Boris has finally achieved his life’s ambition. Whatever your politics, it’s undeniable that the “tone at the top” of a colourful Johnson administration is going to be very different to that of the more managerial and technocratic May. Corporate Finance Partner Luke Morris analyses what the changes may mean for businesses in the UK.
The (former? – it depends when you read this) Chancellor Philip Hammond announced earlier this week that he would resign if Boris was elected prime minister. Johnson would expect his cabinet members to accept a no-deal Brexit which, is “not something I could ever sign up to”, said Hammond. “It’s very important that a prime minster is able to have a chancellor who is closely aligned with him in terms of policy, and I therefore intend to resign to Theresa May before she goes to the palace to tender her own resignation on Wednesday,” he explained.
This is all a little bit confusing for those of us who have been following the spectacle over the last three years.
Wasn't Mr Hammond a senior member of a government that stood on a manifesto, in 2017, to leave the EU on 29 March 2019? Wasn’t he led by a Prime Minister who said (repeatedly) that "no deal is better than a bad deal" during the course of the last three years?
To my mind this final act by Hammond captures the past three years of what various commentators like to sum up as "uncertainty". "Business hates uncertainty" is, in precis, all that the Chamber of Commerce, the IoD, the CBI, and so on, has had to say on Brexit. I do sympathise with them – it cannot be easy to sound insightful whilst the whole of our government machinery has been in limbo for an unprecedented three years and has, through its machinations and inconsistencies, created this very uncertainty.
But isn't the “uncertainty” insight rather stating the obvious? Turning it on its head, are there things we can be certain about as we look forward to PM Johnson’s tenure?
I think that, yes, there are at least four areas of prevailing certainty:
Firstly – the first thing impacting business that we can say with certainty is that Mr Hammond will get the chop (as well as a “full-fat” cabinet re-shuffle following shortly thereafter). That will inevitably lead to some short-term Sterling wobbles.
Secondly – for all his flaws, one thing that is certain about Mr Johnson is his instinct as a liberal Tory (he’s always been consistent against the “nanny state” and measures such as sugar taxes). I think it’s pretty certain he will install a chancellor who will look to roll out a flatter, simpler tax system and be more “big picture” and ideologically driven than “Spreadsheet Phil” ever was. I am anticipating Sajid Javid.
Thirdly – despite his protestations this week, Mr Hammond has had (rather paradoxically) quite a role in making no-deal more likely. His Budget last year (October 2018) was lacklustre at a time when the politics dictated that boldness was required, as I pointed out at the time.
Fourthly – it has been widely reported that the Treasury has been slow and reluctant to release the necessary funds for proper no-deal planning and this will have, with certainty, given (former? – again, it depends when you read!) Prime Minister May less confidence to walk away from the past three years' of aborted negotiations. That said, Mrs May was responsible for selecting her cabinet (including her chancellor). Rule 101 for negotiating is "always be prepared to walk away", and it’s crucial to make sure that the CEO and the CFO are of one mind and on the same page if a transaction is to be cleanly executed. Another reason that why the choice of chancellor will be key for Boris.
On Brexit. He has been a little bit slippery with his language, but the one thing that has stuck in the minds of the electorate is “31 October, do or die”. This will, with certainty, require a rapid ramping up of no-deal preparations (and spending). I am pretty sure he will use his speech today on the steps of Downing Street today to announce that. This may include some more tangible “sweeteners” offered to business to deal with such preparations, some of which we have already seen in the transport and logistics sector (contact us if you want to find out more).
Finally, we have had repeated warnings of financial downturn and recession over the last few years. Regardless of events, or the political expedience of shrieking dire warnings, what we do know (fact) is that recessions are grindingly and uncompromisingly cyclical. They are also, quite often, prompted by some form of weird event in the economic ecosystem.
Will Boris’ administration prove to be such an event? Whether or not historians look to make that case, keep in mind the history of recessions in the UK: the 1973 oil crisis, the pursuit of monetarism in the early 1980s by Geoffrey Howe, the Lawson boom in the early 1990s and "Black Wednesday", the credit crunch of 2008. That's a recession, on average, every 12 years. It’s vastly over-simplifying, but I can’t help think that 2008 + 12 = 2020… The timing may not be precise but that one will happen is certain. The test of Boris as a politician will be how he manages this, and whether it sticks to him.