach because of this. With unemployment rising, the Government needs to find a way to give business the confidence to invest and create jobs.

 

8) The public consensus is fragile compared to the first wave

People feel ‘cheated’ by being ask to lockdown again – they were willing to trust the process first time around, but a lack of faith in the government a second time around (not helped by the Dominic Cummings affair) could undermine the effectiveness of measures for the second wave.

 

9) England and Wales has one of the worst excess death tolls in Europe

Dr Jonathan Pearson-Stuttard’s research has shown that excess deaths in England and Wales were 37% above normal, second only to Spain’s 38% as the worst performance in Europe. When the public inquiry into the handling of Covid-19 finally comes, there will surely be questions to answer.

 

10) The Government’s long-term ambitions are on hold

It may not feel like it, but we are still in the early days of this Government. Elected back in December 2019 with a strong majority, the crisis has put the brakes on the broader policy agenda as they battle to tackle the virus and shore up an unstable party. The Government is a long way from making strides on its domestic agenda, businesses need to try to understand what each Department is trying to achieve despite the virus and bring solutions and opportunities for good news.

 

These are just a handful of takeaways from a wide-ranging and fascinating discussion, you call watch the full video exploring how to balance the health of the nation with the health of the economy here.

 

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What to expect and how to plan for the Energy White Paper

The last Energy White Paper was published over a decade ago.  It is long overdue a refresh, but what can we expect and how should business plan for the next steps that will follow?

The (truncated) background

There’s been a lot of industry chatter about the continued delay of the Energy White Paper.  Due to be published in summer 2019, it was first delayed so that officials in BEIS could recalibrate the plan to net zero legislation.  Understandable.

Then there was the small matter of the general election; and without warning Covid struck.  Every time officials and ministers thought they had a few quiet weeks to dot the ‘Is’ and cross the ‘Ts’ something has happened to knock them off course.

Knowing that a White Paper like this can only be delayed for so long, Alok Sharma told the BEIS Select Committee in July that he ‘very much’ hoped it would be published with the Heat Strategy and the Building Strategy alongside the Autumn Budget.

Coordination of big-ticket policy announcement – made sense. Waiting until autumn – that was ok.

Two months later and the Chancellor cancelled the Autumn Budget.

What we do know

We don’t know exactly when the Energy White Paper will be published. The Government’s public line on ‘autumn’ has been repeated since the Budget was cancelled, but publication could easily drift into the first quarter of next year.

Timing aside, we know that the White Paper’s central aim is to put the UK on the path towards the decarbonisation of the entire energy system. Its scope is huge.

Importantly, unlike previous Energy White Papers which have been largely left to ministerial and civil service teams, pored over by policy professionals, and written about by energy journalists, this edition is being teed up to support a broader political agenda – namely economic recovery.

The Government wants to be seen, through this White Paper, to support green infrastructure, green jobs and green consumerism.  Balanced against this is the need to keep consumer costs down – households for electoral reasons, and commercials for global competitiveness reasons.

In an attempt to make this balance, the Energy White Paper won’t be bursting with huge sums of money.  Instead it will seek to catalyse investment into generation, smart grids, battery technology, carbon capture and storage in addition to supporting the decarbonisation of transport and heat.  It will also seek to support new and embryonic markets for innovative products and services whether that is hydrogen fuel or renewable heat.

Part of this will be funding allocations, but arguably more important will be the adjustments made to criteria for accessing financial mechanisms, changes to codes covering electricity and gas, the evolution of Ofgem as a regulator, and modifications to the regulatory regime itself.

Generators, suppliers, network operators, system operators, manufacturers, aggregators, brokers and investors – all will be impacted to varying degrees by the Energy White Paper.  Beyond them there will be consequences for all modes of transport.

How you should plan

Here are four points to bear in mind when preparing for the Energy White Paper’s publication:

To book a discussion with our dedicated energy team, please email naomiharris@wacomms.co.uk

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What the delayed Budget means for investors

Last week the Chancellor Rishi Sunak announced that the Budget, due to take place in either late November or early December, was being postponed due to the economic uncertainty caused by the increase in cases of Covid-19. While no new date has been set for the Budget, it is now likely to be held by the end of March 2021. Crucially for the investment community, this means another six months before business taxes, including Capital Gains Tax (CGT), potentially go up.

The postponement of the Budget is useful for Rishi Sunak, giving him more time to assess the state of the economy, before setting out his plan to repair the public finances, but it is just as useful for investors. The extra four months allows them to take advantage of the current tax regime when planning their short-term investment and exit strategies.

The Chancellor has made an important political decision. Debt repayment is – for the time being at least –  manageable, and aggressive tax rises will damage whatever economic recovery is underway. He’ll be disinclined to introduce sweeping tax increases across the board to address the deficit while this remains the case. However, he needs to give some red meat to the more fiscally conservative parts of the party, and that means Sunak may make a calculated decision to introduce targeted tax increases to begin the process of putting the country’s finances on a more sustainable footing.

A rise in CGT is a likely candidate. Prima facie, a rise in business taxes flies in the face of traditional Conservative neo-liberalism, but the party has painted itself into something of a corner by promising in its last manifesto not to raise personal taxes (income tax, National Insurance and VAT). The idea of abolishing the triple lock on pensions has also been stamped on by No.10, so the Chancellor’s room for manoeuvre is limited.

Capital Gains Tax

Should the Budget have gone ahead this autumn, investors would have only a very limited time period in which they could have disposed of assets without being subject to a new higher rate of CGT. While the Chancellor’s plans for CGT have not been finalised, there is the possibility rates could be increased in March so as to achieve parity with income tax bands, representing a significant increase in the tax liability for investors. Even if the Chancellor does not opt for parity with income tax bands, the likelihood is that CGT will increase. The delayed Budget has opened a window of opportunity for exits to take place ahead of the planned increase in CGT, providing considerable tax benefits to investors.

