I was very pleased to address the 2017 HealthInvestor UK conference in London last week, on the subject of how to read the current political environment.

Below is a copy of my remarks.

There are a number of questions that I’ve been asked to share some thoughts on today, namely:

  • Is political chaos the new normal?
  • Will exiting the EU dominate the political agenda?
  • Are we seeing a shift to the left in UK politics?

The short answer to all three of these questions is yes. But only to an extent, and with a number of important caveats, including the importance of distinguishing ‘Politics’ from policymaking.

Is chaos the new normal? How can deal makers approach political risk?

If we look at the political headlines over the last couple of years, then we’d be hard pressed to conclude that the answer to this question is anything but ‘yes’. Politics seem to be in the throes of a type of chaos that we’ve not really experienced before in the UK.

2016 in particular was the year when western markets were rocked by political shocks almost as startling as anything seen recently from emerging markets. At the start of last year most people – investors and political analysts included – considered it almost impossible to imagine a scenario where the UK would vote to leave the EU, the US would elect Donald Trump as president and we’d see a concerted rise of populist parties (albeit a lack of success at the ballot box) across Europe.

And 2017 hasn’t been much quieter. Article 50 has been triggered, Brexit negotiations have begun in earnest, the political melodrama in Westminster continues at an alarming pace, and Donald Trump continues to edge us nearer and nearer to nuclear war.

Not to mention the prospect of a Jacob-Rees Mogg premiership.

So far, so chaotic.

So is chaos the new normal? Have we reached peak chaos or should we be anticipating, and planning, for more of the same?

Let’s look at some of the drivers of this period of political chaos.

Firstly, changes in traditional voting patterns are making politics far less easy to predict.

The UK continues to move away from a two party political system broadly dividing along socio-economic lines. Class and income are no longer the deciding factors at the polling booth, but a number of new dynamics – age, geography and even gender – are becoming increasingly likely to shape which way we vote.

It looked for a time like the two party system might be over for good, with the rise of UKIP, the SNP landslide in Scotland, and the ability of smaller parties to count on a substantial number of protest votes.

Arguably though, we’re now seeing something of a resurgence in support for the two major parties, albeit no longer based on the socio-economic position of its supporters.

For example, during the June 2017 election, the Tories picked up large numbers of working class voters on a much more socially liberal and interventionist platform than we might have expected.

Corbyn’s Labour Party, having distanced itself from the neoliberalism of the Blair years, has somewhat counter-intuitively seen its support surge amongst affluent, middle-class voters from the professional classes.

Secondly, changes in traditional voting patterns are making political parties behave in unexpected ways, trying to reinvent themselves (with varying degrees of success) to realign themselves with developing trends. One only has to look at Theresa May’s U-turn on the dementia tax during the last election campaign to see that responding to changes in voter dynamics whilst trying to retain the support of your core base can be very difficult.

Thirdly, further chaos, as if it were needed, comes from within the political parties themselves.

The Conservative Party remains in turmoil as it tries to decide when to ignite a leadership campaign, and whether Theresa May is a burden or benefit to the party. Theresa May says she’ll fight the next election, despite tacit agreement amongst her Conservative colleagues that she’d step down well in advance of a 2022 election to make way for a new leader.

The choice, ultimately, may not be hers, and she continues to live on borrowed time. However, the fact that there is no clear successor is playing out in her favour, meaning we can expect to see her limp on a little while longer.

The Labour Party, also in various states of internal disarray, looks different from one moment to the next. In the 18 months from September 2015 to February this year, Corbyn’s Shadow Cabinet was reshuffled no fewer than four times, with 32 resignations (four of whom later returned to top Shadow Cabinet positions).

And this is set against the tumultuous background of Brexit, and an increasingly fractious international environment – more of which, inevitably, in a moment.

So how can deal makers approach political risk?

My advice would be that deal makers should approach political risk with an understanding that just because ‘Politics’ (with a big P) is in chaos, it doesn’t mean that policy making is.

Quite the contrary in fact.

With everyone’s attention on the political soap opera playing out, the day to day processes in Westminster and Whitehall are by and large continuing to function, in a semblance of normality.

Domestic policymaking is not on hold indefinitely until the end of the Brexit negotiations, even if it is relegated to the peripheries of the parliamentary schedule.

The government knows this, and will be looking at ways to continue pressing ahead with their domestic agenda, albeit in a slightly different way to that which we’re used to. Theresa May’s Chief of Staff, Gavin Barwell, for example, has requested that departments bring forward policies that are achievable without changes to primary legislation (through the use of statutory instruments for example).

