06 Apr 2016

Mayor Culpa? Sadiq Khan looks likely to win in London for Labour almost by default

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Politics Insight


The post of Mayor of London is by some margin the largest prize available in England on 5 May. It is in many ways an even larger political position that it may seem. Although only a ‘local government’ post (which traditionally in Britain has been a synonym for boring and inconsequential), the sheer size of the capital city means that the Mayor has a personal electorate and mandate of a scale that is greater than any other officeholder in Western Europe bar the President of France

Although the authority of the office is limited, it is also flexible. An ambitious Mayor can range beyond transport and crime (sizeable enough issues in urban politics in their own respects) to include housing, the planning system and economic development. The role involves a huge profile in the city in which the country’s leading media outlets are all based and thereby magnifies the importance of the institution. As both Ken Livingstone and Boris Johnson have shown, a ‘local’ Mayor can become a national figure.

Furthermore, the office is now destined to become a blueprint for many other English cities. After almost 20 years in which Whitehall has tried, and often failed, to convince councils to scale back their own powers in favour of a single, directly elected Mayor, ministers, notably George Osborne, have decided to bribe or blackmail their way to that outcome. A key part of the ‘Devo Manc’ idea that the Chancellor has created along with the various local authorities in Greater Manchester is that they have accepted the introduction of a London-style Mayor, now with an interim incumbent (Tony Lloyd, a former long-standing MP) before a full election next May. If other cities and city-regions are to acquire similar sorts of financial freedom then they too will have to install a Mayor to achieve it.

All of which might make one think that the current contest to succeed Boris Johnson in the capital would be somewhat more exciting and interesting than it is. It certainly looked as if that would be the case when the two main nominees, Sadiq Khan MP for Labour and Zac Goldsmith MP for the Conservative Party, were chosen last Autumn. These were two reasonably well-known figures in the House of Commons and the fact that they were willing to trade their seats for City Hall surely said something positive about the position that they aspired to occupy. Both promised to bring novel policy ideas to the debate. The opinion polls back then hinted at an extremely close contest indeed.

Yet it has not, so far, worked out like that. The campaign has been somewhat flat, even dull, and while that might change in the final four weeks it would take a lot for it to truly catch fire. Mr Khan has led in the opinion polls by a consistent six to eight percentage points on both the first and second stage of the ballot process (the Mayor is chosen by an electoral system – Supplementary Vote – a variant of the Alternative Vote that is virtually unknown anywhere else in the democratic world). As matters stand, London appears set to switch from a Conservative to a Labour Mayor almost by default. Why?

Demography is destiny

A Khan victory of this sort would be a simple reflection of the demographics of the capital. London is, all things being equal, a Labour-inclined city. It has a much larger number of relatively young voters than is true for the nation overall. It also has a much, much larger number of voters who are either recent immigrants or the children of immigrants than for the United Kingdom at large. There are estimates that as many as one-in-three of those on the electoral register were not born in the UK. It also has an unusually larger number of upper income votes who are cross-pressured in that their economic interests and preferences lie on the centre-right but their cultural and social opinions are based squarely on the centre-left. As the Mayor has a very limited capacity to increase taxation, the economic concerns tend to rank second to those of cultural identity. All of this was demonstrated in the 2015 General Election where Labour did far better in London than anywhere else in England.

In order for Labour to be defeated, therefore, at least one of two effects needs to materialise. Either the Labour candidate has to be unacceptable to a significant constituency which would otherwise be expected to embrace that party label or the Conservative contender has to have an individual appeal that transcends conventional party alignments. Boris Johnson clearly fit the latter description. At the time of his selection it was thought that Mr Goldsmith – another maverick politician – might be able to market himself as Boris Johnson Mark II. Until now, he has instead looked like Boris Johnson Lite.