Over the longer-term, changes to CGT are also likely to have implications for carried interest payments. Currently taxed at 28%, any increase in CGT will bring tax rates for carried interest closer to income tax bands. While the timing of the Budget makes little difference to this issue, the six months in the run-up to the next Budget will afford investors the time to plan their tax affairs accordingly in line with a new higher rate of taxation.

Buy-to-let market

The increase in CGT will also have an impact on individual sectors. In particular, the prospect of increasing CGT in spring 2021 could motivate a sell-off of buy-to-let assets. While the housing market remains buoyant, house prices increased by 5% in the year to September 2020 according to Nationwide, the same is not true for rents. Hamptons International forecasts rents to fall nationally 1% this year and next, with London set for even greater reductions.

The delay to any increase in CGT will mean property owners can potentially take advantage of a housing market inflated by the Stamp Duty holiday while avoiding more punitive taxes down the line. Investors, however, will have to act quickly, with many property agents reporting that they are operating at full capacity, causing a lengthening of the time it takes to complete transactions.

The postponement of the Budget has given both investors and the government time to think. With the economy having been through one of the most tumultuous periods in living memory, there is little chance of things returning to normal any time soon. But for six months, things are staying as they were (fiscally speaking at least), and investors should use this time wisely.

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Webinar – From Whitehall to Town Hall

On Monday 23rd November 2020, WA Communications Director, Naomi Harris, hosted an expert panel to explore whether the Covid-19 pandemic has caused political power to shift permanently from national to regional and local government.

Watch the discussion to explore:

The panel was comprised of:

  • Joe Anderson, Liverpool Mayor
  • David Collins, Northern Correspondent, Sunday Times
  • Poppy Trowbridge, Former Special Adviser to the Chancellor and WA Advisory Board Member.

 

 

Watch a recording of the webinar:

 

 

 

 

 

 

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Billed, Billed, Billed – the government sets out its economic recovery mission

WA’s Naomi Harris analyses the Prime Minister’s speech for what’s getting top billing; how big the bill will be; and what Bills we can expect to follow as he promises to ‘build back better’.

What’s getting top billing

The Prime Minister has earmarked £5 billion to ‘accelerate’ infrastructure to create jobs and support his ambition to ‘build back, better’. To turbo charge the stalled delivery of his ‘levelling up’ agenda and to invest in public goods that aid future prosperity, Johnson is carving up the money for capital spending in health, education and local infrastructure projects – the majority to be spent in the next two years.

The Chancellor is expected to go further next week when he delivers his ‘mini Budget’. Although Number 11 is keen for this not to be seen as an ‘emergency Budget’, it will be presented against a backdrop of the worst quarterly GDP figures since 1979 and, so far, the first local lockdown.

It will again focus on job retention with more detail on changes to employment and business support mechanisms and a potential temporary cut in VAT to help stimulate demand. We can also expect more from the Chancellor on job creation with further information on the earmarked ‘shovel ready’ projects and plans to support a ‘green recovery’. These two speeches are, however, stepping stones towards the much anticipated – and much delayed – National Infrastructure Strategy, now slated for the autumn.

How much the bill will be and who will pay

Uncertain about tax receipts and with public borrowing soaring, some have said that £5 billion is too much on top of the £298 billion that the ONS has said could be the final bill for existing support measures. Others say that £5 billion is a drop in the ocean if the Prime Minister truly wants to “use this crisis to tackle this country’s great unresolved challenges of the last three decades”.

It is undisputed that this government has thrown off austerity and has a new outlook. Ministers are happy to acknowledge where mistakes were made by previous Conservative governments and in his speech the Prime Minister spoke of a government that is “powerful and determined and that puts its arms around people at times of crisis”. Positively Keynesian, although this Prime Minister prefers the Roosevelt comparison.

In all of this it should be recognised that the Prime Minister’s ‘New Deal’ is not just about government spending but rather incentivising private sector investment. Just like Roosevelt, who created the Reconstruction Finance Corporation to design lending systems and new finance mechanisms to draw private investment into projects and insulate business from risk, Johnson is looking to encourage business to stump up capital through regulatory changes. Could this be the time for a Contract for Difference 2.0 or PFI 3.0?

The British taxpayer will undoubtedly be asked to start paying in eventually, but exactly who and when is an open question. Those who have been seen to do well from the crisis are likely to be at the top of the list for a windfall tax.

The Bills that we can expect to follow

We can expect the legislative pipeline to increase significantly in the tail end of this year as the government seeks to put its policy ambitions into action. The return of key personnel to Downing Street combined with rumours that the Cabinet Office and Number 10 may merge speaks of a government looking to increase its firepower on delivery.

 

 

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Reshuffle 2020: Opening the doors to Boris Johnson’s new Cabinet

 

Rehuffle 2020 has happened. After all the talk of a Valentine’s Day massacre and a massive departmental shake-up, the only real surprise from the reshuffle has been the resignation of Chancellor Sajid Javid. Even his successor, Rishi Sunak, was tipped for Cabinet and so the top table looks remarkably unchanged post-reshuffle.

For all the rumours, Ben Wallace stays as Defence Secretary, Liz Truss remains at DIT – the longest-serving Cabinet member, possibly against all the odds – and Jacob Rees-Mogg is still Leader of the House. There is no new climate change spin-off from BEIS (yet) and the focus some were hoping a new infrastructure department might bring hasn’t materialised either.

Along with Rishi Sunak, Oliver Dowden has been rewarded for his early intervention in the leadership contest when, along with Sunak and Robert Jenrick (who remains as Communities Secretary), the three backed Boris.

It would seem loyalty continues to be rewarded.

A question of loyalty?

Although it is clear that Sunak is a No10 favourite, that does not mean Boris and his advisers can expect total subservience. The run-up to the Budget (no longer a sure-thing for the 11th March) will probably be a harmonious love-in between numbers 10 and 11, but after that the new Chancellor may well want to demonstrate that he is no puppet. And can Boris really afford to lose two chancellors in a short space of time?

With the merging of advisers from numbers 10 and 11, the once all-powerful Treasury is clearly considered by No10 to be a thing of the past, so who to take on next?

