The UK General Election 2019 – all bets are off

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The UK General Election 2019 – all bets are off
Alexandros Michailidis / Shutterstock.com

The UK will hold a general election on 12 December. This will be a four-way contest. Voter volatility has never been higher. The Brexit issue will morph again during the campaign. Investors should understand that anything could happen, writes Victor Hill.

The day Brexit didn’t happen (number 3)

How did we get here?

The UK did notleave the European Union at 23:00 hours last night (31 October). At a special summit of the EU-27 in Brussels on Monday the EU agreed to the third extension of the Article 50 process – this time until 31 January 2020 or until the UK Parliament ratifies the current iteration of the Withdrawal Agreement, whichever is sooner.

The word in Tory circles for the last three months has been that any further extension would be deeply damaging to Mr Johnson. How could his credibility not suffer when he promised to “do or die” and said that he would rather “die in a ditch” than extend beyond 31 October?

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On the other hand, the events of the two weeks leading up to the extension have persuaded many voters, and not just Tories, that the Prime Minister did all he could to leave on schedule but was thwarted by a Remain-inclined parliament which came to hold him hostage.

On 17 October Mr Johnson defied the pundits’ expectations and didsecure a new withdrawal agreement in Brussels with the EU-27. By terms of this, the dreaded Irish backstop– a salient feature of Mrs May’s Withdrawal Agreement struck in November last year – was circumvented by a mechanism that would allow, in certain circumstances, for regulatory and VAT divergence between Northern Ireland and the rest of the United Kingdom. In this way, fears of a hard border on the island of Ireland could be allayed, but the UK as a whole would be able to exit the customs union.

As we know, Boris’s deal did not meet with the approval of the Democratic Unionist Party (DUP) whose 10 seats in the House of Commons kept Mrs May’s government afloat for nearly two years. But that was the least of the Prime Minister’s concerns. Obviously Remainers hate the deal because it would facilitate Brexit – which they ardently oppose; and die-hard Brexiteers now represented by Mr Farage’s Brexit Party regard this deal as the embodiment of Brexit-in-name-only (Brino).

In an unprecedented Saturday sitting on 19 October designated to approve the Boris Deal, the House of Commons, thanks to procedural gymnastics facilitated by a partisan speaker, quashed the chances of the PM getting approval for his deal before 31 October. (Readers who are engrossed in the minutiae should google Letwin amendment.) Not for the first time in the Alice in Wonderland world of Brexit, the process stumbled on a bizarre irony. The very people who fulminate most about the hellish consequences of a no-deal Brexit vetoed the only Brexit deal available. (I hope my American readers are still with me…Probably not…)

Of course, the Prime Minister has wanted an election for some months – not just to validate his premiership but because the Tories have a “majority” of around minus 45in the House of Commons and the government is therefore impotent. This arises partly because Mrs May blew the May 2017 election; partly because the DUP have gone off in a huff; and partly because the Remain-inclined element within Tory ranks has either defected or been expelled.


The Liberal Democrats want an election because, under the leadership of Jo Swinson, they have rebounded in the polls as a tooth-and-claw, no-nonsense anti-Brexit party; and the Scottish Nationalists want an election because they think that the 13 Scottish seats that the Tories won in 2017 look soft. Only Labour opposed an election (until Tuesday) on the grounds that they could not agree to one so long as no-deal was still on the table. (Even though Mr Johnson’s deal was the plat du jour– but never mind.)

Labour’s calculus changed on Monday afternoon when the Europeans (after frantic phone calls between Berlin and Paris) agreed – very reluctantly on the part of the French – to extend. This facilitated Mr Corbyn’s confection that no-deal is now off the table. (It isn’t – it could still happen at the end of the transition period.) Spurred on by his gung-ho advisers and much against the advice of the shadow cabinet, Labour’s policy turned on a sixpence…

The motion to call an election on 12 December was finally passed by 438 votes to 20 late on Tuesday afternoon. Various wrecking amendments – votes for children and for EU nationals – were wisely rejected by Deputy Speaker Sir Lindsay Hoyle (who is the favourite to be elevated to the speakership next week) on the grounds that they were “out of scope”. It was the first time that the House of Commons has almost unanimously endorsed a measure since it voted for a referendum on EU membership (544 votes to 53 in June 2015) and to trigger Article 50 (498 votes to 114 in February 2017).