The ambiguous relationships between the two candidates and their respective leaders

In so far as there has been a consistent and coherent message from the Goldsmith camp it has been that ‘a vote for Khan is a vote for Corbyn’. This does not seem to have been especially effective. In part this is because Mr Khan has done his utmost not to be linked with the Leader of the Opposition. He does not mention him in his campaign material. He has rarely been seen with him. He has taken every opportunity to stress that he is his own man, standing on his own manifesto for the capital. He has sought to embrace supporters of the ultra-Blairite Lady Tessa Jowell who he defeated to win the Labour nomination. He has made far less effort to identify himself with those close to Dianne Abbott who in as much as there was a ‘Corbyn’ candidate in the Labour selection process was that person. The ‘Corbyn clone’ charge might eventually stick to Mr Khan but he is doing his very best to avoid it.

In this he may be assisted by the character of the Cameron-Goldsmith relationship. If Labour has a candidate who does not seem that enthusiastic about his leader, the Conservatives have a leader who is probably not that ecstatic about his candidate. Mr Goldsmith’s absolute opposition to any form of Heathrow expansion, and apparent distaste for extending airport capacity in the South East at all, has already proved an inconvenience for the Prime Minister and is manifestly an element in the decision to delay any announcement on this subject until after the Mayoral election is over. The Conservative candidate’s unusually strong environmental convictions have also been the source of tension between himself and the Chancellor (and much of the mainstream business community).

All of this has been compounded by Mr Goldsmith’s determination to follow the lead of Mr Johnson and endorse the UK’s withdrawal from the European Union, a stand that not only puts him at odds with Mr Cameron and most of the business organisations in the capital but also most of the voters in what is regarded as one of the most pro-EU sections of the English electorate. The intersection of the Mayoral election with the referendum campaign means that a Goldsmith victory would be more of a triumph for Boris Johnson than for the Prime Minister or the broader Conservative Party. A Khan win on 5 May, by contrast, might be seen privately within Downing Street as a blessing in disguise.

The Boris factor

Finally, if this election seems to have lacked energy and entertainment it is because of the man who is, in more than one sense, missing: the present Mayor. He is not on the ballot paper and that shows. Much of his agenda has been accepted by all those seeking to replace him (just as Boris adopted a very considerable slice of the Livingstone agenda once he had ousted him from office). The Mayor has also been, bluntly and candidly, something of an absentee figure from local London politics ever since his return to the House of Commons last May and is today clearly more identified with the EU referendum and what the wider consequences of that outcome may be than he is with the contest to succeed him in the capital city. And if the Mayor does not come across as wildly interested in who his replacement should be then who can blame the wider London electorate for their indifference?

Tim Hames, Director General, BVCA


Sector Insight


The steel crisis: an inevitable decline?

The ongoing and severe challenges that the UK steel industry faces have, for the first time in recent memory, surged to the forefront of political debate. Tata Steel’s announcement last week of its plan to completely withdraw operations from Britain and put its UK plants up for sale sent shockwaves through the political establishment. Public fears that such a move could put at risk up to 40,000 jobs was further compounded by the unfortunate unavailability of those key ministers with remits over this particular sector. The Business Secretary, Sajid Javid, was in Australia as the crisis intensified, whilst the Chancellor, George Osborne, was is in Paris for G20 talks – sending a signal which, politically at least, suggested the Government was not taking seriously the plight of the industry.

The issues facing Tata’s British assets have of course been known for some time, with industry insiders and various political actors calling for a robust and effective response for many months. The Government has understandably been reluctant to guarantee anything due to practical, as well as political, considerations.

The extent of Tata’s financial obligations is for instance, a notable cause for concern. The Port Talbot production plant in south Wales is currently losing £1 million a day alone. Tata’s UK operations as a whole faced losses of £768 million before tax in 2014-15, with long-term debts of up to £1.4 billion in each of the last three years. Therefore it comes as no surprise that the Conservative Government has effectively ruled out any form of nationalisation, as it would then have to take responsibility for uncompetitive assets in a much-diminished industry. No-one could claim to be shocked when Sajid Javid, well-known for his free market sensibilities, stated that nationalisation was not the solution to this crisis.