If Dominic Cummings continues to have his way then we can assume that Suella Braverman has been brought in to replace Geoffrey Cox as Attorney General precisely because of her desire to see the judiciary cut down to size, and that Oliver Dowden at DCMS will not be giving the BBC an easy ride. Our institutions may look very different at the end of this parliament.

If it was once true that a bid for the leadership would ensure a job in your rival’s team, then this 2020 reshuffle shows this is no longer be the case. Only three of Boris’ leadership rivals remain in the Cabinet, with five on the back benches, two are junior ministers and two are no longer members of the Tory Party.

How loyal will the clearly ambitious Javid, McVey and Leadsom be now that they are no longer bound by collective responsibility?

Presumably Javid’s (former) SpAds will be feeling far more loyal to their old boss than to the men who forced his hand (making him choose between his job and his team) and so Dom Cummings can surely be expecting some uncomfortable headlines in the coming weeks, now that they are free to take lunch from any journalist they choose.

Making the most of the changes – some advice for businesses

The general election result, with its presidential-style campaign, handed clear power to No10. Yesterday’s reshuffle consolidates that and shows that the Prime Minister and his advisers have every intention of ensuring Whitehall knows who the real decision-makers are.

In advancing a cause or a project, it will not be enough to have the minister or secretary of state on your side in this government – organisations will need to ensure that No10 also give its backing to any asks of a department, particularly if it involves spending.

Don’t assume ministerial support is an end in itself, but instead prepare ministers to be your advocates, ready to make the case for you at the top tier of government.

In that preparation, it’s important to resist the urge to dive straight in with a request that the minister fix your industry / understand how awful your competitors are / tell you what the trade deal is going to look like.

Letters of congratulations that start with an early demand for time/money/legislation at a point when the new minister is trying to understand the full extent of their brief are likely to receive a ‘not now’ response or be fobbed-off to a junior official.

This is a government that we can reasonably assume has ambitions to last well into the decade. Much better to aim for a lasting, meaningful relationship that positions you as a part of the solution and not another problem to deal with.

 

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Restructuring the Civil Service – is the government ready for post-Brexit Britain?

Now that the country has decided it is time to get Brexit done, the Prime Minister can use his whopping majority to push through the necessary legislation over the coming weeks and, hopefully, move onto the much-neglected domestic agenda while the trade talks carry on in the background.

But this need to push through the legislation to have us out, as promised, by the end of January is leaving many of those on the frontbench enjoying a lengthy interview process for their own jobs – or one higher up the ladder – while we all wait for the much-anticipated epic reshuffle in February.

Rumours in and around Westminster about who is out (Truss? Wallace? Barclay?), who could be coming up (Sunak? Dowden?) and who may have to be moved to allow them to spend more time with their constituents (Raab saw a huge drop in his majority in Esher & Walton) are making some hopeful and many nervous.

Talk of a significant reconfiguration of Whitehall departments is being played down, with a smaller-scale re-jig now looking more likely but Dominic Cummings’ determination to shake-up the Civil Service machine is anything but dimmed.

You only need to look at his blog from 2014, where he says: “If we want serious government then we need fundamental changes in the way ministers and officials are selected, trained, paid, managed and held accountable”. His recent blog post calling for “weirdos and misfits” to apply for roles should not be seen in isolation but the first step in him seeking to put his ideas into action. With the backing of the Prime Minister, this could be more than just an expensive change of the Whitehall stationery.

 

“With the backing of the Prime Minister, this could be more than just an expensive change of the Whitehall stationery.”

 

Unnamed cabinet ministers were quick to warn about the destabilising effect of shaking up a civil service that has gone largely unchanged since its creation, pointing out that it is the ‘envy of the world’, but many acknowledge that it is far from as efficient as it could or should be to deal with the demands of 21st-century government.

But should anyone really be surprised?  Changes made during Cummings’ time at DfE were surely just the warm-up act, confined to a single department and clearly with the full support of Gove as secretary of state, but the resulting anger from teachers and many parents had an impact of the 2017 election result.  Later, running the Leave campaign, he seemingly had no issue with sidelining lifer-Brexiteers including Bill Cash and Bernard Jenkin, as well as keeping those with much to say on the subject such as Mark Francois away from media.  Upsetting Cash, Jenkin, Francois et al. might have bruised a few egos but ultimately it was in the name of a greater cause they all believed in and hasn’t had longer-term consequences for the Party’s ability to win a convincing majority.  Can the same really be said for Cummings’ radical plans for the Civil Service?

Much noise is coming from the left about all this meaning that Boris is now running a right-wing, revolutionary Conservative government.  But remember – Cummings isn’t a Tory, he’s a disrupter.  An unpredictable force who enjoys mischief.   Yes, he is a very serious person who genuinely believes in what he is doing, but if he has a fault it is perhaps that he is over-impressed by people who know things about the stuff he doesn’t.  Take his call for all those “weirdos and misfits”, about not wanting “confident public school bluffers” and “Oxbridge humanities graduates”.  Cummings, a former Durham School pupil, with a first in Ancient and Modern History from Oxford, is not seeking to create a civil service in his own image but instead is putting his faith in those with the skills he considers the civil service is lacking.

 

“Cummings isn’t a Tory, he’s a disrupter.”

 

As Jill Rutter has made clear in her recent piece for the FT, Cummings is right to point to the lack of scientific expertise in the heart of government, noting that those with science degrees made up less than 20 per cent of the Civil Service fast stream intake in 2018.  With so few scientists coming through the door, it’s hardly any wonder there is a lack of expertise higher up.  While Cummings may be right about the lack of those in our civil service with science and maths degrees, he is wrong that the solution to all of Whitehall’s problems is a load of bright disrupters at the top.  Much deeper change is needed and Jonathan Portes , writing in the Guardian, is right that Cummings’ plan doesn’t make getting a GP appointment any easier for the millions who are frustrated by their lack of access.

In any case, while the political world may well be obsessed while they play the waiting game until the Brexit deadline, what may well matter far more in the long-term for the Prime Minister is whether UK troops are killed for something that Trump has done.  Forget Cummings and his disruptive tendencies, this is real statecraft.

