The United Kingdom will hold a general election on July 4, in which opinion polls predict the opposition Labor Party will win handily, ending 14 consecutive years of Conservative rule. Local elections in England and Wales on May 2 also confirmed the Conservative Party’s poor general election prospects, with the party suffering heavy defeats from Labour, including in contested constituencies widely seen as key electoral battlegrounds.
In the most likely scenario, the Labor Party wins a majority of seats in parliament, which allows it to implement its policy agenda with minimal opposition or internal resistance. A large majority would allow the party to overcome any potential internal dissent and enforce its legislation despite sporadic intra-party dissent and “revolts”. On the contrary, a narrower majority would make the government more vulnerable to possible defections of MPs, thus increasing the political influence of the left-wing “factions” of the party and the labor unions.
A Labor government would result in a greater state presence in the economy, higher spending on social policies and public services and a more ambitious energy transition programme. However, the new government will still be subject to fiscal and financial constraints, meaning that spending increases will be limited and largely offset by tax increases. UK foreign policy will not see significant changes under a Labor government, and while Labor will seek closer relations and regulatory alignment with the European Union, reversing Brexit is unlikely to be on the party’s agenda, at least initially.
Two alternative scenarios explore the possible consequences of a “hung and suspended” parliament, with no party securing the 326 seats necessary for an absolute majority.
1. Whether the largest party is Labor or the Conservatives, they would then be forced to either negotiate a coalition deal with smaller parties or attempt to form a minority government in a confidence and supply deal with one or more other parties. In the most likely of these scenarios, Labor could form a majority with the Lib Dems, the SNP or the Greens, each of whom would extract different policy concessions in exchange for their support.
2. An alternative, but unlikely, scenario would see the Conservatives form a minority government supported in Parliament by the Democratic Unionist Party of Northern Ireland and MPs elected by the right-wing Reform UK party or, in a less likely scenario, with the centre-left Liberal Democrats. Under both a Labor and Conservative minority government, the need to negotiate with coalition partners will lead to compromises on a number of key policies, while a potential legislative deadlock due to coalition partners’ diverging interests and the constant ‘trading’ of options would increase political uncertainty, slow decision-making increasing the chances of premature government collapse.
Election scenarios
Scenario 1: Labour wins Government Majority
In this result, the Labor Party wins a majority of seats in parliament, which allows it to govern alone and install its leader Keir Starmer as Prime Minister of the United Kingdom. A large majority would allow the government to overcome potential internal disputes and “pass” its legislation despite sporadic intra-party “revolts”, while a narrower majority would make the government more vulnerable to possible defections, thus increasing the influence of left-wing factions of the party and trade unions on politics, including the conflict in Gaza, as well as calling for various wider socio-economic measures.
A Labor government would increase the state’s presence in the economy and obviously spend more money on social policies and public services such as health care and education. A Labor government would also have a more ambitious energy transition agenda, including measures inspired by US President Joe Biden’s Inflation Reduction Act, with increased spending on new green energy infrastructure and strong industrial subsidies for the production of “green technologies”. . However, a Labor government will likely be subject to the same fiscal and economic constraints as its predecessor, meaning that spending increases will be limited and largely offset by tax increases, likely on the wealthiest individuals and large corporations, especially if the country’s economic growth is struggling to increase its pace.
On foreign policy, there would be a high degree of continuity, with a Labor government maintaining strong support for Ukraine and alignment with NATO, despite relations with the United States potentially becoming strained if he is re-elected in November. former US President Donald Trump.
A Labor government would also maintain its predecessor’s policy of “de-risking” China, without, of course, severing economic and trade ties with Beijing. Finally, a Labor government would seek closer relations and regulatory alignment with the European Union, particularly in areas such as defence, trade oversight, financial services, energy and the regulation of new technologies, even if a Brexit reversal is likely it won’t be on her schedule.
Implications of this development
■ The Labor government is trying to rebuild dialogue and increase regulatory alignment with the European Union, seeking incremental advances – such as agreeing veterinary regulations, mutual recognition of degrees and possible re-entry into the Erasmus student exchange program – without seeking to significantly renew elements of the deal with the EU after Brexit. Labor is likely not seeking to rejoin the EU’s single market or customs union, but is pushing for deeper cooperation in areas such as trade, security and environmental standards.
■ The UK government is seeking regulatory alignment with the European Union in specific areas such as food standards, data protection, raw material and pharmaceutical supply chains, with the aim of reducing trade barriers and facilitating closer economic ties; while at the same time demonstrating to the British public that it has maintained the unlimited sovereignty of the United Kingdom.
■ Labor is working to create a more cohesive and well-structured formal framework for UK-EU cooperation, with regular meetings and contacts at official level, with possible negotiated access to EU fora such as the Foreign Affairs Council to strengthen of diplomatic and political coordination. In this context, the signing of a UK-EU defense and security pact is likely, while bilateral agreements on areas such as immigration, emissions trading and critical raw materials are also possible.
■ Political and structural constraints limit the extent to which the Labor government is able to pursue closer alignment with the European Union, but bilateral relations may still deepen over time, particularly if public opinion shifts towards closer ties with the European Union and whether the Labor Party appears determined to secure a second term in power. In the medium term, this potentially leads to structurally closer UK-EU cooperation through higher levels of regulatory alignment and a de facto customs union.
■ The Labor government largely maintains its predecessor’s foreign policy, including strong support for Ukraine and alignment with NATO. But relations with the United States could become relatively strained if former President Trump is re-elected.