A dangerous cocktail

The entire debate surrounding the survival of British steel is thus one which is undoubtedly politically charged. It is one based on often divergent assumptions of Britain’s past as much as it is one based on the country’s future. Proponents of Government intervention, including the Labour leader Jeremy Corbyn (again, not a shock given his political position), have quite often linked the steel sector to a nostalgic view of the UK as an industrial and manufacturing giant, and bemoan the loss of heavy industry as a result of the inexorable rise of globalisation.

There is of course some credibility to these claims: globalisation has indeed presented an opportunity to other countries to manufacture products, such as steel, at far lower costs, thus making many developed nations’ industries uncompetitive or even obsolete. But it is inaccurate to claim that global competition or Government inaction in and of themselves are to blame for the decline of British steel. For example, European Union rules on state aid, a legislative hangover from a glut of coal and steel in the 1990s, limit the extent to which the Government can intervene in the form of subsidies or outright nationalisation.

It would appear that a combination of factors – or a “dangerous cocktail”, to quote the Chancellor – has brought the industry to this uncertain climax. Whilst it could be argued that global overcapacity of the commodity, a strong pound and cheap imports from China are the principal causes of this current crisis, domestic policy has certainly exacerbated these issues.

Energy costs for heavy industry manufacturers are far higher in the UK than in other European countries, partly due to the Government setting a minimum price for carbon emissions considerably above that which is traded within the EU. According to the Department for Energy and Climate Change’s own statistics, electricity prices for steel producers in Britain were almost double the EU average. Indeed, Tata cited these significant costs as a reason for its decision to pull out of the UK market. It was thus disappointing for many heavy manufacturers when in last month’s Budget the Chancellor did not announce measures that may have alleviated these extra financial burdens – a surprise also, given the Government has made rebalancing the economy and strengthening UK manufacturing a clear priority.

The China syndrome

The issue of China ‘dumping’ cheap steel imports into the European market is a far more complex one as technically the Chinese are not doing anything which goes against the premise of global trade. Politically however, it has proved to be a very controversial practice as Britain and its European counterparts have struggled to compete in a market that is experiencing a glut of cheaper products –further diminishing the capacity and continued viability of domestic suppliers.

It was then perhaps embarrassing for the Government when French and Italian officials accused Britain of blocking attempts to overhaul EU anti-dumping rules that could have helped increase tariffs on Chinese imports. In addition, the recent announcement by the Chinese Government that it was going to introduce a 40% duty on imported steel products not only intensified the political controversy surrounding the steel crisis, but also reinforced the impression that the British Government was not prioritising the survival of its own industry at a time when others, including European governments and the United States, were introducing or had already introduced similarly interventionist measures.

The picture is bleak but there remain some opportunities for investment. In the context of Tata’s planned sale of its UK assets, the financial liabilities involved are admittedly considerable. The pension fund – formerly the British Steel Pension Scheme – totals almost £15 billion and reported a £2 billion deficit in 2014. Such a significant sum will undoubtedly diminish investor interest in an acquisition of the assets, particularly if Tata prefers a combined sale rather than a break-up of the various UK sites it currently owns. The political fallout that would follow from a refusal to take on these pension liabilities could be immense, which is why it is welcome the Pension Protection Fund (PPF) is believed to be considering a takeover of the pension scheme.

One could certainly argue that private equity firms are best-placed and most qualified to acquire the sites. It is not just the significant amounts of capital that private equity investors could provide and which will be required to make these plants once more profitable and competitive, it is the expertise in restructuring troubled or failing assets which makes private equity a logical industry to locate a buyer or buyers. For instance, Greybull Capital, an investment firm that strongly resembles its private equity counterparts, is in the final stages of agreeing the acquisition of Tata’s Scunthorpe steel plant.

If similar deals were to materialise, then the future of UK steel may be secure. The questions, which apply both to the Government and to potential investors, are whether steel can remain a viable commodity produced in Britain and whether, as a country, we view the industry as strategically and economically important. If UK steel is to survive, then these questions will have to be answered very soon.


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