Ultimately though, change is coming to the Civil Service and it is long overdue.

Whether Cummings’ radical vision is the right one at the right time, or too much too soon is yet to be seen but civil servants, ministers and those of us in public affairs would do well to pay close attention over the coming months.

There will be implications for business and, combined with the renewal of the domestic policy agenda and the upcoming Budget in March we will soon learn where No10’s priorities lie. Being ready to make the case to ministers and departments, in the context and language of Cummings’ changes and vision will ensure closer alignment with the Government’s priorities and a much better chance of success.

 

 

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Black Friday: What the parties are selling to voters this Christmas

Much has been said about the parties’ “retail offers” to the electorate in this campaign, and there have been plenty. With manifestos now published, let’s focus in on the Conservatives and Labour as if they were, in fact, retailers, the electorate being the customer.

 

We know from our retail clients that what their customers mainly want is: to have their needs met; the price to be right; an ability to make a choice within a choice; to have a pleasant shopping experience. Let’s look at how the Conservatives and Labour perform on each of these criteria.

Meeting needs

Britain leaving the EU has consistently topped voter preferences in issues trackers this year, averaging about 65% since January. Second is NHS improvement, which has averaged nearly 40% so far this year, albeit catching up in recent weeks.

 

If, simplistically put, these are the most important things voters want, Conservatives are currently in front with a clear-cut Brexit offer. Although Labour lead on whether they’d reinvest in the NHS, this is still less of an issue overall to the voting public compared to Brexit. Nevertheless, Labour’s proposition is catching up with voter sentiment.

 

The price is right

Both Conservatives and Labour have put forward big spending plans. This is what most people want after over a decade of poor growth and real terms wage decreases. There doesn’t seem to be too much concern from voters about who will end up footing the bill from extra borrowing in the long term, either, so there are few immediate downsides to making big pledges.

 

But who has the edge?  Compared to Labour, the Conservatives favour capital over day-to-day spending, making their promise to end austerity a little dubious. Labour, on the other hand, are promising an immediate, and huge, cash injection into public services. Also in Labour’s favour is their commitment to reduce utility and rail bills through nationalisation, which is playing well in the polls.

 

So, on the face of it, Labour are out in front, but nationalisation might end up undermining Labour here. Customers will only buy something they see as workable and easy to understand (as opposed to the benefits being dependent on a long term, complex process). The qualitative research we’ve seen suggests people might be viewing nationalisation as slightly clunky, unworkable solution which could leave Labour struggling to make a sale.

 

Making a choice within a choice

Customers choose a retailer, but they like to have a choice within that choice e.g. to select different brands from the same shelf. This might be what voters have traditionally looked for in centrist “big tent” parties – choosing a party because they like its overall direction of travel and broad inclusive appeal. There’s a hedging of bets in voting for a broad church; you’re less likely to get extreme or binary positions and be pushed down a certain path, you’re keeping your options open.

 

For decades, we saw the tents of the Conservatives and Labour expand onto centrist ground so much that the canvas was almost touching.  Now, at this election, we see the two parties taking completely opposed positions on the two biggest issues – putting clear distance between themselves in the eyes of the electorate.

 

The Conservatives’ promise of completing Brexit with a free trade deal with the EU in place by the end of next year is an extreme position for a lot of people who voted to Remain – even those who accept that the UK must leave. Meanwhile, Corbyn’s far left platform will be too radical for many.

 

But the Tory’s offer outside Brexit is fairly vanilla, with a similar offer on tax, spending, consumer markets and public services to any centrist European party of the last couple of decades. Labour on the other hand offer a more all-encompassing restructuring of the UK’s political economy, irrespective of Brexit.  Which of these two options voters prefer in marginal constituencies like Newcastle under Lyme and Preseli Pembrokeshire will ultimately decide who gets the keys to Number 10.

 

A pleasant shopping experience

Let’s set aside the actual experience of voting: it’s not going to be pleasant heading to polling stations on one of the darkest and most wintery days of the year. However, it’s worth mentioning that there is currently no evidence to back up the claim that bad weather and dark nights reduces turnout.

 

Instead, one of the most striking aspects of this election is how many people are weighing up which leader and party they find least unpleasant. Boris Johnson has almost double the approval ratings of Jeremy Corbyn, and twice as many people disapprove of Corbyn than approve of him, so in terms of leadership ratings Johnson is out in front.

 

In terms of the parties, the Conservatives’ campaign has been very carefully managed, and despite a wobbly start there have been no major upsets. Labour started well, but repeated accusations of anti-Semitism and Corbyn’s uncertainty on numbers in front of Andrew Neil have required them to go on the defensive. While the Conservatives are ahead in approval ratings, the Conservatives can only win a majority if they persuade voters in historically Labour seats to ‘hold their nose and vote Tory’. The latest constituency polling suggests the Conservatives have made progress here and could win 44 seats from Labour.

 

By this reckoning the Conservatives are the more saleable retail proposition, and this is reflected in their comfortable poll lead over Labour of around 13pts. I’ve focusing on the two main parties for brevity, and of course no one can discount the impact that the Lib Dem’s, the Brexit Party or the SNP could have, although the first two have underperformed against original expectations in recent weeks.

 

I’d be interested to hear what you think – I’m on dominicchurch@wacomms.co.uk

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General Election 2019: This time it’s personal

The 2019 General Election is turning out to be a 650 seat bun fight like never before. Rules are being rewritten and expectations are soaring. And a dark, cold six week campaign is no walk in the park.

The team at WA Communications has analysed these seats against key criteria and have found some interesting characteristics coming through. We looked at the remain vs leave vote and recent results in national, local and EU elections; as well as assessing the new breed of high-profile independents and the factors potentially putting heartland seats in play.

What becomes apparent is that constituencies with seemingly little else in common share many traits. In fact it’s clear that it’s not just voters – seats have personalities too. We’ve identified our top seven constituency personalities and where in the country you find them.

