In Defence of Politics
I learned my politics from the late Bernard Crick and still think he is right that pluralist democracy should be about reaching, through public debate and compromise, a consensus (even if rather ‘messy’) that can be shared by many more people than a simple 50% plus one. I have studied the major C19 and pre-WW2 crises and lived through the 3 Day Week, Winter of Discontent, Miners’ Strike and now Brexit. In each of them acrimony raged, protests were often violent and the incumbent government was at odds with the other parties. In the end, sometimes after many years, the crises were resolved by the emergence of a consensus in Parliament and in the country. After two years of increasing polarisation, politics looks to have begun to reassert itself at last and investors are responding positively.
Figure 1 Waiting for Dorothy and the Wizard
Source: Morton Morland/The Times
There remains much for investors to fret over but the scale of the Government’s defeat in the Meaningful Vote last Tuesday has given them much more hope that the UK will not be leaving the EU without a deal on March 29th. The pound reacted immediately, moving out of the $1.25-1.27 range in which it had been languishing since early December and despite the dollar itself strengthening against other major currencies. The next step will be a test of $1.30 but it will depend on more ‘positive’ developments in Parliament this week. Domestic UK shares (e.g. house builders, grocers) were able to consolidate their gains from the previous week. Gilt yields edged higher as the scepticism of recent months that UK interest rates would never rise again starts to mellow. The FTSE 100 was held back, however, by the reappearance of algorithms’ negatively correlating the pound to international UK stocks but even it cheered up as global equity markets’ New Year strong rally continued. Having been caught out over the Referendum result in 2016, investors are being understandably cautious in their optimism but they are surely right in hoping the political developments in the next few weeks will be positive, at least from their point of view. However, it will require more evidence of a consensus in Parliament thereby reducing Brexit uncertainties further before global investors return in force to UK assets after avoiding them for so long.
Figure 2: Help wanted
Source: YouGov/The Times
The current stand-off between Mrs May and Mr Corbyn may seem rather petulant but reflects the brutal reality that neither of them is in control of their MPs. An ironic twist is that they both want the same thing: Mrs May to preside over the UK’s departure from the EU. Mrs May wants to fulfil her pledge to deliver Brexit with limited economic damage, which Mr Corbyn also seeks, plus being able to blame the Tories for any ill effects. Having pursued her own deal and been defeated spectacularly last week, Mrs May can only pass some sort of softer version of it by ruling out ‘no deal’ and, in consequence, splitting the Tory Party. On the other hand, if she is tempted to appease the more numerous declared Brexiters by confronting the EU, there are already enough Tory Europhiles to unite with other parties to constrain her. Meanwhile, Mr Cobyn has to continue to block Mrs May’s deal because a large majority of his MPs and Party members will not allow him to do anything else. Both leaders are strongly opposed to a ‘Second Referendum’ that would reveal the visceral divisions within their parties.
So, how might the deadlock be broken and a compromise emerge? It is going to be messy business as although there is a clear majority in the House of Commons against Mrs May’s deal and a probable one against ‘no deal’ there does not yet appear to be a consensus as to what should happen instead. There does, however, seem to be an interim consensus in the form of cross-party backbench support for some amendments being put forward by rebel Tory MPs, Nick Boles and Dominic Grieve, who are working closely with Yvette Cooper, herself having already succeeded in tying the Government’s hands. Last week, amidst all the bluster following Mrs May’s historic defeat Mr Grieve came across as a Man with a Plan and has been been doing his homework on Parliamentary procedure. The Speaker, Mr Bercow, is likely to put to a vote either Mr Grieve’s amendment as it stands or a consolidation which would enable MPs to put forward a bill to prevent ‘no deal’ by default. Mrs May cannot accept the amendment without sufficiently alienating hard-line Brexiters Tory MPs such that they would be willing to bring down the Government whenever the opportunity arises. If she whips against it, several ministers are likely to resign and more backbenchers to rebel, leading to another defeat. Giving Tory ministers and MPs a free vote would also result in that amendment’s being carried and the Brexiteers’ being alienated further. Coincidentally, and representing an indictment of the Government’s incompetence, more time seems essential given the huge backlog of enabling legislation, the lack of progress on trade deals with countries outside the EU and the almost comical logistical unpreparedness for an abrupt departure on March 29th.
Accordingly, as soon as this week another Government defeat should help to reveal the nature of the interim consensus in Parliament and how it might develop. Mr Corbyn may push again for a No Confidence vote but Speaker Bercow may cite Parliamentary precedent in ruling it as too soon after the previous vote. In any case, many MPs in all parties may prefer to act on another proposed amendment that would allow free votes on a variety of outcomes from ‘no deal’ to Remain. The Government might well accept the amendment and the subsequent votes could see a further step in cross-party consensus, particularly on the need for delay. Mrs May has set 29th January for the next Meaningful Vote on her proposed deal, which is likely to be very similar to the previous one and may or may not have been agreed with the rest of the EU. Another defeat seems almost certain in which case something will have to be done about the Article 50 Notice.
What to do about the Article 50 is, of course, highly contentious. Asking for an extension is dependent on the agreement of the other 27 EU members and effectively gives each one of them a lever in the final negotiations. Withdrawal of the Notice, in contrast, can be done unilaterally but only in ‘good faith’ and not temporarily. The consensus is likely to be settling for an extension for now and obliging Mrs May to request it unless she had already taken the initiative.
Amidst all the intrigue a General Election may be called. It is not clear why Mr Corbyn is so keen to fight one at this stage. Figure 2 suggests he is almost unelectable and Figure 3 provides some uncomfortable analysis of voter groups from whom he might expect strong support (Remainers, 18-24 year olds and C2DE class voters, even Labour voters). Moreover, Labour have conspicuously failed to recover the dominant position in Scotland that has been critical to their winning a majority in Westminster in the past. Perhaps Mr Corbyn feels he can rein in his candidates at a time when the Tories may be riven by deselections and rebels’ standing as Independent Conservatives. Much as both he and Mrs May would prefer otherwise, neither of them can get away without clear manifesto commitments on ‘no deal’, Remain, a Second Referendum and a Brexit timetable. So far, the Lib Dems have failed to capitalise on the pro-Brexit stance of both Labour and the Tory leaderships but they could yet have a major impact in the marginal seats while picking up a few more for themselves. A new hung Parliament is very possible with many seats changing hands.
The prospect of a General Election and a Second Referendum would disrupt the process of reaching consensus on Brexit and bring new uncertainties to markets. The possibility of a ‘Marxist in Downing Street’ would still cause alarm. However, investors may be sufficiently encouraged by the increasing independence of backbench MPs, especially if they have blocked ‘no deal’ and voted to delay Brexit. Politics, with all its shortcomings, has a history in the UK of benefitting the economy and reassuring investors. Bring it on!
Figure 3 Oh, Jeremy Corbyn
By Alastair Winer
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