■ The Labor government is also maintaining its predecessor’s policy of de-risking China, while maintaining economic and trade relations. This means the UK applies restrictions on exports and outbound investment to China for sensitive technologies such as artificial intelligence, facial recognition and advanced semiconductors.
■ On the Israel-Hamas war, the Labor government maintains a generally cautious, cautious approach – supporting the idea of possible formal recognition of Palestine as part of a possible peace process with Israel, while maintaining a high degree of coordination with the United States regarding this conflict. If, however, Labor secures only a narrow majority in the House of Commons, it will face greater internal pressure from its left to adopt a tougher approach towards Israel.
■ The government’s commitment to reduce public debt as a percentage of GDP to ensure economic and financial stability, combined with the initial reluctance to raise taxes significantly, reduces its ability to significantly increase public spending in the first months/years of her tenure. But the Labor government is only partially complying with its predecessor’s pledge to keep borrowing below 3% of GDP (applying the target only to “day-to-day spending” – namely, regular recurring spending on things like public sector wages , health care, education, defense and public services), provided more room for public investment.
■ Until growth picks up and borrowing costs fall, the new Labor government will likely prioritize lower-cost policies (such as workers’ rights and cutting red tape). The government will also likely seek to raise tax revenue by aggressively cracking down on tax evasion, ending tax credits for private schools, extending the windfall tax on energy companies and completing a variety of plans to phase out the current non-dom tax regime. ‘, which allows residents to be taxed only on UK income, while foreign income is only taxed if it enters the UK.
■ If the economic environment improves, the new government’s fiscal and economic agenda will become increasingly ambitious to deliver promised spending increases on public services such as health care, education and affordable housing.
■ If growth continues to stagnate, the government will seek to raise tax revenue through measures such as raising the top rate of income taxes, corporate tax rates and financial transactions. A wealth tax is also possible, as well as increases in inheritance tax.
■ The government seeks to boost growth and productivity through more interventionist supply-side government policies, such as increased public investment in digital infrastructure, relevant education and vocational training. To this end, the government is also pursuing reforms to reduce bureaucracy, simplify planning processes and streamline applications for high-value projects (such as high-tech and green construction) to favor business expansion and innovation. .
■ The government is simplifying the planning system for the construction of new publicly funded housing projects and infrastructure, such as rail, road and energy infrastructure (facilities and networks), fast-tracking regulatory permits, environmental assessments, compensation for local communities and potential litigation , as well as granting greater supervisory powers to local authorities to accelerate the completion of projects.
■ The government is introducing new protections for workers as well as other labor reforms to increase job security and wages [including reducing so-called zero-hours contracts – a type of employment contract in UK employment law Vassiliou, between an employer and an employee, according to which the employer is not obliged to provide a minimum number of working hours to the employee), the strengthening of the protection of employees against dismissal, the increase of sick pay, the defense of laws that limit trade union activities and the promotion of flexible working arrangements], which somewhat increases the operating costs for businesses.
■ The government is expanding regulation of the private sector in areas such as ESG / Environmental, Social, and Governance elements, (i.e. “environment, society and corporate governance” issues that can affect a company’s ability to produce long-term added value and responsibility) tax evasion, data protection and artificial intelligence, mergers and acquisitions, procurement, financial services and supply chains, increasing regulatory risks and compliance costs for businesses.
■ If Labor secures a large parliamentary majority, the government will prove more stable than its predecessor, which would improve the UK’s investment outlook after several years of successive scandals and leadership changes affecting the Conservative Party and policy uncertainty after Brexit.
■ Government spending plans and other economic initiatives are more state-led, but also rely on increased private financing, including through the issuance of so-called “green gilts” to finance new green energy infrastructure. This reduces the overall impact of large infrastructure projects on public finances, while creating many opportunities for the private sector.
■ The Labor government is now pursuing ambitious climate and energy transition targets, aiming to decarbonise the country’s energy sector by 2030 – five years ahead of the target set by its predecessor.
■ The government is establishing a state-owned green energy company (Great British Energy) and creating a national wealth fund to promote investment in renewable energy projects, industrial projects, infrastructure, green hydrogen production and the decarbonisation of the steel industry , as well as investments to upgrade and expand the country’s electricity network and upgrade the insulation of homes.
■ Green investment is increasing, with the government aiming to increase the UK’s onshore wind capacity to 35 gigawatts, solar capacity to 50 gigawatts, offshore wind capacity to 55 gigawatts by 2030 and finally green hydrogen capacity to 10 gigawatts . The government is also looking to accelerate five gigawatts of floating offshore wind capacity.
■ The Labor government is likely to ban new oil and gas licenses for the North Sea, leading to a slow and steady decline in UK domestic hydrocarbon production. The ban will not affect existing projects or projects already under development, with the possible exception of Shetland’s Rosebank and Cambo large-scale oil fields, meaning the UK will continue to produce oil and gas domestically at least until the late 2040s (but at declining rates relative to now).
■ The government continues to support the nuclear power sector by promoting new projects, extending the life of existing plants and investing in new nuclear technologies such as Small Joint Reactors.
■ Higher investment from utilities may (in the short to medium term) increase energy bills for UK consumers, before reducing prices, ultimately increasing the country’s renewable energy generation and expanding the electricity grid.
■ Outgoing Prime Minister Rishi Sunak is likely to be replaced as Conservative leader, with the former ruling party likely to move further to the right under successive leaders in the next two election cycles.