So move over Workington Man and Worcester Woman. Let us introduce you to our cast of seven constituency characters.

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How could investors benefit from Boris Johnson’s passion for science?

Yesterday saw the unusual event of a government with a majority of -43 putting forward a Queen’s Speech to kick-off its legislative programme for the next parliament. This has created the possibility that we will see a Prime Minister lose a vote on a Queen’s Speech for the first time since 1924. Given these parliamentary mathematics, a general election taking place over the next few months is extremely likely. Despite Johnson’s inability to win a vote in the House of Commons, significant uncertainty about whether he can agree a Brexit deal with the EU, and a healthy dose of personal scandal, Boris Johnson is (currently) still favourite to be Prime Minister following a general election.

Since becoming the leader of the Conservative Party in July, Johnson has attempted to establish the Conservatives as a ‘post-austerity’ party. The spending taps have been turned on, with the Chancellor Sajid Javid announcing the largest increase in public spending for 15 years in September’s spending review. While many of the spending pledges have focused on the NHS and education, Johnson’s government has signalled its intent to financially support specific industries to help the UK succeed economically outside of the EU. The ambitions set out in the spending review and the Queen’s Speech may be on hold for now, but they offer valuable insights into the industrial strategy and economic priorities of a potential Boris Johnson government.

In September, Boris Johnson made a commitment to ‘supercharge science’ through more liberal immigration rules and increased government funding for R&D. The emphasis on science is believed to be driven by Johnson’s Chief of Staff Dominic Cummings, who is reported to have been behind the government’s new fast-track visa rules to attract leading scientists to the UK. Johnson has also set out ambitious funding plans for the science and technology sector. September’s Spending Review committed the government to ensuring total R&D spending increases from its current level of 1.7 per cent of GDP to 2.4 per cent by 2027, which would mean an extra £6 billion at the current rate of economic growth.

As part of this effort to boost long-term economic growth through increased R&D spending, the government has made a number of specific funding and policy pledges to support the development of UK science and technology. The Queen’s Speech announced the creation of a National Space Council to launch the UK’s Space Strategy, as well as a new funding body based on the United States Advanced Research Projects Agency. The new body, a brainchild of Cummings, will aim to cut bureaucracy and back emerging technological fields. Johnson has also stated the government will provide over £200 million to help deliver the world’s first commercially viable nuclear fusion power plant by 2040.

Johnson’s plans are bold and represent a clear attempt to shine a path towards the promised post-Brexit sunlit uplands, while also compensating for the loss of significant amounts of research funding from the EU. In the wider context of the UK’s long-term economic performance, a focus on science and technology certainly makes sense. The UK’s most successful exports have always been high-value, capital and research-intensive goods, such as the aerospace industry, and any successful industrial strategy will seek to build on this platform.

The details of the R&D funding framework Boris Johnson will seek to introduce are due to be finalised this autumn and will set out the opportunities available for investors focused on the cutting edge of technology. However, to take advantage of the government’s strategy, investors will need to be aware of the wider political trends that will dictate how and where any additional funding is directed. While the government wants to reduce the amount of bureaucracy in how science and technology is funded, the process itself will still be a political one.

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What if he fails? A public affairs guide to an unsuccessful Boris Johnson premiership

We are on the eve of a Boris Johnson government.  In the context of the many challenges it faces, WA is scenario planning around whether it succeeds or fails.

Yesterday we published our thoughts on what a Johnson government might look like, if it succeeds.  Here are our thoughts on what a Johnson government may look like if it fails, and our advice for companies looking to work with the government.

As part of this ‘failure scenario’ we cannot dismiss the iceberg that is Brexit. It is inevitable that the first 100 days of a Johnson government will be consumed by the same challenges that eventually brought down Theresa May.

His chances of getting a deal? Slim, and getting slimmer every time he hardens his red lines as he did earlier this week. He faces exactly the same structural challenges as Theresa May:

  1. No overall majority: even with DUP support his working majority will start at three, likely to be reduced to two in the Brecon and Radnorshire by-election
  2. An apparent majority against no deal in Parliament
  3. No indication whatsoever that the EU is willing to make any significant concessions on the deal offered to Theresa May

These inescapable facts are on a collision course with Johnson’s clear and repeated pledge that the UK will leave the European Union on 31st October. A technical majority of two isn’t worth much when you factor in known ardent remainers such as Dominic Grieve, as well as the recent pronouncement of Guto Bebb that he essentially won’t support a Johnson government.

Put simply, just getting past October 31st will be a major challenge. But supposing he does. What then can we expect?

A court of competing factions, each seeking to curry favour with the Prime Minister and following competing agendas. The risk being that policy making across government is even less joined up than usual with separate fiefdoms jealously protecting their own turf. Contentious issues such as immigration will, in particular, fall victim to internal spats over what the future direction of the UK should be post-Brexit. Demonstrating the benefits of ending freedom of movement will quickly run up against the economic reality of an economy held back by more vacancies than it can fill at a time of record high employment. This is not a recipe for certainty for business.

Detail-light, unachievable announcements. Impressive sounding proclamations and policy targets will be made before any credible, worked through plan to deliver them is in place. Ministers and advisers will be left to back fill the detail of how to actually make them happen. Rolling out full fibre broadband by 2025 is just the first example of a welcome but very stretching ambition that will be handed over to others to realise. Some of these announcements will turn out well, but many will waste time, money and effort, both of civil servants and industry, on white elephants – think Boris Island and the Garden Bridge.

Enduring Brexit splits. Whether a deal has been done or not, the Conservative Party’s deep Brexit wounds won’t heal overnight. Under a deal scenario, we will face another two years of debate over the future relationship while sitting in the transition phase. Many policy debates will be distorted by whether the desired outcome is to further distance the UK from Europe or to steer a course keeping us closely linked to the Single Market. Johnson’s attempts to promise different things to different factions will only exacerbate this problem. Following a no deal, there will be blame shifting and recriminations.

Our public affairs advice to companies looking to work with the new government under this scenario is as follows:

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Johnson reshuffles his cabinet, what does it mean for investors?