The odds

Forget the opinion polls in which the Tories have a double-digit lead over Labour – they are pretty much meaningless. When Mrs May called her election just after Easter in 2017 the Tories were nearly 20 percent ahead in the polls. Not only that, they trounced Labour at the local elections of early May that year. Yet in the actual vote on 07 June the Tories came in just two percent ahead of Labour and lost 13 seats.

As my friend Evil will tell you, the odds provided by the bookies are much more informative than opinion polls. Yesterday the odds on a Labour victory shortened from 7/1 to 9/2 but then lengthened to 6/1. The Tories were the bookies favourite to win at 1/6, indicating an 85 percent chance that Mr Johnson will emerge victorious.

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But, fortunately or unfortunately (depending on your point of view), there are more possible outcomes than either a Tory victory OR a Labour victory – and each entails extensive political consequences.

The election, while being precipitated by the Brexit debacle (as was the last one) will not be determined on the Brexit issue alone. All kinds of other issues will come into play – obviously, the National Health Service (NHS) and crime-cum-policing and so forth as well as what I call Joker-in-the Pack issues. (Mrs May came unstuck on the issue of social care – the so-called dementia tax.) Just look at how Labour has tried to weaponise the tragic incident at Grenfell Tower, Kensington.

As I write, Mr Corbyn has been setting out his stall. At a speech in Battersea, south London, he is declaring:

So we’re going after the tax dodgers. We’re going after the dodgy landlords. We’re going after the bad bosses. We’re going after the big polluters. Because we know whose side we’re on…

No mention of Brexit, then. Of course not. Labour will do everything they can to avoid the issue of Brexit over which their membership – and more importantly their traditional support base – is so divided. Their message that Britain is beholden to a ruthless elite – a populist trope normally associated with the far-right – will only gain traction.

Labour will campaign on an end to austerity– even though Messrs Johnson and Javid (pre-figured by poor Mr Hammond, who has been expelled) have already declared the end of austerity. (Though, in his 100 days as Chancellor, Mr Javid has not made any fiscal initiatives at all – no doubt because circumstances constrained him.)

Labour will campaign on equality, fairness, justice, inclusion, an end to discrimination of all kinds and indeed for sugar and spice and all things nice… They will sew resentment against the rich fat cats/ hedge fund managers/ billionaires/ US pharmaceuticals/ bloated utilities and media moguls… They will create a demonic pantheon of evil-doers which will be craftily implanted in young minds through digital means…

My fear is that Labour can only go up in the polls from hereon in, while the poor, Brexit-blighted Tories can only go down.

A winter election

This will be the first December election since 1923. All British general elections since 1979 have taken place in May and June. Many activists on all sides of the political divide are apprehensive about campaigning in the dark, wet and cold. In May and June it is seemly to ring doorbells in the early evening; but who is going to open their doors to a canvasser on a dark winter’s evening? Moreover, there is resentment amongst the public that politics will monopolise the festive season. The schools that serve as polling stations will have to cancel nativity plays and carol concerts.

The received wisdom is that poor weather is good for the Tories (who are hardy types who brave all weathers) and bad for Labour (whose voters wilt in the rain). This is a cliché. In any case, it has been overtaken by the rise of postal voting. In 2017 8.2 million of Britain’s total electorate of over 40 million voted by post ahead of polling day. This way of voting is particularly vulnerable to voting fraud – something which I predict will loom large in this election. (Also: workers at Royal Mail (LSE:RMG)might stage a strike – that would be bad news for Labour.)


Most British universities close for Christmas on 13 December this year. A strong student turnout will be critical in seats like Oxford West (now held by the Lib Dems) and Canterbury (which fell to Labour for the first time in 2017). According to YouGov, however, 70 percent of all students returned to their homes to vote in 2017.

