The hung parliament in the UK has heaped confusion on top of uncertainty – and with the spectre of Brexit looming large, just what might the result mean for the Channel Islands? (This article was edited on 21 June 2017)
Strong and stable leadership? That may be why Prime Minister Theresa May called a snap general election in the first place. But at the time of writing, some might argue she’s looking as strong and stable as a bowl of blancmange.
When May called the election, it was expected by many to be a victory walk. As we all know, however, things didn’t go according to plan. Instead of a Brexit mandate, May was described a ‘dead woman walking’ on political death row by former Chancellor George Osborne.
As Big Ben chimed at 10pm on Thursday 8 May, there was a sharp intake of breath (and a fair few cheers from Labour supporters) around the country as a hung parliament was predicted. And while polls have been wrong before, this one was bang on the money.
The Conservatives eventually lost 13 seats and their Commons majority. Labour leader Jeremy Corbyn won 32 more seats than in 2015. Still holding the most seats – at 318, just eight short of an overall majority – May won the right to form a government.
To avoid a Corbyn-led government, she sought a deal with Northern Ireland’s Democratic Unionist Party (DUP), as other major parties ruled out any pacts.
A ‘supply and confidence’ deal with the DUP would see May leading a minority government. The DUP would support her on big issues like the Queen’s Speech and the Budget. But that confidence can be quickly withdrawn. The fact that the Queen’s Speech was delayed while the two parties haggled over the minutiae of the deal was hardly an auspicious start.
So, the main picture in the UK right now is one of uncertainty, leaving many in the Channel Islands to fathom just how they may be affected as things move forward.
Hard or soft Brexit?
Probably the main question on islanders’ lips is what will happen with Brexit, now that negotiations are finally under way. During the election campaign, May repeated her conviction that no deal was better than a bad Brexit deal. That could lead to the UK leaving the European single market and the customs union.
On the eve of the negotiations, however, Chancellor Philip Hammond appeared to undermine the PM. Speaking to the BBC’s Andrew Marr, he stated clearly that “no deal would be a very, very bad outcome for Britain”. So, could ‘hard Brexit’ be dead?
DUP leader and Northern Ireland First Minister Arlene Foster has spoken against it and wants to avoid a hard border with Ireland, which could affect the Common Travel Area between Ireland, the UK, Channel Islands and Isle of Man.
Another option is the UK leaving the EU but remaining a member of the European Economic Area (EEA), and retaining single market access. That would need unanimous agreement of EEA members. Membership fees, immigration concessions and little say on single-market rules are other hurdles.
A final deal may take years to agree with the EU. And there could be another general election and a new prime minister before then – a Survation poll immediately after the election gave Corbyn a six-point lead.
Search for consensus
Whoever gets the job, they may have little choice but to try and forge a consensus across the political divide on domestic and international issues. But that won’t be easy.
So, where does this leave Guernsey and Jersey? The final details of any Brexit deal will be of huge interest to the Channel Islands. The impact on freedom of movement, which could affect foreign workers in tourism and agriculture, fishing, financial services and even administration of air space, could be felt here.
Negotiations could see more compromise on the UK side, however. “We might expect to see an early guarantee of EU citizens’ right to remain in the UK, and a more protracted process generally if each stage needs to be agreed by the main parties,” explains Arabella Murphy, Head of Wealth at boutique private wealth law firm Maurice Turnor Gardner.
More immediate domestic UK legislation will also have an impact, including on the finance industry. Experts in the Channel Islands’ financial sector have suggested Tory proposals previously announced on detailed tax plans can’t be taken as read in a setting of a minority Conservative government with support from the DUP.
“Non-dom reforms are likely to go ahead, as they would be supported by other parties. But previously proposed reductions or reliefs may be less likely if the government can’t be sure of avoiding defeat,” says Murphy. “As regards the undefined Conservative pledge to focus on misuse of trusts and on transparency, this is likely to find support from other parties.”
Investor worries
For investors, the election may have a lingering impact on UK property. While more active investors may take advantage of discounted prices in the property and stock market, it’s anticipated that transactions will continue to fall in central London, according to Lauren Kemp, Senior Manager, Investment and Communications at London Central Portfolio.
In particular, the luxury end of the new-build sector could suffer, having already been battered by new residential taxes.
“For the domestic housing market, outside prime central London, the recent evidence of a downturn by most data analysts, due to concerns over a weakening UK economic position and rising inflation, is unlikely to be reversed in light of the current events,” says Kemp.
Eliot Lincoln, President of the Jersey Chamber of Commerce, also fears it won’t be plain sailing in the wake of the election even if a ‘softer Brexit’ is on the cards.
“Whilst Brexit offers many positive commerce opportunities for Jersey, it’s impossible to think the island can avoid any negative impact,” he says. He points to the increased cost of importing goods following the pound’s post-Brexit fall in value, with inflationary costs inevitably being passed on to consumers.
With Jersey going to the polls in the next 12 months, Lincoln says a stable pro-business government in the island is vital. In the meantime, he urges the Chief Minister to engage in regular talks with the UK government to ensure Jersey is at the forefront of UK-EU Brexit negotiations.
Business as usual?
Local political leaders, however, were quick to stress it was business as usual. That means working with whatever UK government emerges so that the Channel Islands’ constitutional position and reputation as well-regulated offshore jurisdictions is understood.
“I am confident we will be able to work productively alongside any new government to ensure the best possible deal is achieved for the island in the forthcoming Brexit negotiations,” said Jersey Chief Minister Ian Gorst.
There was uncertainty whether Gorst would be the man working with the UK after a vote of no confidence was lodged against him in June. He survived the vote, however, and continues in his post.
Sir Philip Bailhache, Jersey’s External Relations Minister, expects a “high degree of continuity and stability” having established a network of Whitehall official and political contacts on a range of issues.
The Channel Islands can also benefit from relationships established through the British-Irish Council. The forum, set up under the Good Friday peace agreement, is made up of the UK, Irish, Northern Ireland, Scottish, Welsh, Isle of Man, Jersey and Guernsey governments.
Its role is to develop positive links and co-operation between its members. Last summer, for example, Jersey and Guernsey Chief Ministers took part in a Brexit summit also attended by DUP leader Arlene Foster.
There is also the UK All-Party Parliamentary Channel Islands Group. It aims to promote a better understanding of the issues facing the Channel Islands and develop better relations with the UK.
Key focus
As a general rule of thumb, however, business dislikes uncertainty. Martyn Dorey, President of the Guernsey Chamber of Commerce, says the incoming government has to focus on fiscal discipline and manage overall levels of risk and uncertainty in the economy to allow business to flourish.
“The UK needs leadership and unity, and Guernsey business stands ready to be part of the Brexit discussions,” he says.
Might there be an opportunity for the Channel Islands to benefit from the current situation? Gavin St Pier, President of the Policy and Resources Committee in Guernsey, says the island will closely monitor developments and engage with the new government as early as possible.
Guernsey stands out as “a jurisdiction of economic and political calm in a world of uncertainty”, he adds. “That’s an opportunity for us to exploit, and one that our promotional agencies, Locate Guernsey and Guernsey Finance, will not let pass.”
The fact that the UK government may need to work across the political spectrum to reach a consensus could work in the Channel Islands’ favour. Among the clouds of uncertainty, there might just be some silver linings.