Boris Johnson announced his arrival at Number 10 last week with one of the most comprehensive -and arguably ruthless – Cabinet reshuffles in modern history. With so many new arrivals in Cabinet, the biggest questions for investors will be the style of governance of the new PM, his policy priorities (other than Brexit, of course), and whether and to what extent his infamous “f*ck business” comment will reflect his approach now he’s in office.

Whilst the immediate priority within government remains that of no-deal preparations, Johnson has started his time in Number 10 with a bang, announcing a raft of new spending initiatives designed to boost domestic growth, particularly in the “left behind” regions, such as the post-industrial communities in the Midlands and North that swung heavily behind the Leave campaign in 2016. Johnson is likely to stick to this approach in the coming months, combining tough talk on Brexit with a feel-good domestic agenda based on significantly increased government spending.

With so little policy decided, the most useful indicators are the new Cabinet Ministers themselves, and their own priorities in key sectors. Johnson’s preference as a leader will be to delegate much of the decision making to Cabinet Ministers while positioning himself as a ‘figurehead’ for the government, in much the same way he did at City Hall. Investors should expect each government department to have significantly more free rein to pursue policy objectives than under Theresa May’s tenure, setting the scene for a faster pace of policymaking, driven by the individual goals and interests of Ministers.

A key player in unlocking all this newly promised money will be Chancellor Sajid Javid, who has championed increased spending across government in the past. Johnson’s early priorities of increased spending on schools, the police, housing and infrastructure are all causes Javid has supported in the past, often clashing with May in doing so. He continued this advocacy during the leadership campaign, promising a £100 million infrastructure fund and greater support for house building should he be chosen to lead the party. With Javid now settling in at Number 11, expect considerably less resistance to higher spending from the Treasury than we saw during Phillip Hammond’s tenure.

Health and Social Care

Although Matt Hancock remains in post at the Department of Health and Social Care, there is likely to be a shift in some of Hancock’s core policies – from softer issues like prevention and tech, to stronger vote-winners, including significant investment in hospital upgrades and progressing social care funding reform.

During his leadership campaign, Johnson’s libertarian instincts prompted him to suggest a rethink on the expansion of ‘sin taxes’ – including the controversial sugar tax – which was a key aspect of Hancock’s newly announced prevention model. So while Hancock had made a big push on prevention over the past year, his main proposals may never be implemented.

On the capital investment front, NHS trusts and providers have become increasingly strident in their calls for more money for buildings and equipment. Getting more money to the frontline is seen as a potential vote winner and a way to counter Labour’s traditional strength on the NHS. For investors, it also opens up opportunities for providers of services, upgrades and equipment across healthcare estates.

Social care reform continues to be challenging as the government balances the need to be seen to take action on the issue with the risk of public backlash against the proposals. If Johnson ploughs on without calling a general election, his working majority of two means getting any legislation through parliament – particularly on a sensitive and historically intractable issue– will remain a potentially Sisyphean task.

Prior to Johnson’s election, Hancock had stated that he had been beavering away on his own solution to social care funding, namely an additional £3.5 billion-a-year from Treasury coffers, combined with a voluntary insurance model. This solution has been heavily criticised by the House of Lords Health and Social Care Committee, and the likely tax increases needed to fund this approach are unlikely to go down well with Hancock’s new Cabinet colleagues, or with the Conservative grassroots. Hancock may well be forced into adapting yet another policy to suit the changing political winds. The long-delayed social care green paper, which the sector has been awaiting since the summer of 2017 and is now provisionally slated for publication this autumn may be the first indication of whether the government’s approach to social care has changed, and how bullish it intends to be in pushing forward with its proposals.

Any new funding for social care is likely to be positive for investors. Hancock has already shown his ease with the delivery of health and social care services by private and independent providers, and innovation driven by the private sector will remain a key part of his strategy to make sure the UK’s health system is fit to meet 21st century demands. Innovative, cost-effective solutions to social care, public health and disease prevention are likely to be the order of the day, with healthcare businesses offering these solutions likely to benefit from government support and funding.

Energy

The appointment of Andrea Leadsom as Secretary of State for Business, Energy and Industrial Strategy (BEIS) is likely to signal continuity for the energy aspect of her brief, but businesses may be wary of her pro-Brexit stance. Leadsom’s predecessor, Greg Clark, was a committed Remainer who was incredibly mindful of the concern businesses felt over a possible no-deal Brexit. Leadsom, on the other hand, is openly comfortable with no-deal, something that is unlikely to sit well with the UK’s industrial and manufacturing sectors.

Leadsom is likely to combine green energy initiatives, like promoting electric public transport and decarbonisation, with advocacy for the continued use of gas, nuclear energy and fracking. She has previously stated that “fracking is one industry that represents a huge opportunity for the UK, and our regulatory environment for it is the safest in the world.” Leadsom has previously called for the end of renewable energy targets and was involved in the reduction of green energy subsidies during her tenure as Minister for Energy and Climate Change. However her approach to energy at BEIS is now likely to be tempered by her new boss wanting to showcase the government’s environmental credentials.

Johnson’s early statements on energy are good news for investors, having stated that he intends to ensure the private sector is at the forefront of efforts to tackle climate change. He has pledged to keep the current target for net-zero carbon emissions by 2050 and has developed a notable habit of referencing climate change in his speeches.  Could this be to distract from the fact that little in the way of concrete policy has emerged so far? Brexit, and the extent of the Cabinet reshuffle, means that the long-awaited energy white paper is likely to be delayed until late autumn 2019 at the earliest. Key issues likely to be addressed in the white paper, when it emerges, include a new approach towards the funding of nuclear power plants and carbon capture and storage. Alongside this, BEIS and Ofgem are planning a shake up of the energy retail market and are currently consulting on proposals to ensure customers are able to benefit from a low carbon, flexible energy system. This is likely to include changes to the regulatory framework and measures to ensure energy remains affordable for customers following the end of the energy price cap, which is currently due to end in 2021. Given the consistent focus of Labour on energy prices and the behavior of utility companies in general, the Conservatives are likely to develop and adopt consumer protection and green energy policies as a priority to counter this narrative.

