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Soft Brexit equals recession

Our modern economy is based on consumer confidence. This partly explains why the UK has prospered since June, “despite Brexit” – the majority of consumers voted for Brexit, so by definition, the majority of them are confident the decision was the right one and the prospect of leaving the EU does not make them nervous enough to change their spending habits. In turn, contrary to some accepted wisdom, a ‘soft’ Brexit would pose a bigger short term financial risk than ‘hard’ Brexit – if consumers think their prescription for the UK’s politics and economics is being ignored, they are likely to be less confident about the future and reduce their spending accordingly.

2017 General Election

Anyone who saw Jeremy Corbyn on the Marr show on Sunday was reminded the longer he stays in post, the worse things get for Labour. Paradoxically, this makes an early election more, not less likely: while the Tories would love Corbyn to hang on to 2020 and virtually guarantee them a stomping majority, senior figures on the hard left (McCluskey, Abbott, Livingstone, etc) have hinted at a time limit for Corbyn to up his game – and when he doesn’t, his replacement could give the Conservatives a more substantial headache.

To avoid that, officials in Number 10 are taking daily advice from former party chairmen on what would be needed to run a General Election campaign this year. Leave has been cancelled for some senior staff around a possible poll date in May if the Government needs a mandate to overrule opposition in the Commons and Lords. 

POLITICS: Midlands could be key

This year could see the Midlands become the crucible of national politics. For the Government, Number 10 is extremely keen to see Andy Street become West Midlands Mayor, so it can use that victory to show how Conservative policies do “work for everyone” in a region that is especially close to the heart of one of Theresa May’s chiefs of staff. For Labour, all eyes are on the West Midland’s Gerard Coyne, who is challenging for Unite’s top job. He is seen as more centrist than incumbent Len McCluskey and, given Labour’s reliance on union cash, a bigger threat to Corbyn. As the region also holds a number of marginal seats, we could see the Midlands becoming a vital political bellwether in 2017.


Christmas is fast approaching. I know this because the Baker household is now into week five of our 4yr-old singing ‘Silent Night’ on loop… So this seems a good time to look ahead to 2017.

Fortune favours the brave

The funding crisis in social care finally started to get proper attention this week, but we have always said Theresa May enjoys more political good fortune than most (this is becoming a common refrain from others now, too). Corbyn and the EU’s financial, immigration and Russian problems all potentially strengthen her hand – and even the weather seems to be in her favour with a mild winter postponing more trouble in the persistent political Hindu cow that is the NHS. The real test is whether the Government’s luck holds until local elections next year. That is when UKIP’s 2013 surge will be tested for the first time, revealing the new lie of the land since the referendum and whether the PM can expect a Labour rout and a LibDem revival in a national vote.

Brexit means… the Industrial Strategy

In 2017, the Government will continue to use the evolving Industrial Strategy to prepare for Brexit. The Industrial Strategy has to be seen in the context of Brexit – in fact, they are practically the same thing. The former is being used to put measures in place that can be ramped up to support the economy in the event of the latter. Next year will see more interventions that bend EU state aid rules as far as possible without actually breaking them, as we will still be constrained by the laws of the club until (at least) the day we leave.

The next big thing

This year’s biggest political themes have often been misunderstood. In the American election, for example, I think the candidates’ reputation for honesty played a bigger part than anything else, with Trump’s (sometimes terrifying) candour picked over Clinton’s repeated mistake of not being more transparent about issues that might not have mattered with full disclosure (e.g. her own health, her email accounts, etc). Brexit and the Italian referendum were the result of something different – concern about a lack of accountability in politics – and unfortunately, the EU using ‘trilogues’ to avoid scrutiny of new laws is unlikely to turn that tide. In 2017, the biggest political theme could be economics. In the UK, even before we look at international trade or investment, our national finances are still precarious with debt growing uncontrollably – and we are in considerably better shape than most of our European partners. It will become more and more painful for politicians to grasp the economic nettle the longer they leave it, and any action (or inaction) will have a measurable political effect.

That all sounds a bit glum, but I am actually very optimistic about next year. Businesses are stepping up to the opportunities found in change, as business always does. Politicians are at their best when there are big problems to solve, and there are brave and good people in Westminster. And, with a small Government majority, Brexit negotiations and the economy consider, the public is remembering that politics really matters again – which can only be a good thing.

POLITICS: Steeling itself for Brexit

Ahead of Brexit, the Government wants public sector bodies to buy British – and to do so, it is helping buyers avoid the EU state aid rules we are subject to until the day we leave. Purchasers are being encouraged to consider “social and environmental” issues as part of their wider value for money calculations. This gives a lot of room to decide that UK suppliers meet purchasing criteria more closely than, say, Chinese steel makers with poor environmental standards.

A Brexit transition deal may be hard to achieve. It will be much easier for HMG to provide transition assistance direct to UK industries, using taxpayers’ money to make up for any damage inflicted by a punishment deal from Brussels.

POLITICS: The GUIDE to the week, 9th December

Cure worse than the disease

Whatever you think caused politics to be turned upside down this year, it would be hard to find someone who says the answer is more backroom political deals. Unless you ask in Brussels, that is. The presidents of the Commission, Parliament and Council have asked for ‘priority treatment’ procedures for new EU laws and more use of private ‘trilogue’ discussions, so that proposals are signed off before they can be publicly scrutinised. In bemoaning this approach, it’s hard not to sound like a moleskin-wearing sixty-a-day-smoking friend-of-Trump who likes drinking Old Peculiar (or who is old and peculiar). But for anyone concerned about political unrest in Europe, politicians backing these ‘trilogues’ now is a bit of a facepalm moment.

