Voters reject Conservative majority ahead of Brexit negotiations

9 Jun 17

UNITED KINGDOM

IMPACT – HIGH

Nearly one year after voting to leave the EU, U.K. voters have handed a stunning defeat to Prime Minister Theresa May by voting out the Tory majority, weakening her hold on the government and complicating Brexit negotiations between the U.K. and the EU, which are set to begin in 10 days.

The Conservative Party is expected to end with 318 seats, leaving a hung Parliament with no party commanding the 326 required for a governing majority in the House of Commons. Jeremy Corbyn, whose Labour Party picked up 32 seats for a total of 262, called for May to resign. However, May announced she will work with the Democratic Unionist Party, which now holds 10 seats in Parliament, to form a government.

May claims that a Conservative government supported by the DUP will provide certainty, but with Brexit talks due to commence during the week of June 19, delays to the negotiations are likely. The loss of a majority government could force a softer Brexit or make the prospects of no deal more plausible. “Hard Brexit went in the rubbish bin tonight,” former Chancellor George Osborne said in televised remarks as exit polls came in.

EU leaders expressed concern that Brexit talks would stall. “We need a government that can act. With a weak negotiating partner, there’s the danger that the negotiations will turn out badly for both sides,” said European Commission member Guenther Oettinger. The U.K. is under a two-year deadline to complete a deal and exit, having already started the clock when May triggered formal withdrawal procedures in March. European Council President Donald Tusk said on Twitter that there is “no time to lose” in starting Brexit negotiations to avoid a no-deal.

On Friday, May resisted mounting pressure to step down, insisting that only her party had the legitimacy to govern and to bring certainty and the ability to lead Britain forward at this crucial time. She announced she will form a government with the support of the small Democratic Unionist Party in Northern Ireland. The DUP, led by Arlene Foster, is pro-Brexit but opposes a hard Brexit and does not want to see a hard border between Ireland and the U.K. The fragile partnership could put pressure on the Tories to negotiate for a soft Brexit in which the U.K. would retain some free movement and membership in the single market.

May gambled that calling a snap election three years early would secure a mandate for pursuing the hard Brexit she promised that would take the U.K. out of the single market and end free movement between the EU and U.K. Initially, May was expected to win convincingly but her double-digit lead dwindled as the campaign closed.

The Labour Party won big gains, having run on an anti-austerity economic platform, and the election result could be seen as a victory for Corbyn and a signal that May will need to establish a new vision for Brexit. Labour supports Brexit but rejects a hard break, calling for the U.K. to retain the benefits of the single market and customs union and to immediately and unilaterally guarantee the existing rights of EU nationals living in the U.K.

BAL Analysis: May has said she will “get on” with Brexit but there is doubt that her hard Brexit strategy could be workable given its seeming rejection by the voters, as well as the DUP’s likely position favoring a soft Brexit and the fact that any Brexit deal will be subject to parliamentary scrutiny where the Tories do not hold a majority. May’s hand in negotiations has been weakened while the hand of those who advocate a soft break from the EU has been strengthened.

May now has just over a week to formally strike a deal with the DUP, as well as establish a new government and re-align her vision for Brexit. BAL will be reporting on Brexit developments and the impact on business as news unfolds.

This alert has been provided by the BAL Global Practice group in the United Kingdom. For additional information, please contact uk@balglobal.com.

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