Outsourcing

The prevailing mantra of the Conservatives will continue, namely that the private sector is good for the public sector. Nevertheless, the post-Carillion approach to outsourcing within government is still in the midst of major change, with former Cabinet Office Minister David Lidington having published a new ‘Outsourcing Playbook’ to guide all government departments through the process of future outsourcing of public sector contracts. Lidington resigned from his post with work still unfinished on the social value aspect of the government’s new outsourcing policy, designed to act as an extension to the guidance laid out in the Playbook. While most of the work has already been completed, Boris Johnson’s libertarian instincts may push outsourcing reform further down the government’s agenda, meaning Lidington’s work may remain incomplete, at least for the time being. Lidington had been working towards the introduction of a social value model for outsourcing, which would ensure government considers the wider value of their contracts, rather than awarding them to businesses on cost grounds alone. It was hoped this would ensure outsourcers demonstrate transparency and a strong ethical background well before contracts are approved. This would mark a significant change of direction for a Conservative government, which has traditionally relied on a strictly market-based approach to outsourcing. Given that Lidington’s successor, Michael Gove, has defended the government’s outsourcing policy in the wake of Carillion’s collapse, describing its failure as “business-specific,” he may be keen to focus on other, more pressing matters.

The government will also need to find a replacement for Private Finance Initiatives (PFI), which were scrapped for new projects by Chancellor Philip Hammond at the 2018 Budget. It is highly likely that at least some of the major infrastructure plans currently being announced by Johnson and his team will need to be delivered in partnership with the private sector, something that the PM and his Cabinet are keen proponents of. Johnson has already discussed working with the private sector to improve regional bus services and increase green energy usage. How exactly he plans to work with private companies to finance his ambitious infrastructure plans is not yet clear, but investors can be almost certain that Johnson envisages a key role for the private sector in seeing his grand plans through to fruition.

Education

While new Education Secretary Gavin Williamson is something of an unknown quantity at the Department for Education (DfE), there is one aspect of his brief he has maintained a long-standing interest in: apprenticeships. Williamson has previously described apprenticeships as “vital” in reducing youth unemployment and has said that he wants them to be seen as “equal to if not better than, going to university.” We can anticipate that Williamson is likely to deviate from his predecessor, Damian Hinds, who largely focused on schools policy within his brief. Williamson has taken over direct responsibility for the old skills portfolio, including apprenticeships, signaling the importance with which the government views the issue. However, as the skills brief was formerly the responsibility of an individual minister, there are risks it will no longer receive the attention it needs from the new Secretary of State, who will have to balance the brief with other issues in his portfolio.

Other education policies have been dictated by Johnson in the form of early promises of funding increases. Education funding was in danger of becoming a toxic issue for the Tories during the final months of May’s tenure, with government statements on increased funding contrasting badly with tales of schools being forced to close early due to a lack of funds. Johnson has made it clear he wants to address this and has already pledged to increase the education budget by £4.6 billion a year by 2022-3. However, all this would do is return the education budget to its 2015 level, a settlement unlikely to satisfy the powerful teaching unions.

Responding to the Augar Review of further education will be a near-term priority for the new Education Secretary. Recommendations include a cut to tuition fees for domestic university students (a policy strongly opposed by Jo Johnson, Universities Minister and younger brother of the new PM). The report also calls for increased funding for alternative forms of higher education, which is likely to be viewed positively by Williamson and his new team. Williamson’s existing interest in apprenticeships will mean these recommendations are received sympathetically, while an increase in funding for regional further education colleges is also likely as part of the Prime Minister’s pledge to reinvigorate ‘left behind’ towns.

Transport and Infrastructure

Echoing his priorities as London Mayor, transport has been an early focus of Johnson’s, forming a major part of his strategy to create economic prosperity across all parts of the UK. In addition to the likely continuation of HS2 despite opposition from some in cabient (Andrea Leadsom remains strongly against the new line) Johnson hasn’t been deterred from announcing a new high-speed rail network from Manchester to Leeds as part of the Northern Powerhouse project. Further big transport projects are likely in the near future as Johnson tries to bolster his credentials as a Prime Minister unafraid of large investment projects, drawing a further clear distinction between himself and his spending averse predecessor.

The appointment of Grant Shapps as Transport Secretary suggests some big projects are on the cards. Until his appointment he was Chair of the British Infrastructure Group of MPs, championing greater investment in airports and broadband across the UK. Shapps is a vocal proponent of the Heathrow expansion and his appointment indicates that Johnson will be quietly sweeping his previous opposition to the project under the political carpet.

Rail is also likely to be in for a shake up. Shapps’ Welwyn constituency is a commuter town that was seriously affected by the Thameslink timetable meltdown in 2018 and he has previously called for Thameslink to be stripped of the contract with immediate effect. There is plenty in the way of both large-scale and shovel-ready infrastructure projects that Shapps could focus on, including the expansion of the East Coast Mainline and greater investment in modernising the UK’s rail network.

Beyond transport, Johnson has made an ambitious commitment to accelerate the roll out of full fibre broadband, bringing forward the government’s target for achieving national fibre coverage from 2033 to 2025. Johnson has made this a key part of his domestic policy platform, referencing it in every major speech he has given so far, though without providing any detail on how he hopes to achieve this. The pledge is ambitious given the roll out is dependent on the work of private companies, but Johnson has nonetheless put pressure on Nicky Morgan in her new role as Secretary of State for Digital, Culture, Media and Sport to deliver on the target.

Financial Services and the City

The appointment of Sajid Javid as Chancellor is likely to be one of the most complex for investors to negotiate. On the one hand, Javid is a former investment banker who knows the City and is sympathetic to its concerns. On the other, Javid has signed up to manage the finances of a country openly moving towards a no-deal Brexit.