Musical chairs

One of the biggest threats to Theresa May’s Government is also one that receives least attention – that of her colleagues resigning, being sacked, or even defecting. It’s been a while since someone crossed the floor, but after Wednesday it’s not inconceivable that an MP like Anna Soubry could be tempted to bring May’s majority down a notch. As far as sackings go, Boris seemingly flew pretty close to the wind this week, too (although it can be helpful to a PM for a Minister to say something out of line but true occasionally, and Boris will be needed to sell May’s Brexit to Brexiteers in 2019). The biggest risk for May is a Howe-style resignation – and indeed, if Howe’s successor Hammond decided to walk for any reason, that would probably be the end of her.

Money where your mouth is

Despite Boris’s comments, the Government will establish a new working group with partners in the Gulf to look at removing trade barriers. Two things stand out here: first, it suggests May is more confident that trade improves human rights than that it discourages cyber security attacks; and second, it says something about what type of trade could be free of constraints post-Brexit (on that count, it’s also instructive to look at Fox’s recent travel itinerary…).

Talking of Brexit, if you would like our professional analysis of Brexit and the Industrial Strategy, including where we think it will all end up, we will be giving a series of pro bono presentations on the topic in Janaury. If you would like us to present to your colleagues, please get in touch to arrange a date.

POLITICS: The GUIDE to the week, 2nd December

Three things from yesterday’s by-election in Richmond may be overlooked: first, in an age of “anti-politics”, parties still matter as even nominal independents like Goldsmith struggle; second, although the Conservative “A-list” helped change the face of the party, it has had a neutral effect (at best) on party management, with some of its alumni like Goldsmith, Mensch, Soubry and Warsi giving the leadership headaches (though other A-listers still serve as loyal Ministers); and third, it shows Brexit does have electoral pull – if anything, that may be of more concern to MPs who do not hail from one of the 35% of constituencies that voted Remain.

Here’s our take on the rest of the week…

Having your panettone and eating it

UK politics will quickly feel much less parochial again if Renzi loses his Italian referendum this weekend. The result could precede a bank run in Italy, pressure on German finances, and a continental referendum on membership of the single currency. All of this would have a much bigger impact on Brexit than yesterday’s vote in London.


The Taylor Review into working practices will “feed into” the Industrial Strategy over the coming months and the Government’s consultation on rules for companies will still be taking evidence well into next year. These timings are a helpful reminder that the Industrial Strategy is actually an iterative process that will adapt tactics to circumstances.

Chain reaction

Energy Minister Baroness Neville Rolfe said this week that developers involved with new nuclear projects will have to write “Supply Chain Plans” that demonstrate a commitment to UK companies and skills. The approach could mitigate the restrictions of EU state aid rules and support the Government’s semi-informal goal of “social policy by procurement”. We expect to see more of this kind of requirement across different industries.

POLITICS: Be careful what you wish for

MPs often bemoan the lack of “productivity” in the UK, but it could be a good thing while we are working out the terms of Brexit.

Productivity is the amount of work done divided between the number of workers doing it. In other words, if productivity improves but the economy as a whole doesn’t grow, that means the same output by fewer jobs.

With national economic growth low and the details of Brexit yet to be confirmed, MPs should be more comfortable with our low productivity. For MPs on the right, it avoids the risk of the long dole queues we saw in the 1980s. For MPs on the left, low productivity is the most efficient way of redistributing wealth and creating jobs going.

POLITICS: What the Industrial Strategy is and is not

There’s a common misunderstanding about the Government’s industrial strategy. It’s not a throwback to the 1970s and it’s not about picking winners. Instead, it’s closely tied to Brexit, in three ways.

First, all the time we’re still a member of the EU, the Government can’t pick winners, even if it wanted to, because of state aid rules. Second, the Industrial Strategy is about preparing the economy for Brexit through legal tax breaks and Government incentives that can also be ramped up the day we leave. And third, those benefits will be designed for areas with lots of marginal seats, to help protect the Government against the wave of electoral populism that’s crashing over traditional parties around the world.

University towns and towns close to the M1 corridor are set to gain. So are industries that can invest in tax-efficient R&D for tech innovations in line with upcoming policy changes – like driverless cars, personalised medicines, and fintech. The Government will publish its Industrial Strategy Green Paper shortly and then a White Paper in 2017.


The following article is based on a speech given by Greig Baker in Westminster on 16th November.

Politics might look like a wild rollercoaster at the moment, but for many businesses it can actually be predictable, practical, and even profitable.

At the broadest national level, fewer people are making more of the important decisions in Whitehall, which means political coordination is easier (and easier to predict) as long as capacity issues are addressed. Government focus is, inevitably, on Brexit – the strategy for which is closely aligned with the Industrial Strategy.

Industrial policy will be designed in part to help those who are ‘just managing’, but also to encourage foreign investment in the UK and do everything within EU state aid rules to keep existing companies here before Brexit actually happens. The criteria of geography, population and risk will help determine individual policy decisions.

So-called “mid-range” political issues like the National Living Wage, the Apprenticeship Levy and Social Value Procurement will also affect businesses directly – and to varying degrees by sector and location. The new National Cyber Security Strategy has big implications for business, too and has been discussed in more detail elsewhere on this blog.

Together with political relationships at the local level (affecting things like planning and contract decisions), these factors demonstrate how politics and business are intertwined. But if you can see what’s coming round the corner, the rollercoaster of politics can be a lot less scary.


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