Yesterday the British Prime Minister Theresa May took the markets by surprise by calling for a snap general election to be held on 8 June 2017.
The call for an early election must be approved by Parliament, and could therefore be averted if Labour MPs and Conservative rebels vote against it. However, the Labour leader has already indicated that he will instruct his MPs to vote in favour, which means that it is highly likely that a general election will go ahead in less than two months' time.
What happens if the Government is re-elected?
The prospect of a general election introduces the possibility of a change of government just as the Brexit negotiations are beginning. Inevitably this adds an additional layer of uncertainty to an already uncertain process. Talks between Britain and the EU are likely to suffer interruptions for the next couple of months while the Prime Minister joins the campaign trail. However, because negotiations are unlikely begin in earnest until after the German federal elections in September, there may not be any significant impact on the two-year timetable if the current Government remains in power.
This is a calculated gamble which Theresa May is taking against the background of highly favourable opinion polls. Two recent polls place the Conservative Party more than 20% ahead of Labour – its biggest lead in years – and so the Prime Minister may well expect her party to be re-elected with an increased parliamentary majority. If the results of the opinion polls translate into votes, her working majority could be increased from 17 to over 100 seats.
An increased majority would give the Government a stronger mandate in its negotiations with the EU. However, commentators are divided about how this increased strength will be deployed.
The Prime Minister was originally a "Remainer" and her language recently has suggested that she might be willing to consider compromises with Europe in order to secure a mitigating trade agreement. Many commentators think, therefore, that the Prime Minister will use her increased power to nullify the influence of anti-EU backbenchers in her own party who are pushing for a "hard" no compromise Brexit. However others are predicting that she will use her greater political power to take a tougher stance in negotiations.
The position should become clearer in the course of the general election campaign, in which both parties will certainly be expected to elaborate on their Brexit objectives and negotiating strategy.
… and if the Government is voted out?
If the Prime Minister's gamble does not pay off and the election results in a Labour victory, relatively little is known about how a Labour government would approach the negotiations. Currently there is considerable disagreement within the Labour party about its stance on Brexit; Jeremy Corbyn has said that he will respect the result of the last year's referendum, but is likely to push for a "soft" rather than "hard" Brexit.
However there are some within the Labour party who would see this as an opportunity to reopen the debate and explore whether the UK could remain in the EU, notwithstanding that Article 50 has already been triggered.
The commercial impact
Richard Lane, partner in Farrer & Co's Corporate Team, says that both financial markets and business were caught out by the announcement today and predicts that we will see a period of some nervousness across business generally coupled with turbulence in the financial markets during the lead up to the general election. Commercial parties may put significant deals on hold until there is greater clarity about the outcome. Given their recent failure to predict election results accurately this will happen in spite of the reporting of large leads in the opinion polls.
However if the Government is re-elected with a larger working majority, there will be increased certainty for all. This will make it easier for businesses to plan for the future, and should result in a return to the position of recent economic stability, albeit in the looming shadow of Brexit negotiations.
If you require further information on anything covered in this briefing please contact Kate Allass (firstname.lastname@example.org) or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Focus on Brexit page on our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, April 2017