Minority government led by May faces prospect of taking softer stance on Brexit

Minority government led by May faces prospect of taking softer stance on Brexit

The result of the UK's General Election has stunned much of the country and many observers worldwide. The poll produced a hung parliament, with the Conservative Party, led by UK Prime Minister Theresa May, the largest in the House of Commons but without a majority of seats. May has embarked on talks with Democratic Unionist Party in a bid to form a minority government that can function with the working support of the Northern Ireland party. As Ben Cooper reports, the DUP's stance on Brexit, as well as the now improved standing of Labour, could lead to a softer Brexit that many food manufacturers would support.

A hung parliament was said by many prior to the UK General Election to be the worst result possible, leading to precisely what Prime Minister Theresa May said she was seeking to avoid by going to the country – instability and uncertainty. For food companies, however, it is by no means the worst outcome because of its implications for Brexit.

When May called the snap election, two years after the last national poll in the UK, commentators and politicians alike were certain Brexit would dominate the campaign. For a variety of reasons, that turned out not to be the case but the result once again thrusts Brexit to the very top of the agenda.

Following yet another astounding election shock, imponderables abound, not least concerning May's position as Conservative leader and Prime Minister and the viability of a minority Conservative government. The uncertainty over Brexit, however, trumps all. It is the most important issue facing the country for generations and the Brexit process has now been plunged into turmoil.

With support from Northern Ireland's Democratic Unionist Party (DUP), May believes she can sustain a working government. In order to do so, she is likely to have to make significant concessions in areas such as investment in Northern Ireland and pensions policy but, given the DUP's desire for a "softer" Brexit, her hopes to be sustained by votes from that party would appear dead in the water if the Government continues to push the hard Brexit agenda that defined her short first term as prime minister. 

Specifically, this means continued membership of the EU Single Market and the Customs Union are back on the table. A Brexit settlement would ideally balance economic impact - and specifically the impact on EU trade - with criteria such as regaining control over laws, removing any jurisdiction of the European Court of Justice and controlling immigration, all hotly debated areas during the referendum campaign.

To date, it could be argued the UK government has placed the greater emphasis on the latter three criteria, particularly to shore up the allegiance of those who voted to leave the EU and pick up voters from the United Kingdom Independence Party (UKIP). In order to keep the DUP on board, the new Conservative government will have to recalibrate.

While the DUP supported the UK leaving the EU, its vision for Brexit differs substantially from the one represented by May's position prior to the election. In the DUP manifesto, the party said it wanted to see a focus in the Brexit negotiations on "ease of trade with the Irish Republic and throughout the European Union" and the maintenance of the Common Travel Area between the Irish Republic and Northern Ireland. The particular circumstances of Northern Ireland having a land border with the EU need to be "fully reflected" in the negotiations, the manifesto states.

The DUP also said it wanted "progress" on new free trade deals with the rest of the world but its manifesto calls for a "comprehensive free trade and customs agreement with the European Union", suggesting strongly where its priorities lie. The prospect of looking beyond the EU for new trade deals, which was prioritised well above retaining access to the Single Market by the previous Conservative-majority government, would preclude continued membership of the Customs Union because the UK could no longer be subject to the EU common external tariff. However, leaving the Customs Union would be potentially hugely disruptive to trade in food between the EU and the UK, and nowhere more so than in trade with Ireland.

Given 70% of UK food companies, according to a pre-referendum poll by food sector trade body the Food and Drink Federation (FDF), wanted the UK to stay in the EU and given what the FDF has said on Brexit since, any recalibration will be welcomed by many UK food exporters, and not only the increased prioritisation of trade and the economy. 

The food sector was facing a double whammy from Brexit because of the disruptive impact it is likely to have on the recruitment of both skilled and unskilled labour. A survey by the Recruitment and Employment Confederation released today (9 June) suggests Brexit has already increased recruitment challenges for UK employers, including food companies, as EU citizens decide to seek pastures new. A more reasoned discussion of the immigration and labour issues around Brexit is also entirely in the sector's interest.