Overall, a winter election will only accelerate the role of social media as the predominant means by which political parties communicate with voters. Last time round, Labour convincingly won the campaign on social media. This time, the Tories have hired New Zealand digital gurus Sean Topham and Ben Guerin – whose efforts in Australia saw the Australian Liberals outpace Labour online in the recent election[i]. I doubt these two estimable Antipodeans will outgun Mr Corbyn’s people.

“The Great Betrayal”

Inhis book of that namethe writer and polemicist Rod Liddle argues that the Remain-inclined British establishment was never going to accept Brexit as a viable policy and that they were determined all along to ensure that it would never happen. The civil service, the BBC, the Church of England, the Speaker, the House of Lords, the Supreme Court, the luvvieswho run the arts are all of the same mind. They believe that Brexit is an unmitigated act of self-harm with no upside whatsoever.

Moreover, as they point out with relish, it has been demonstrated that to unpick the mesh of legislation, regulation and institutional compliance that has built up, layer by layer, over 47 years of EEC/EU membership is virtually impossible. The point is that there is no escape, or so the establishment believes; and there is a very good chance that after this election they may get their way and draw the Brexit genie back into its wretched bottle – one which Mr Cameron, they believe, should never have uncorked.

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It is undoubtedly true that the task of leaving the EU was always going to be fraught with complexity – just as a surgeon separating a pair of Siamese twins faces a daunting challenge. In hindsight, it was crass of the Leave campaign to have given the impression that leaving would be a straightforward matter; just as it has been crass to imagine that we could waltz into a trade deal with Mr Trump’s America without paying a high price in terms of our trading relations with the EU.

Ms Swinson, who became Leader of the Liberal Democrats in July, has made it abundantly clear that no matter how many times the British people vote for Brexit, she and her ilk would move heaven and earth to stop it. The Brexiteers’ cry that this is an offence against democracy has not been heard; instead, Ms Swinson has been praised for her decisiveness. Indeed, it was the Leavers who were accused of undermining democracy by wishing to prorogue parliament by five days longer than usual.

The panoply of political has-beens from Sir John Major to Mr Blair (and his acerbic side-kick Mr Campbell) has been wheeled out to tell us how very foolish we have been. Lies were told on both sides of the argument during the referendum campaign; but the only muck to have stuck has been on the Leave side. Similarly, the Remain campaign out-spent leave by a ratio of two-to-one; but only Leave supporters (NB Mr Banks, who was exonerated) have been dragged through the courts. In the round, Leavers have been characterised as thick xenophobes, while the Remain elite has styled itself as the voice of reason.

It was always going to be the case that the longer the hiatus between the referendum and the actual date of leaving, the more likely it would be that Brexit would not happen. Post-election some kind of formal or informal coalition between Labour, the Lib Dems and the SNP might very well stop Brexit altogether.

The Brexit Party wildcard

Since the general election became inevitable early on Tuesday evening, Mr Farage has remained uncharacteristically quiet (apart from his sensational radio interview with President Trump). The Brexit Party (BXP) won the European elections of 23 May decisively, gaining 5.2 million votes or 30 percent of the vote. That gave them 29 out of Britain’s 73 seats in Brussels/Strasbourg. Mrs May’s Tories garnered a pitiful nine percent of the vote – the final nail in her political coffin.

Mr Johnson has concluded that an electoral pact with the BXP, while attractive, could only be secured at a price the Tories are not prepared to pay. Namely, they would be tainted by Faragism – a visceral brand of Euroscepticism which argues that the only route out of the EU is via no-deal.

Mr Farage has at least been consistent in his loathing of the EU for more than two decades. How paradoxical it would be then if he impeded Britain’s departure after all by splitting the Leave vote thus enabling Mr Corbyn to come to power.


A report in the Daily Telegraphyesterday claims that the BXP will only run candidates in Northern Labour-held constituencies which voted Leave in 2016. That will be music to Mr Johnson’s ears. The mercurial Mr Farage, however, might easily change his mind. This is just one more joker in the pack.

