As at least some of the dust settles after the historic 2015 General Election we can see some of the implications for business. This week I met with a number of senior Non-Executive Directors to consider these. Let me start by recapping some of the major facts about the results. The Conservatives won 331 seats giving them an overall majority for the first time since 1992. The turnout was up slightly on 2010 at 66.1%. The Conservatives secured 36.9% of the vote with Labour on 30.5%; UKIP increased their share by 9.5% compared to 0.9% for Conservatives and 1.5% for Labour. There were wild variations in the relationship between share of votes cast and number of seats won. The SNP with 4.7% of the national vote won 56 seats and is the third largest party while UKIP got the third largest share with 12.6% but won only one seat as did the Greens with 3.8%. If the German system of a 5% threshold had been adopted UKIP would have won 70-80 seats and the SNP none. There were real regional variations. In England the Tories received 41% of the votes cast; in Scotland, the SNP 50%; in Wales, Labour 36.9% and in Northern Ireland, the DUP 25.7%.
So how did the pollsters get it so wrong? Most of them forecast a hung parliament with a high probability of ED Miliband as PM. They have already commissioned a study into just that question but in advance of that we can see that there has been a fragmentation of politics. Traditional polling methods in a two party system can tell us quite accurately the likely swing from one to the other. But with more parties contesting seats in more places national swing has less relevance and the polling methodology has yet to catch up. Ipsos Mori got closest on the Tory share forecasting 36% but seriously overestimated the Labour share and suggested that ‘Lazy Labour’ supporters increased its margin of error. Others have suggested that some so-called ‘Shy Tory’ supporters are reluctant to admit it on the doorstep but in the secrecy of their polling booth maintain their loyalty. Labour boasted of four, and then five million conversations but the Conservatives knew that a small number of voters in the key marginals would decide the election. There is some evidence that the late emphasis by David Cameron on the threat of a Labour government held to ransom by the SNP had some effect.
The nation appears divided. England is dominated by the Conservatives and Scotland by the SNP. Labour failed to gain many of the key marginals they were targeting except in London. The SNP landslide in Scotland will put further pressure on Cameron to make good on promises made in the referendum campaign in 2014 but this will also put further pressure on him to finally address the West Lothian question and somehow deliver ‘English votes for English laws.’
In appointing a first Conservative-only cabinet since 1997 Cameron stayed faithful to most of the familiar faces. In what I think was a brilliant move he kept no less than ten senior ministers in place only removing Eric Pickles and transferring Francis Maude from the Cabinet Office to bring in a combination of Oliver Letwin and former Osborne chief of staff, Matt Hancock. The Treasury, Foreign Office, Home Office, Defence, Education, Health, Work & Pensions, Transport, International Development and Northern Ireland offices all retained the same Secretary of State. Against all the long term trends this maintains stability and allows the new government to hit the ground running on most of its manifesto. There are already early signs of that in just the first two weeks.
But despite winning with an unexpected overall majority and maintaining a stable team, passing legislation may prove challenging. To get Bills passed in the House of Commons nearly every Conservative MP will have to be kept onside. In the Coalition years this was not necessary as with 57 Liberal Democrats the Government usually had a comfortable majority despite the most back bench revolts since the War. And it will not only be the usual right-wing suspects. The Government faces possible rebellion from the Tory left on issues like the Human Rights Act, privacy, strike laws as well as contentious ‘local’ issues like HS2 and the next London runway. Inevitable by-elections are likely to eat away that majority while over in the Lords the Conservatives command less than a third of the House. The Lords won’t vote down specific manifesto commitments or Finance Bills but the vague promise to cut welfare by £12bn looks ripe for Labour and Lib Dem peers to pick fights over.
In essence we have political stability for the time being but with the risk of it unravelling combined with considerable constitutional uncertainty. The first major tests will come soon with the Queen’s Speech next week, voting on that in the first week of June and then Osborne’s first Conservative-only budget on the 8th July. The Queen’s Speech is likely to include the EU Referendum Bill, a Tax Bill to prevent rises to VAT, NICs and income tax, a Housing Bill to extend Right to Buy to Housing Associations, the Scotland Bill continued from the last session, a Devolution/Decentralisation Bill to create the Northern Powerhouse, and an Employment/ Education Bill to introduce a new pledge of childcare, free schools and apprenticeships.
Other policy priorities in this Parliament will be deficit elimination by the end of the Parliament, immigration, abolition of the Human Rights Act, State security including the renewal of Trident, further deregulation of business and enterprise and a focus on value for money across public services.
So let me turn to the specific implications for business. Most people in the room welcomed the result and noted that the markets and sterling have all rallied with particular gains in those sectors which faced stricter regulation under Labour. The apparent political stability versus the expectation of another hung parliament with uncertain outcomes was clearly welcomed although as I have indicated this stability may be short lived. The continuity of policy in most areas is also welcomed.
The issue of the European referendum and the possibility of a Brexit is clearly a major issue for business. I spoke to some NEDs who said their companies would have to leave the UK if the UK left the EU. I cannot understand this view. If you are a multi-national company exporting to the world you have to comply with whatever regulations are operated whether it’s in the USA, China or the EU. The UK has a negative balance of trade with the EU so even if the UK were outside the EU, EU states like Germany would continue to want to sell to the UK and so in return would be prepared to buy from the UK. Why the terms of this trade would change is beyond my understanding. However, I do recognise that just as companies were encouraged to assess the risk of a Scottish exit from the UK so boards should consider the implications of the UK leaving the EU. But except in some special circumstances these risks should be small.
Because of the demise of Vince Cable we have the first Conservative Secretary of State for Business for 18 years. In the Conservative manifesto pledges included support for SMEs with a business rate review; a rise in the Net Minimum Wage to £8 by the end of the Parliament (though this is supposed to be set independently of Parliament); companies over 250 employees to be required to publish their gender pay gap; three days paid volunteering leave for employees at large companies; a ban on exclusivity in zero-hour contracts and the creation of two million jobs and three million apprenticeships by supporting business. There may also be business opportunities in the decentralisation agenda.
Overall this is pretty thin gruel for business. The government will be hoping that its continued management of the economy will be creating an environment in which businesses can thrive. There is improved political stability. There is enhanced confidence. But the public finances are still in dire straits. Too much of the recent growth is based on a combination of debt and consumption and productivity remains shockingly low. As I have written before GDP per head remains below the level of 2008 while too many of the new jobs have gone to immigrants. That is not a call for less immigration but to recognise that it leaves huge numbers dependent on the welfare state. I hope George Osborne is thinking about these things and how he can engineer improvements in investment and productivity rather than how many tax increases he can fiddle under the radar screen through a series of clever but ultimately self-defeating ruses.
Source: PwC Briefing: The Results of the General Election and implications for business
. May 2015