The general election marks a change of direction
The general election will allow Theresa May to redefine the UK’s social contract, says Merryn Somerset Webb.
Last week my family and I were walking up the stairs to the street from New York's Penn Station when the young man in front of us started to run. He dropped his phone and didn't come back for it (a modern signal of there being very serious stuff going on). Someone behind us yelled "live shooter". Then everyone started to run.
We headed east away from the station, pushed from behind by the panicking horde. We got half a block down 34th Street. But just as my pulse started to steady, a new stampede came from the front. We were about to be crushed.
My husband pulled us out of the fray into a shopping centre. Then, as its security guards started to lock it down, he shoved us out of its other side from where we walked briskly until we got to the safe and sunny uplands of the Upper East Side. (Sixteen people were injured. There was no gunman. It was a panic stampede).
I tell you this because it's a nice little metaphor for Theresa May's general election call. She's been caught between groups of hysterical Remainers (the ones not coping with the actual situation but weeping into their phones outside the station) and hysterical Leavers (the ones running so fast they kept falling over). The election is her shopping centre. Once she is through it, she will find herself marching briskly to her own tune: she should end up with more MPs than she has now and, more importantly, those MPs will have been elected on her vision of Britain.
Will that mean a softer Brexit or a harder Brexit? Remainers in the main seem to think softer. Leavers in the main think harder. There's a lot of projection in politics these days.
My own guess is that it won't make much difference to the outcome (a medium- sized but hardly crippling goodwill bill, a fairly all-encompassing free-trade deal and free-ish movement of people subject to a couple of quotas and welfare restrictions think five years' residency before you see a hint of a tax credit).
However it will make getting to that outcome both easier and more efficient for both the UK and the EU. That's good, and is the most likely explanation for the sharp rise in the pound on Tuesday. It wasn't a bet on the Brexit outcome but a bet on the smoothing of the path to a more predictable Brexit outcome.
It is extremely important to remember, though, that May's walk over the next five years isn't just taking her to Brussels. It will be taking her all over the UK too: this election gives her a chance to lay out her plans for the UK and to make sure that her MPs are behind her when she starts enacting those plans. And that, rather than the admin mountain that is Brexit itself, is what UK savers and investors should be focusing on.
The rise of populist sentiment (which we can define as parts of the electorate asking for things that mainstream politicians think are both stupid and impossible) pretty much never leads to populist policies being implemented (they are often indeed stupid and impossible). But it does have a long and useful history of changing the direction of mainstream politics.
If we accept that the Brexit vote in the UK was in part about demanding that our national government be more active that it "takes back control" from the EU and uses that control and in part about demanding that our London and finance-centric elite are finally reined in to the benefit of the not-so elite, we should begin to get a sense of how this election, like those in, say, 1945 and 1979, will come to be seen as marking a change in the direction of the UK's social contract.
It is a context in which shareholders could get more rights over boards; in which corporate executives could be reminded that they are employees; remuneration could be capped; and the idea that employees could have a representative on the board could be revisited.
It is one in which billions spent on aid abroad via over-reaching and overpaid NGOs could be diverted to good causes at home; companies could find it far harder to loophole their tax bills to the bone; property developers could be banned from selling long leaseholds (rather than commonholds); the self-employed pay the same tax rates as the employed (May will no longer be tied to David Cameron's income tax promise); and possibly even one in which fund managers find their ability to charge fees capped.
After all, if you want to transfer some wealth from the financial sector to the rest of the country, what better way (now that almost everyone holds a fund via auto-enrolment) than to cap their take from our pots? The key thing here is that we can expect an increasing level of seemingly socially justified intervention into the corporate world. May has repeatedly said that where it sees capitalism failing, her government is prepared to intervene. We will soon find out how much, how often and how soon.
What should you do in the meantime? Keep working on using your pension allowance to the fullest extent you can she might have a go at grasping the tax relief nettle. And keep investing. The interventionism I describe above will cause some eyebrows to be raised in the short term and might, as I have written here before be a drag on the UK post-tax profits of multinationals. But much of the FTSE 250 and below offers perfectly reasonable value. May's brisk walk to 8 June and beyond isn't going to change that.
This article was first published in the Financial Times