In the run-up to October 31st at least, we can expect Javid to preside over the kind of spending increases that will make former Chancellor Philip Hammond despair. Having been in office only a week, Boris Johnson has already signed off on policies worth more than £9 billion, not including those made during the leadership campaign. It is now Javid’s job to find the money while doubling-down on no-deal preparations and ensuring the UK is prepared for the potential economic disruption that may come on its coattails.

On broader fiscal policy, Javid is likely to increase support for entrepreneurs and small businesses, potentially through tax cuts or other financial incentives. Investors should expect an emergency budget in October following the Conservative Party Conference, in which Javid will set out his plans in more detail. This is likely to include broad tax cuts to support the economy through Brexit-related uncertainty, and further investment in infrastructure and public services.

Since Johnson entered Number 10, he has been noticeably quieter on fiscal policy, preferring big infrastructure announcements to generate headlines. However, neither his supporters nor his opponents will let him forget the pledges he made during the leadership race, during which both Javid and Johnson set of a similar vision for taxation. Johnson’s most headline-grabbing pledge proposed raising the higher rate income tax threshold from £50,000 to £80,000. According to estimates by the Institute for Fiscal Studies (IFS), this would deliver a tax break worth £9 billion to 4 million people in the UK, with top earners benefitting the most from the changes. Javid also spoke in favour of tax cuts for high earners during the leadership debate, though he steered clear of any specifics.

How can we help

Much of Johnson’s early approach to government rests on generating economic optimism through high spending, and more widely by trying to harness what’s left of the UK’s joie de vivre. Nevertheless, there are clouds on the horizon and Johnson’s honeymoon period already looks swiftly to be coming to an end.

WA Investor Services can support investors in scenario planning for the new government in the months ahead, ensuring you are ahead of the curve when it comes to the restless world of policy and regulation in the current climate.

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Has Boris blown it?

The declaration this afternoon from the opposition parties that they won’t back an election on Monday and are now unlikely to back one before 31st October is a significant step. It doesn’t change the fact we are heading for an election, but it could change the context in which that election takes place.

The political calculation is clearly designed to maximise the electoral damage the Brexit Party can inflict on the Conservatives in the event Boris is forced to request an extension, as he will now be required to do by law should he remain Prime Minister. This risks opening the opposition parties up to criticism of running scared from an election but they appear prepared to take this on the chin, at least for the moment.

If they stand firm on this, the government may try to find a route to an election that only requires a simple majority, such as a simple Bill or the humiliating step of calling a Vote of No Confidence in itself. However, even finding a simple majority now looks unlikely for this government following this week’s purge of the anti-no deal rebels.

This leaves the Prime Minister three options (discounting the unlikely event of him negotiating and passing a deal) all of which appear deeply unpalatable.

  1. Bite the bullet and request the extension while making it very clear his hands are being tied by Parliament. This could play to his parliament vs the people narrative but leaves him massively exposed to the Brexit Party when a poll is eventually called.
  2. Resign as Prime Minister and let Jeremy Corbyn form a minority government that requests the extension (Corbyn wouldn’t have the backing to anything else). This still exposes him to the Brexit Party as he will have essentially ceded control of the process voluntarily, but he will be able to categorically paint Labour as an anti-Brexit Party.
  3. Refuse to obey the law.

This appears to leave the Prime Minister snookered over the timings of the election. His gamble that the opposition parties would bite his hand off for an election looks to have backfired. But this doesn’t change the basic battle lines of the election. Johnson will present himself as the only option to deliver Brexit while casting his opponents as anti-Brexit remainers.

A later election presents a more difficult challenge for the Prime Minister but his message to electorate will remain unchanged: I am the only true Brexit candidate. The outcome rests on whether this message resonates with the electorate.

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What if he succeeds? A public affairs guide to a successful Boris Johnson premiership

We are on the eve of a Boris Johnson government.  In the context of the many challenges it faces, WA is scenario planning around whether it succeeds or fails.

Here are our thoughts on what a Johnson government may look like, if it succeeds.  In the next couple of days, we’ll provide an alternative analysis of what failure looks like.  In both we provide our advice for companies looking to work with the new government.

The success story obviously assumes that Johnson somehow delivers Brexit.  Taking this as a starting point, his government will be busy:

Generating a sense of national optimism.  There will be carefully managed cross-country visits, flag waving and the odd zip wire moment.  Johnson’s joie de vivre will contrast to the seriousness of our other politicians to capture some of the 30-35% of the electorate who don’t normally vote.  The approach will be continuity with his Brexit narrative of hope.  It will be framed as GB unity – echoes of winning back a lost ‘global Britain’ – but will mainline to English nationalism to shore up leavers across the country in preparation for an election.

Unveiling a framework economic strategy to make Brexit a genuine success.  Expect a more bullish positive economic vision of the opportunities for the industries of tomorrow.  There will be activism on innovation, high-tech hubs and collaboration between entrepreneurs, finance, universities and government.  Government will play even more of a role as funder and pump-primer of innovation, and as opener of new market access opportunities.  There will be an immediate deregulatory drive and the beginnings of an overhaul of the structure of regulation, in order to promote more competition and support high-productivity sectors.

Preparing for an Early General Election.  This means campaigning and not policy-making in any great detail.  Proven campaigners will be given the prime Cabinet positions and will focus on big announcements of retail policies that start a long election campaign.  Detailed policy-making will be left to departments, largely centred on junior ministers, SpAds and the civil service.  More controversial areas like social care funding will be left unaddressed.  Manifesto development will get fully underway, and the manifesto will be about tone, not detail.

Under this successful scenario we don’t believe that there will be a cabal of ideologically-driven advisers, waiting in the wings e.g. drawn from the ERG, Lynton Crosby or Steve Bannon.  No one group of advisers will ‘run’ Johnson.  He is a liberal and he will delegate and distribute power across a wide group of people, keep an extremely powerful but non-ideological Chief of Staff close, and as we expect with all good politicians, play the many different factions – left and right, Brexit and Remain – against each other in order to remain safely in place for longer than most are expecting.

Our public affairs advice to companies looking to work with the new government under this scenario is as follows:

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