Brexit: Scenario Planning the Next Two Years

Brexit:

Scenario Planning the Next Two Years

 

Like many in Brussels, we at HLC are shocked and saddened by the UK’s referendum result. Concerned friends of HLC can rest assured that our three resident British passport holders are in close contact with the relevant Dutch and Irish authorities!

Much of what has been written following the result has focused on what happened and why. Planning beyond the immediate fall out requires a little scenario planning. Predicting the future can be foolish, especially in these times. But here’s our brave (or foolish!) attempt.

Why won’t Boris call a General Election? Because he can’t win it

In the next few days, the Prime Minister contenders will propose their negotiating positions. Although the first few days after the vote clearly lacked strategy, Boris and others are no fools and will be doing their political calculations. Below is how we think these might play out.

Imagine a snap General Election is called before negotiations with the EU begin. The election would be a ‘single issue election’ on the terms of Brexit.

The Liberal Democrats and Scottish Nationalists (SNP) would pledge to remain in the EU. The Lib Dems aren’t exactly a powerhouse right now, but together with the SNP, would be present a clear Remain option to voters. Our guess is at least 25% of votes would go this way. Boris (or any other Conservative) can’t offer this politically because ‘the people have spoken’ and no Remain-only candidate could be elected leader of the Conservative Party.

At the other end of the spectrum, UKIP’s manifesto would be for maximum change, i.e. significant change on immigration, even if that means less access to the single market. ‘Leave means Leave’.

This is where the UK’s ‘first past the post’ electoral system comes into play. In the 2015 General Election, UKIP got 13% of the national vote, but won only one seat. However, many more seats would be won if there was an increase to 25% or more. Certainly enough to deny the Prime Minister a majority.  Ironically, this scenario was Cameron’s big fear, and the driver of his referendum commitment in 2013.

So, Remain would attract enough votes at one end to deny PM Boris or Theresa May a majority, and ‘Leave Means Leave’ would do the same at the other end.

This means that for the next two years, any election about Europe would deny the Conservatives or Labour a majority government. What do they do?

This scenario is what lies behind both Boris’s current calculations and the knife fight in the Labour Party. What does Boris do?

First, he can’t call a General Election because he can’t guarantee he’ll win. If he moves too far towards ‘Leave Means Leave’ he leaves his flank open to the Remain camp. If he moves too far towards focusing on the single market and away from restricting immigration, the Conservatives lose too many votes to UKIP.

It’s the equivalent of a US Presidential candidate trying to win the primaries and the general election at the same time.

 

New politcal landscape

These calculations will be lurking behind Boris’ position and the other Conservative leadership candidates in the next few days and weeks. They have to propose something which doesn’t abandon the single market on one hand, because Remainers will highlight the risk of economic decline. They can’t abandon immigration reform because they will be accused of not listening to the British people. And they can’t say they want the best of both worlds because they will be lampooned across Europe (well, western Europe).

So the candidates are stuck in a triangle with Nicola Sturgeon and the Scots, the Lib Dems and the voice of liberal economics pulling one way, Farage pulling in the other way, and their negotiation partners, Juncker / Hollande / Merkel pulling in a third direction.

Leadership

 

It seems likely that without external pressure a new Conservative Prime Minister will not want to seek a new mandate.

Speculating further, one way around for a PM unsure of General Election success would be a second referendum. This would not be a second ‘in-out’ referendum but one that asks what the starting Leave negotiating position should be. The two options would be:

  1. Protect access to the Single Market but don’t do much to restrict immigration.

  2. Meaningful immigration limits, even if that risks losing substantial access to the Single Market.

The Prime Minister would expect voters will choose option one (with the ‘buyers remorse’ voters swinging away from pure Leave). But we know that voters do not vote rationally; as we have sadly seen, many people voted against their economic best interest — would they do the same again?

What does all this mean?

  • Expect wooly positions from Conservative leadership candidates in the next days and weeks, which will be criticised by Juncker, Hollande and others as impossible.

  • A clear statement from Boris and others that there will be no early General Election, the people have spoken and now they have the mandate to negotiate.

  • General Election would only be possible if an externality drives it.

  • Stephen Crabb as the ‘dark horse’ candidate, who is chosen as being stronger than Theresa May, but more likeable than Boris to ‘Angry with Globalisation’ voters and other Europeans.

  • No Article 50 in 2016, with other Europeans getting more and more grumpy.

  • Politically acceptable outcome might be UK keeping access to the single market including passporting rights for the finance sector, and a fudge on immigration where there is little change but it is spun as more than it is.

As events unfold, HLC will be having more specific discussions on what this all means for different sectors. If you would like further information or want to share your thoughts, get in touch with the HLC team.