13 Jul 2016

May to December: Five key challenges for the new Prime Minister over the next six months

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Three weeks ago, David Cameron was on the eve of a referendum which there was every chance that he would win. As matters stand, he is instead in the last few hours of his time in office. The speed of events has been spectacular. Its character has confirmed the adage that politics is the one blood sport that it is impossible to ban. The latest moves in this astonishing saga have left Theresa May not only on the verge of succeeding Mr Cameron but in a far stronger position than she could have ever have thought she would be.

Others have done virtually all the dirty work for her. She has few debts or moral obligations that she has to discharge. Boris Johnson and Michael Gove were the effective assassins of Mr Cameron (and by extension George Osborne). Mr Gove then turned the knife on Mr Johnson. Andrea Leadsom then usurped Mr Gove before blowing herself up courtesy of a newspaper interview and a response to it that revealed she was not ready for prime time. All Mrs May had to do was stick to her normal style and be elected in days by acclamation. With enemies like these, the soon to be former Home Secretary might privately be reflecting, who needs friends?

In the future, though, she will need friends at home and abroad because there are number of serious political challenges that will have to be faced during her first six months in Downing Street. How she rises to them will probably set the tone for the rest of her tenure and perhaps determine its length. There are five key political events occurring between now and January which are particularly crucial.

A new cabinet

In many respects the unexpected nature of Mrs May’s triumph makes this first challenge one of the most straightforward. Most of the top positions will be filled by those already in Government and most of the current ‘outsiders’ who will probably be brought in (Liam Fox? David Davis?) are also familiar figures. The new Prime Minister has the political acumen to balance both those who were in the Remain camp with others from the Leave lobby and in so doing will start with something of a political honeymoon within the parliamentary Conservative Party and possibly the wider country, none of which is harmed by the dire state of a Labour Party on the edge of a full-blown civil war.

Most of the major moves look straightforward. Philip Hammond seems destined either to be the Chancellor or remain as Foreign Secretary. If it is the Treasury, then the only question is whether Mr Osborne is retained in the Cabinet as Mr Hammond’s successor dealing with the world minus Europe or whether he instead follows Mr Cameron out of office.

As Mrs May has said from the outset that she would appoint a ‘Minister for Brexit’ who had campaigned for withdrawal then Chris Grayling, the current Leader of the House of Commons, would seem a likely contender for that task, with the role sweetened by an additional title such as Deputy Prime Minister or First Secretary of State and with perhaps the added private hint that if he pulls off an orderly departure from the EU then he can look forward to becoming Chancellor or Foreign Secretary thereafter. There are then a few ‘old-timers’ such as the present Defence, Transport and Culture secretaries who could be eased out to make room for the additional figures – mostly old, some new – from the Leave camp to come in.

The joker in the pack for Mrs May is Mr Johnson. Does she make him an offer of such seniority that he has no choice but to serve if he wishes to be seen as a serious political figure? Does she make a more middle-ranking offer that he could turn down if he wants to bide his time and contemplate a comeback? Does she really want him in? Does he want to be in? Will he be a king across the water? At some point the mood towards the Prime Minister might sour. Mr Johnson could be well placed.

The who, how and when of triggering Article 50

The ‘who?’ element of this will be dealt with shortly. The ‘how’ and ‘when’ will be more testing. Mrs May has asserted emphatically that Article 50 will not be triggered instantly and indeed that moment could be deferred until early 2017. One suspects, though, that it will have to be very early 2017 at the very latest or else discontent within the Conservative Party will become evident. As she has become Prime Minister earlier than she thought she would a week ago, her argument for a long process of ‘pre-dialogue’ before activating Article 50 has become somewhat weaker than it was. An outline plan to be announced at the Conservative Party conference has much to commend it. This will demand some pretty hectic diplomacy with Brussels, Berlin and Paris in the next three months.

How new a new economic strategy?

The Chancellor did not even wait for the Conservative Party leadership contest to end before letting it be known that his objective of balancing current revenues with all spending (current and capital) by the end of this Parliament would be abandoned. This is a huge policy shift but one that has come across as almost an afterthought such has been the high drama in the aftermath of the referendum.

The next Chancellor will clearly want to minimise the economic shock of Brexit and this means that a form of fiscal stimulus in the shape of tax cuts is likely to take priority over short-term deficit cutting. This approach is likely to be supported by the Bank of England (about the one institution of the UK state which seems to have done some substantial planning in the event of a Brexit vote occurring). A first cut in UK interest rates alongside a recalibration of the QE programme could be seen tomorrow.

The bigger issue, however, is whether the essence of the Osborne strategy remains intact but simply deferred for two or three years to take account of Brexit or whether a more fundamental change in approach is adopted. Could the target shift away from balancing current revenues with all spending to something closer to matching current revenues with current spending (not capital spending) alone?

Heathrow or Gatwick?

By far the largest capital spending decision facing the UK is airport capacity in South East England. This has been deferred again until October, partly on the assumption that it should be determined by the new Prime Minister and Cabinet, which at the time of the latest postponement was not due to be seen until September. Does Mrs May, who had previously stated that the Government had to ‘get on’ with making a choice, bring forward that timetable to demonstrate strong leadership early or does she stick with the October date but make it absolutely apparent that there will be no more backsliding on the matter? Does this mean that Heathrow is home and dry or that Downing Street will instead come down for Gatwick? The former looks more likely but it should not be forgotten that Mrs May, Mr Hammond and Mr Grayling all have constituencies on the Heathrow flight path.

And Scotland

If there is a second referendum north of the border, then the best timetable for Nicola Sturgeon to hold it on would be May or September 2017. This would allow Scotland to leave the UK before the UK left the EU and hence be in a position never actually to leave the EU itself. The best estimate at the time of the last independence referendum was that 18 months would be required to separate England and Scotland. With Brexit likely to occur at some point between 1 January 2019 and 1 January 2020, therefore, by early next year at the latest the First Minister will be at the door of Number 10 asking, nay demanding, for the legislation to permit her to hold a second ballot. Is Mrs May in a position to deny this if there appears to be a consensus in the Scottish Parliament for it?

Tim Hames, Director General, BVCA



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