Business confidence dives as political crisis grips UK

The British general election last week has done little to remove the uncertainty facing the business community and Britain’s international partners, as it delivered a shock hung Parliament, forcing the government to turn to the right wing Northern Irish Democratic Unionist Party.

The government will in all likelihood be able to get its now to-be-delayed Queen Speech (the details of the laws it hopes to pass, which will be announced by the government) through the House of Commons, with the backing of the DUP, with which it is in the midst of a “confidence and supply” agreement. This would essentially mean the DUP will support it in any votes of confidence, and on matters relating to government spending and budgets.

However, the business sector remained spooked, with a snap poll of business leaders conducted by the Institute of Directors in the UK finding a drop in confidence following the election. This is hardly surprising given the high degree of mixed-messaging within the main political parties: While Prime Minister Theresa May has insisted she will continue in her role, and get on with the “immediate job at hand” she remains severely weakened. Though she has received the backing of key Cabinet members such as Foreign Secretary Boris Johnson and Brexit Secretary David Davis, she’s faced outspoken criticism from others within her party. Others have suggested another election is likely this year.

The poor performance of the Conservatives in the election will raise questions about what elements of the Conservative manifesto the government will be able to bring to Parliament. Speaking to BBC Radio 4 on Monday, Davis suggested that some elements of the manifesto were likely to be pruned.

Perhaps the most significant of all for businesses — including the 800-odd Indian firms in Britain — will be the government’s stance on Brexit, and whether the result will force the government to revisit its plans to deliver on a so-called ‘Hard Brexit,” moving out of the customs union and single market. The Conservative Party has long been divided on this issue, and with the resignation of May’s two senior aides, as well as the renewed confidence of those in favour of a softer Brexit, the chances of customs union membership remains higher than ever before. This is all the more so, given the alliance with the DUP, for whom an open border with Ireland is a priority.

Since the election there has also been an increased willingness of business (a voice little heard from during the campaign, as none of the political parties were eager to be seen as the voice of business) to speak out: alongside the IOD report, a study by the Harvard Kennedy School of Business, authored by former Labour Shadow Chancellor Ed Balls and former head of Standard Chartered, Peter Sands, highlighted the concerns of medium and small business regarding Brexit, and in particularthe persistence of higher tariffs and customs controls on their costs and competitiveness.

A more conciliatory approach for the Conservatives will be all the more important given the reams of legislation (including the Great Repeal Bill) that will result from the process of leaving the EU. The deal with the DUP would not necessarily involve its support for such legislation, making the need for trying to achieve consensus beyond the Conservatives and the DUP, all the more important.

“The deal with the DUP is extremely dangerous, giving the Conservatives a very slim majority - and you are entirely reliant on them and 100 per cent of your MPs being there to vote. We’ve been through this in the past in the 1970s and it can be incredibly difficult,” said Lord Karan Bilimoria, the crossbench member of the House of Lords, who has been an outspoken critic of the Prime Minister and believes the Conservative Party conference later this year was a likely moment for the party to review its leadership.

“With the most complex negotiations coming up she has lost all credibility in Europe and beyond and is in a particularly weak negotiating position. While any moves for a softer Brexit would be welcomed by Indian businesses — for whom tariff-free access to the EU as well as its talent pool is important, there will be also questions over Britain’s approach to the rest of the world. Within the Cabinet, May was the toughest voice on non-EU immigration, — for example insisting on keeping students in the net migration figures against most of the rest of her cabinet. Whether a now weakened May will be forced to revisit this and other policies (particularly after the departure of her aides, who had worked with her in her Home Office days) remains to be seen. A more conciliatory approach would of course, potentially help spur Indian appetite for trade talks with Britain, at the same time that the EU, bolstered by Prime Minister Narendra Modi’s recent trips across the region, wants to revive talks over a trade deal too.

“Her intransigence got her here and she will have to realise she has to work in a more conciliatory way,” said Lord Bilimoria.

“I’m hopeful she’ll have to listen now.”

He points to one issue the government may well give way on — that of international students —which she was pretty much alone on within the cabinet. He noted that even her new chief of staff, Gavin Barwell (an MP who was ousted on June 8), had spoken up on the need for a different approach on international students in the past while insisting public concern about immigration remained an issue.