A WA series on the Labour Party, and what a Labour government could mean for UK investment activity.
With aggressive signals that a Labour government would “intervene to prevent hostile takeovers” through a broadened public interest test, scrap PFI and nationalise existing contracts, and reform taxation to treat carried interest as income rather than capital gains, investors should be paying close attention to the party’s thinking.
Especially as a Labour victory at the next general election is not beyond the realms of possibility. A 3.57 per cent swing from the Conservatives will give Jeremy Corbyn’s Labour Party a majority in Parliament. Just 1.63 per cent will make them the largest party, with first dibs on forming a formal coalition or ‘confidence and supply’ arrangement, the arithmetic of which will dictate the government’s policy direction. Given historic election results, both are achievable when facing a government that’s been in power, in one form or another, for eight years. A relatively poor economic outlook also bolsters Labour’s chances, with the UK growing at a slower rate than the OECD average and British workers having undergone a sustained fall in real wages over the past year.
Investors must consider Labour’s proximity to power and the impact of the party’s potentially radical policies on assets as part of their due diligence process. To help investors start to plan for such a scenario, WA will be publishing a series of pieces over the coming weeks looking in detail at Labour’s most transformative policies in areas such as utilities, housing, education, finance and taxation. We will also be examining the internal dynamics of the party to provide insight into whether the party is likely to be more or less radical in power than it claims, and whether the Corbyn project is here to stay.
The stalled steamroller
Labour is influencing policy through the government’s weakness in Parliament. DUP MPs are signed up to vote with Conservatives on Brexit, the economy, and defence, but can choose what to do on other issues. This is problematic for the government as, while the DUP may hold similar views to the Tories on the Union and certain social policies, they take a different stance on others. The original Conservative manifesto has been cut down, with pledges like scrapping winter fuel allowances dropped, and there have been several defeats in Parliament where the DUP have sided with Labour on NHS pay and tuition fees. In response, government has abandoned the long-held convention of acting on parliamentary motions when they are defeated in opposition day debates, arguing such votes are not constitutionally binding.
The same is true for Brexit legislation, where it is the prospect of Conservative backbenchers siding with Labour that is causing consternation. Rather than being swamped by the volume of work to implement Brexit, the Parliamentary calendar is surprisingly empty. The ‘Brexit bills’ on taxation and trade have stalled after committee stage, with no date for their next debate, and contentious legislation such as the Immigration Bill has not been brought forward. This gridlock follows Labour’s shift to support a post-Brexit customs union with the EU, which Conservative ‘remainers’ such as Anna Soubry and Ken Clarke also support. Labour’s influence means no substantive debates will happen until after Easter at the earliest.
A ‘kinder’ kind of politics
Labour is also having an impact outside Parliament. The opposition is able to wield considerable influence over debates in the media on issues such as the performance of utilities and rail companies, animal rights and environmental policy. This has put pressure on the government and led to a drift leftwards, with Miliband-era Labour policies such as the cap on energy prices being adopted as mainstream Conservative priorities. Labour may be driving, or capitalising on, declining public trust in business, with even traditionally conservative publications lambasting high profile corporate failures such as at JD Sports and BHS. Government too is reacting to the new atmosphere. Michael Gove has launched an attack on water companies for poor performance, underinvestment, and tax evasion – promising more regulation if the industry doesn’t improve. This can pose a reputational risk to those assets likely to garner attention from the Labour Party.
There are changes too at the grassroots of politics. In December 2017, the Labour Party had 570,000 full members, making it the largest political party in Western Europe. This increase in members, attributed almost in its entirety to Corbyn’s leadership, gives the party hefty campaigning power unmatched by any others. Target constituencies can be swamped with volunteers, a key advantage when election spending is strictly controlled. These supporters can also be mobilised against companies, launching campaigns against behaviour they see as excessive, or models they do not support. Posing another source of risk for certain assets.
The impact on political debate online has also been marked. There are of course right-wing equivalents, but the success of left-wing blogs such as Another Angry Voice, Squawkbox and The Canary has been to turn huge groups of people away from the MSM (Main Stream Media) which is accused of being too close to the political and corporate elites. This distrust is creating a section of society that most politicians cannot get their messages through to via traditional channels. Some of the most shared stories at the 2017 election were Conservative policies to hold a free vote on fox hunting and reinstate the market for ivory, policies which were hardly covered at all by the MSM. We now see the Conservatives trying to address this weakness through better campaigning and digital structures in CCHQ.
“They should be worried”
Labour is already influencing government policy and political debate in the UK. But the big changes they propose can’t come while in opposition, as the parliamentary arithmetic means Conservative is the only government that works. So Labour is hoping for an early election – but how likely is that? We’ve already missed Corbyn’s first deadline to be in power by Christmas 2017.
A change in Conservative leadership, if May was forced out by Eurosceptic backbenchers for example, would not necessarily precipitate a general election as we have seen from Brown to May. And the coalition’s Fixed Term Parliaments Act has made it fundamentally harder (though by no means impossible) to bring down the government. There are only two ways to force an election: through a two-thirds majority in the House of Commons or through two specifically worded votes of no confidence (the government must lose one and a new administration must fail to pass another vote within 14 days).
Some envisage a reality where enough Conservatives can be convinced Labour’s position on the EU is less damaging to the country for them to bring down their own government. But this probably relies on Labour’s position on Brexit shifting further to include membership of the single market as well as customs union, and the number of MPs who would need to be convinced to effectively wreck their political career is high. Others such as Irish Taoiseach (Prime Minister) Leo Varadkar pin their hopes on Sinn Fein changing the balance of power by taking their seats in Parliament, which would be an historic and unprecedented move.
This analysis is based on a strict reading of the rules, but rules do not always dictate the realities of politics. The Fixed Term Parliaments Act has not led to fixed terms as the governing party can effectively always call an election. Should Theresa May get bogged down in Brexit negotiations, either due to divisions within her own party or if Parliament voted against the final deal, the only recourse may be to re-establish her mandate through an early election. The government may have quietened critics with the publication of a draft transition deal, but a series of compromises cannot placate opposing camps forever and recent history has shown that volatility can be sudden.
To explore all the implications of a future Labour government under Jeremy Corybn, WA will be publishing a series of articles examining the internal dynamics of the part and the detailed policy thinking in key sectors for investors over the coming weeks. If you know someone that would like to receive these and other pieces from the WA Investor Services team they can sign up via WAInvestorServices@wacomms.co.uk.