Scroll

Insights and News /

26 July 2019 5 min read

UK election risk in 2019 is considerable

Caspian Conran

Caspian Conran
Senior Consultant | Financial services | London

Alex Addison

Alex Addison
Consultant | Energy, utilities and resources | London

Amidst the backdrop of Brexit and the recent Conservative leadership contest, the UK faces significant election risk in the second half of 2019. Consequently, firms face a series of political risks from Brexit and the Labour party’s economic policy.

With a working majority of just three seats and deadlock within the Commons, the newly elected Prime Minister Boris Johnson is likely to face an election in any of the following scenarios:

  1. A successful renegotiation election – The PM successfully passes a renegotiated Withdraw Agreement and calls an election for a domestic mandate
  2. A “No Deal” Snap election – The PMs renegotiation fails,  an election is held advocating a No Deal Brexit in electoral alliance with the Brexit Party
  3. A government collapse - The PM advocates a No Deal Brexit after a failed renegotiation. The Government loses a vote of no confidence in the Commons, initiating an election

Whilst the risks associated with a Conservative administration in the form of Brexit are well discussed, this election risk harbours significant political risk associated with a potential Labour Government’s policy agenda as well. Given the volatility of current polling and the uncertainty around the context of any imminent election, the prospect of a Labour victory is likely to be under-priced by market commentators.

Whilst the current Labour leadership has long engaged in hard rhetoric, promising to “destroy capitalism,” policy detail highlights the prospect of a transformational agenda. Positions include:

  1. Increasing income tax to 50%, corporation tax to 26%, and to introduce wealth taxes
  2. Nationalisation of utilities including the water and energy network at sub market value
  3. Introducing a state backed, not for profit, National Investment Bank to compete with traditional lenders.

Business dissatisfaction with these measures has led to concerns that a newly formed Labour administration would be faced with market panic and capital flight. This scenario was war gamed in an official session with the Shadow Chancellor in 2017. As a result he was forced to deny speculation that capital controls were among responses he intended to employ to protect the value of Sterling and UK stocks earlier this year.

With the political environment so volatile and an election likely in 2019, political risk should remain high on the agenda for UK business.