So don’t assume the political picture becomes unreadable because of Brexit, or that the political dynamics that we’re used to seeing in terms of the development of policy at a domestic level no longer apply.

Policy will continue to be created and many of the usual dynamics, relationships and considerations will come in to play. We need to be asking: What are the priorities of key influencers? What does the funding situation look like? What is the government trying to achieve?

Inevitably there will need to be considerations of the impact of Brexit, and in some cases these will have a material impact on the development of policy. But not in every instance, and not always to a huge degree.

Will exiting the EU dominate the political agenda? Where will this leave health and social care?

Unless you’ve been living under a rock for the past few months, you’ll have already seen Brexit dominating the political and media agenda in the UK. And if you think we’ve reached peak-Brexit, prepare yourself.

The Queen’s Speech back in June showed us that Brexit is not just a priority issue for the UK parliament but seemingly the only item seriously on the legislative agenda for the foreseeable future.

The legislative changes necessary to implement Brexit means that Parliament will have time to debate very little else over the next two years. In total, 8 Brexit bills will be discussed.

The EU Withdrawal Bill (formerly the Great Repeal Bill), which sets out to convert EU law, as it exists on Brexit Day, into domestic law in the UK, receives its second reading in Parliament this week, and battle lines are already being drawn on a number of key issues, including workers’ rights, environmental protection and EU citizens’ rights.

Conservative whips are braced for battles with newly emboldened party rebels, including over the inclusion of so-called “Henry VIII powers” – laws that allow ministers to change primary legislation using secondary legislation without parliamentary scrutiny.

The impact of Brexit on devolution to Scotland, Wales and Northern Ireland has already started to cause disputes – Scottish First Minister Nicola Sturgeon and Welsh First Minister Carwyn Jones have both stated they will not support the Bill in its current form.

And there are still seven other Brexit bills, on issues including trade, immigration and nuclear safeguards, set to come before parliament.

And that’s just at a domestic level.

Looking to the EU, we have the Brexit negotiations, which already seem to have been ongoing for an age. The first tasks for the negotiation teams are to get an agreement on the rights of UK and EU citizens after Brexit, reaching a figure for the amount of money the UK will need to pay on leaving, and what happens to the Northern Ireland border. Getting an agreement on any of these will be difficult, and the clock is ticking.

All eyes are now turning to the next European Council meeting in October when leaders of the remaining 27 member states will decide whether, and to what degree, to extend the mandate of the Commission’s negotiating team to include post-Brexit trading relationships amongst other things.

This decision needs to be made on a unanimous basis and represents a major crunch point in the negotiations. Failure to move to the next stage of the discussions would put even greater pressure on what is already an extremely uncomfortable timeline.

So where does this leave health and social care?

Although health is formally a ‘member state competence’, (a policy area beyond the competence of the European Union) there are a wide range of areas where Brexit will have an immediate impact.

The House of Commons’ recent report on the implications of Brexit on the health and social care sector identifies several priority impact areas, including:

  • The UK’s health and social care workforce – both those who are here now, and those we will need in the future;
  • Reciprocal healthcare coverage and cross-border healthcare;
  • Medicines, products, clinical trials and health research; and
  • Public health.

In the interests of brevity I’ll only touch on the first of these – the issue of the health and social care workforce, as this is likely to have the most immediate and widespread impact, particularly from the perspective of political risk.

Today over sixty thousand people from EU countries outside the UK work in the NHS and around ninety thousand in adult social care.

Somewhat unsurprisingly, in the year and a bit since the 2016 EU referendum, there have been signs that when it comes to public sector workers, the UK has lost some of its appeal as a place to live and work.

Recent ONS figures show that the number of non-British EU nationals who said they worked in the UK public sector fell by 27,000 between January and March 2017.

The loss is already keenly felt by public services struggling with existing staff shortages and which are increasingly reliant on EU migrant labour to fill vacancies, including the health and social care sector.

England alone has a shortage of 40,000 nurses and 3,500 midwives. Is this solely because of Brexit? No. The chronic shortage of nurses is largely the result of years of short-term planning and cuts to training places. But the dynamics of Brexit, and a lack of clarity about the UK’s future immigration mechanism, are doing little to help the situation.

Home Secretary Amber Rudd has promised to consult with industry leaders over the summer, including those in the health sector, to understand the true nature of how changes to immigration levels will affect them. The Migration Advisory Committee, the government’s independent advisor on immigration matters, will feed this into a report due to be published in September 2018.