My instinct, for what it is worth, is that Mr Farage, who is one of the shrewdest political operators of our time, is war-gaming well beyond the official Brexit date. If the Tories win a majority and take us out of the EU on 31 January, that will not be the end of the matter. There will be a long transition period during which a trade deal with Europe will be negotiated. The Europeans have been quite clear that any regulatory divergence on the part of the UK will be penalised in the terms of the putative trade deal. The French have stated that any restrictions on French fishing boats in UK waters will have economic consequences… And so on.

If anyone thinks that a Tory party victory in this election will finally end the Brexit nightmare they are deluded. That is a theme that Labour and the Lib Dems will develop over the next five weeks.

Scenarios

So, putting my chips on the table, here are the probabilities of each possible outcome on Friday, 13 December and the consequences for investors.

  • The Tories win a majority (326+ seats). Probability: about 35 percent. In that case we can assume that they will implement the Boris Withdrawal Agreement and that the UK will exit the EU on or even before 31 January. The markets will be gratified that nothing is going to change during the transition period, which will last for all of 2020, if not longer. Some long-term investors will still question what happens at the end of the transition period and will delay or re-allocate investment decisions accordingly. Overall, the markets will be sanguine, but not euphoric. The BXP will gather momentum as the trade talks falter in late 2020, putting a lid on the market upside.
  • Labour plus the Lib Dems plus the SNP win more than 326 seats collectively and agree to form a temporary coalition government under Mr Corbyn. Probability: about 30 percent. The deal will be that there is a revocation of Article 50 pending a second referendum (People’s Vote, whatever) which will take place in the late spring of 2020. Also, the coalition agreement will give the green light to a second referendum on Scottish separation. (I’ll investigate how that might go shortly. The Labour party, having given up on winning back its Scottish heartlands, is now very relaxed about Scottish separatism.) The globalists will love the prospect of Brexit being finally undone – and will calculate that the Lib Dems will restrain the excesses of the Labour Marxists. Champagne will flow in the offices of the Financial Times.
  • A Tory minority government is formed under Mr Johnson with his 300 or so seats. Probability: 20 percent. This will signal an indefinite prolongation of Brexit Groundhog Day as a re-fortified pro-Remain House of Commons pledges to paralyse the PM for evermore. The markets will take a very dim view. In fact, there could be a major sell-off.
  • A Labour majority government (326+ seats). I’ll give this a 15 percent probability. Last time the Tories under-estimated Mr Corbyn and his team. Corbyn has spent his life campaigning for what he sincerely believes in. He is coherent and disciplined (even if odious). He attracts deep loyalty from his entourage (even if most Labour traditionalists despise him). Mr Johnson mustengage him in the coming weeks head-on – something Mrs May catastrophically failed to do last time. In this scenario the FT (and wine cellar) will re-locate to Paris. Could the last investor leaving the UK please turn out the lights as Venezuelan-style power-cuts will ensue soon? Market melt-down (and continued baffled confusion on Brexit).
  • The Lib Dems win a majority and all schools fly the EU flag. Probability: much less than one percent. Forget about it.

***

I’m going to be travelling around the country over the next five weeks or so, pestering politicians. I do hope you can join me here each Friday.

Victor.Hill@masterinvestor.co.uk


[i]See: https://www.smh.com.au/world/europe/boris-johnson-s-conservatives-hire-kiwi-gurus-who-worked-on-morrison-s-shock-win-201 91008-p52yia.html

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Comments (3)

  • John says:

    The Tories will be the largest party but will not win. That’s is a fact, they cannot win enough in the north while reducing losses in the south and Scotland. We will not leave the EU ever. If only the Tories has taken the Norway option more labour MP’s may have come round to vote for a deal. Get ready for the UK to break up within 10 years.

  • Lawman says:

    The biggest flaw is that Leave EU is the biggest issue in a General Election; particularly as any outcome other than a Conservative or Liberal majority means we still have no certainty.

    As such I predict a low turnout. Many Conservatives are disenchanted – Remainers and liberal Tories. Many Labour supporters (including me) are disenchanted – abandonment of the working class in favour of neo-liberal luvvies, communists and anti-semites.

    I vote for ‘None of the above’.

    P.S. as an investor I am very cautious keeping a low weighting to the UK.

  • Jon says:

    No mention of BXP’s potential to grab a few seats? And prop up Boris?

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