In its brief three-sentence statement on the result, the FDF unsurprisingly focused on Brexit but it is the second sentence that is most telling. "Politicians across all the parties must come together to deliver in the national interest so the UK's GBP110bn food and farming industry can continue to thrive."

The FDF also said the nation "has delivered its verdict". In other words, the UK has rejected the path it appeared to be on. Far from giving May the mandate to pursue the path to Brexit she had outlined, the country now appears to be requiring her to follow a more consensus-based approach, which can only increase the chances of a better Brexit for UK food manufacturers and farmers.

It is not only DUP pressure that will be significant here. During the campaign, the main opposition Labour Party attempted to differentiate itself from the Conservatives by placing "a strong emphasis on retaining the benefits of the Single Market and the Customs Union". This is fairly vague and Labour's position on EU citizens' labour rights in the UK is arguably even vaguer. However, Labour's surprisingly strong showing unquestionably strengthens the level of parliamentary opposition to a hard Brexit. Were the Conservative minority government to collapse, a second election is highly likely. Yet again, Brexit would be a key issue and Labour's position on Brexit would probably then come under greater scrutiny. 

Looking at the implications for the food sector beyond the UK, it is particularly significant it is the DUP holding the balance of power. Farmers and food producers in Ireland stood to be more disadvantaged by a hard Brexit than those in any other of the remaining 27 EU nations. A softer Brexit strategy would be enthusiastically welcomed by Irish food companies, north and south of the border. 

Fine Gael leader Leo Varadkar, who is set to be become Ireland's Taoiseach next week, said this morning: "The results of the UK election indicate to me that there is no strong mandate to proceed with a hard Brexit, which represents an opportunity for Ireland."

By the same token, food exporters in other EU countries hoping for the minimum of disruption to their business following the referendum result last June may be buoyed by last night's events.

With the Brexit negotiations due to start on 19 June, in a brief statement on Downing Street this afternoon announcing she intended to form a minority government with the support of the DUP, May stressed getting down to the task of negotiating Brexit. 

"Our two parties have enjoyed a strong relationship over many years and this gives me the confidence to believe that we will be able to work together in the interests of the whole United Kingdom. This will allow us to come together as a country and channel our energies towards a successful Brexit deal that works for everyone in this country, securing a new partnership with the EU which guarantees our long-term prosperity. That's what people voted for last June, that's what we will deliver. Now let's get to work."

However, there was significant doubt prior to the election the Brexit negotiations could be completed in the two-year timeframe. The massive political uncertainty now hanging over the new UK government behind the country's negotiating team can only increase those doubts. A collapse of the Conservative minority government leading to another election would delay the process significantly and would, of course, threaten to derail it entirely if the result pushed the UK further away from the position it appeared to be in just after the EU referendum. 

The question that has to be asked, even if politicians generally do not venture views on it for fear of being accused of undermining the result of last year's referendum, is whether today's result actually makes it possible Brexit will not happen at all. 

Once again, given the FDF poll, this outcome would presumably be desirable to many food manufacturers. Making any type of political prediction has become a dangerous business over the last couple of years and, given all the variables and imponderables, any response to that question would be pure guesswork. Equally, in this era of jaw-dropping political surprises, one would also have to concede that anything is possible.

In so many ways, current political events are confounding received wisdom and here, with the UK election result, is another. It is normally an unarguable truth business hates uncertainty and, without doubt, many companies and investors would have been very nervous about the prospect of a hung parliament. Like any other sector, the food industry abhors uncertainty, too, so the current situation is far from ideal. But, in truth, there was no true certainty or stability prior to the election either, and an overwhelming Conservative majority would at best have delivered a greater likelihood of the kind of Brexit that would damage it the most.

Quite simply, for companies very exposed to the negative effects of Brexit and with so much to lose, which the food sector has in abundance both in the UK and elsewhere, the equation is different. For them, the political instability this surprising result has undoubtedly produced may be a small price to pay if it leads the country away from a Brexit strategy that in itself represents a far greater threat.