As the eagle eyed amongst you will have noticed, this doesn’t leave much time before we formally leave the EU in March 2019, but it has raised the prospect that perhaps the Home Secretary can be convinced of the benefits of a transitional immigration arrangement, rather than simply attempting to cut numbers to the government’s long-stated desired target of ‘tens of thousands’ without some recognition of the impact it will have on different parts of the economy.

However, this hope has perhaps been dealt a blow by the leaked Home Office document, which suggests the government would like to set in place mechanisms by which all but the highest skilled workers will be required to leave the UK after two years.

A shift to the left? What would a Corbyn government mean for the independent sector?

Looking at current polling, you would assume that yes, we’ve seen a significant shift to the left in terms of voting intentions over the past couple of years. Current polling indicates that a Labour majority government would be elected if a general election were to be held today. That’s quite a statement given the state of the polls as little as three months ago.

To achieve a majority of one, a swing of 3.5 percent would be required. A swing of just 1.5 per cent would be required for Labour to become the largest party.

Where has this resurgence come from?

Setting aside the strategic mis-steps of Theresa May, Labour’s chances of achieving a majority have been helped by the party’s recovery in Scotland as SNP support has waned. Of the top 64 target seats across the UK – those seats with the lowest swing towards Labour required for them to win – 18 are held by the SNP.

And we can’t ignore the Corbyn factor. Polling asking voters which party leader they would prefer as Prime Minister also show a lead for Labour.

So what would a Corbyn government mean for the independent sector?

Corbyn’s flagship policy, after all, is the removal of private sector involvement in the NHS, as well as to take parts of Britain’s energy industry back into public ownership, alongside the railways. The Labour leader has vowed to make the NHS fully publicly funded and bring services provided privately “back into public hands”.

Corbyn has said that he would like to establish a taxpayer-backed fund to buy struggling hospitals out of their existing PFI arrangements, end the NHS internal market, and reintroduce nurses’ bursaries to tackle the current shortage.

But practically speaking, what could this look like, particularly if we assume that the NHS will continue to face quite significant funding pressures for the foreseeable future? We know that demands on the NHS are increasing, that waiting lists are getting longer, and that the availability of beds is becoming ever scarcer. Without the involvement of the private sector, including their investment in the capacity needed to meet the demands of a growing and ageing population, it’s difficult to see how this might work in patients’ interests. Much like Corbyn’s promises on abolishing tuition fees, I’m not sure that the maths adds up.

Regardless of all of this a Corbyn government remains reasonably unlikely. Not impossible, but unlikely, for the following reasons.

  1. The Conservative Party does not want another election, because they realise that this could hand the keys to number 10 to Labour. The Conservatives will do all they can to prevent another general election in short order, because they’ve seen the polls and know what’s at stake. So much so, that they’ve agreed an uneasy truce with Theresa May, allowing her to remain as PM for the foreseeable future so as not to further rock the parliamentary boat.
  2. The Fixed Term Parliaments Act mean that it will be difficult for Labour to force a general election. The Act means that parliament can only be dissolved in certain specific circumstances, including a two-thirds majority vote of the House of Commons or a vote of no confidence in the government. Given that Theresa May still holds a working majority, neither of these thresholds is likely to be crossed in the near term.
  3. The electoral Commission is currently due to report on recommended boundary changes in 2020. The changes are due to reduce the total number of MPs from 650 to 600 and equalise the population of each constituency. One consequence of these boundary changes, based on historic voting patterns, would be to damage Labour’s chances of achieving a majority.However, reports are that boundary changes are the last casualty of Theresa May’s failure to win an increased majority in June.
  4. The likelihood of Jeremy Corbyn being able to sustain his popularity at current levels until a general election in 2022 is fairly limited, particularly given the more intense scrutiny that he faces now he’s seen as a legitimate threat to the Conservative Party – it’s just the nature of politics.

So to sum up:

  • Is political chaos the new normal? Yes, political chaos looks to be the order of the day for the foreseeable future, but we shouldn’t forget that policy development and implementation, particularly through the use of existing SIs, will continue, albeit largely out of the headlines.
  • Will exiting the EU dominate the political agenda? Yes, there’s no escaping it.
  • Are we seeing a shift to the left in UK politics? Potentially, but that doesn’t mean that we’ll be seeing Corbyn in No.10 any time soon.