by Louise Allen 18th February, 2019

What would Jeremy Do? Assessing change of government impact

The first question we are asked by investors is ‘What would a change of government mean for us?”.  Whilst polling suggests that the Conservatives, despite a challenging political record and little domestic policy progress, are still likely winners of a future general election, scenario mapping the alternative is critical. These are uncertain times, and investors and businesses need to be armed with strategies for risk mitigation informed by robust and well-evidenced insights.

When looking at a potential deal – what should you be looking for?

  1. Beyond sector risk: Investors need to also be aware of holistic cross cutting policy initiatives which may impact their portfolio companies and proposed investments. Notably, labour market reforms – contractual, living wage levels, skills and training standards and procurement, corporate and environmental requirements to name a few. Reforms of this nature touch all businesses even if they operating if sectors deemed a lower priority by a potential Labour Government.
  2. What are the party’s immediate priorities?  A left leaning Labour administration will of course have views on private provision in the delivery of public services, including how this should be regulated and a predisposition to insource, but what does this mean in practice? The bandwidth of any administration is defined by its majority in the House of Commons and the broader political climate. A Labour general election victory scenario will likely to be defined by a narrow majority and an on-going battle with Europe – work on the domestic sphere will be constrained as a result.  As such, separating the ideological imperative from what is feasible within legal, political and parliamentary confines will drive and inform the Labour agenda in government. Where does your asset’s policy area sit on this to-do list?
  3. How do the levers of government/parliament work? Political, policy and regulatory change is made by a raft of measures – guidance, primary and secondary legislation, EU directives to name a few. Understanding the levers of government and the political system – how they can constrain or support change – can inform  the timetable for policy or regulatory reform and where opportunities exist for influencing the trajectory. Understanding the ‘how’ is as important as understanding the ‘why’.
  4. How do commissioners feel about the status quo?  Public service delivery is undertaken by a highly fragmented ecosystem of organisations – including councils, NHS trusts, schools and others, all of which are active decision makers and influencers in the  political, policy and regulatory environment. Whilst strategic policy direction and mandates from the centre are critical to understand, the ability of the wider system to challenge national thinking is important too.   The wishlist for a government is always long – but if there are capacity, funding or legal barriers, and strong political challenge from Labour councils, the centre may need to reconsider its position or decide how interventionist it is willing to be.
  5. What’s the upside? Change of government can have upsides too. We are likely to see increased funding across education, health and local authority services and capital expenditure on larger projects, supporting the supply chains across the UK. They key question will be where will this money end up? Who will be the winners and losers?
  6. But what about Brexit?  The future relationship with Europe remains in question, From Labour’s perspective, what does a Brexit mean for public policy? Gold-plating environmental and workforce standards, and unpicking state aid rules to support national industry are among the key areas of consideration. New funding and support systems for fisheries and agriculture will need to be established; these have been historically been low profile areas for Labour Governments, and some degree of continuation of current thinking should be expected. Labour Brexit risk needs to be considered in line with the wider workforce, regulatory, trade and tariff issues required on any deal in the current climate.

GK are helping to advise investors and management teams on change of government risks and opportunities using our bespoke methodology – assessing impact on funding and commissioning, domestic policy agenda, regulatory and taxation.

Read the GK report on what ‘What would Jeremy do?’ for further information or contact harry@gkstrategy.com to discuss support to manage change of government risk for your portfolio

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