9 June 2017

There are only losers from this election. Theresa May’s authority at home and abroad is undoubtedly damaged by her lost majority, following an election she did not need to call. The Labour Party (despite vastly exceeding the low expectations of Jeremy Corbyn’s leadership) is many seats short of being a credible governing party. The Liberal Democrats have gained a handful of seats but there certainly has been no sign of voters buying into the idea of a second Brexit referendum or reversing Brexit.

The Scottish National Party’s poor performance in Scotland, due to Conservative and Labour gains, suggests the Scottish independence movement is on the wane. And, despite some of the glee in the Continental media about May’s losses, the UK’s European interlocutors would have hoped for a government with a stronger electoral mandate. Above all, the country does not have a decisive sense of direction going into what are going to be extremely politically fraught and complex negotiations. Amidst this mess, Northern Ireland’s Democratic Unionist Party (DUP) will be crucial to the formation of the next government.

Clearly, this election has created greater uncertainty and instability. When calling this election, the question was how far May could strengthen her mandate and manage the Conservative Party through the Brexit talks. Now she must manage not only her own party but rely on the support of others.

However, the objectives of the probable incoming Conservative-led Government for a negotiated Brexit settlement are unlikely to change fundamentally. The UK still looks on course to leave the EU’s customs union and single market, but Conservative reliance on the DUP will bring Northern Irish issues, such as how to effectively manage the land border with the Republic in the south, to the fore. The DUP’s role in supporting a Conservative-led government is likely to increase the pressure on Theresa May to secure a comprehensive free trade agreement with the EU rather than opting for a Brexit on World Trade Organisation (WTO) terms. May’s position that ‘no deal is better than a bad deal’ may not survive negotiations with the DUP over the new government’s Brexit strategy.

Taken together, it is hard to see how this will not alter the psychology of the negotiations in Brussels and therefore weaken the Prime Minister’s hand. But the broader ramifications for the final settlement are hard to gauge at this stage.

May stays on as PM for now

The only electoral arithmetic that adds up is a minority Conservative government with a confidence and supply arrangement with the DUP or, less likely, a formal coalition between the two. Therefore, at this stage, it seems Theresa May will stay on as Prime Minister under this scenario, at least for the short-term. However, her authority within the Conservative Party has been badly damaged by this election and what this means for her leadership in the medium-term is now unclear. The level of support she receives from key figures in the party over the next 72 hours will be instructive.

In addition, the possibility of another election before year’s end is not inconceivable.

Where does the DUP stand on Brexit?

The DUP manifesto backs the fundamental tenets of the Conservative Party’s objectives for a negotiated Brexit settlement, which means withdrawal from the customs union and single market to be replaced by a comprehensive free trade and customs arrangement (you can read Open Europe’s proposals for such an arrangement here):

Customs Union: The DUP has called for a “comprehensive free trade and customs agreement with the European Union,” “customs arrangements which facilitate trade with new and existing markets,” and “progress on free trade deals with the rest of the world”. This echoes the Conservatives’ ambition to reach an FTA with the EU and the establishment of an independent UK trade policy with the ability to sign bilateral non-EU trade deals. As we have set out here, the ability to sign independent free trade deals is incompatible with customs union membership and a ‘customs agreement’ can be achieved as part of a free trade agreement. Both parties are therefore agreed on the approach to leave the EU’s customs union but substituting this with intense customs cooperation.

The Single Market: The DUP have not been as explicit as the Conservatives have been about leaving the single market. They have called for “ease of trade with the Irish Republic and throughout the EU” and “arrangements to facilitate ease of movement of people, goods and services.” However, the DUP is clear that the Brexit deal should see the “jurisdiction of European Court of Justice ended and greater control over our laws restored”, a position shared by the Conservatives. Therefore, the DUP position is incompatible with single market membership on the grounds of sovereignty, less so on Theresa May’s (and the Labour Party’s) emphasis on controlling immigration and ending the free movement of people.

Immigration: The DUP manifesto is more flexible and less hawkish than Theresa May’s stance on immigration. In fact the DUP manifesto only mentions immigration once and calls for an “effective immigration policy which meets the skills, labour and security needs of the UK,” “effective, time bound transitional arrangements where necessary,” and “higher and further education continuing to attract international expertise and collaboration”.

Relations with Irish Republic: This is an obvious priority of the DUP, given that Northern Ireland is the most economically exposed to the consequences of a ‘hard border’ on the island of Ireland. The manifesto emphasises “Maintenance of the Common Travel Area,” “frictionless border with Irish republic,” and calls for the “particular circumstances of Northern Ireland with a land border with the EU” to be “fully reflected”.

‘No deal’: One big omission from the DUP manifesto compared to the Conservative position is an assertion that “no deal is better than a bad deal.” In fact, the concluding statement in bold from DUP is: “It is in the interests of all in Northern Ireland that the UK-EU negotiations progress well and that the trade elements commence as soon as possible. The stronger and more positive the agreements reached, especially on trade and customs relationships, then the better for the particular circumstances of Northern Ireland.”

Overall, the DUP has every incentive to make Brexit negotiations a ‘success’. Northern Ireland is the most exposed economically to a botched Brexit and, after the SNP’s reversed fortunes, Ulster’s unionism is the most politically at risk. We shall see what price the DUP will demand for its support but funding commitments for Northern Ireland are likely to feature strongly.

Hung Parliament will pose significant challenges to business of government

Irrespective of the potential for a deal with the DUP on Brexit strategy, a hung parliament means that all the business of government will face greater instability and potential roadblocks. This applies to the domestic programme as well as legislation that will be required as part of the Brexit process – the Great Repeal Bill, the UK’s new tariff schedule at the WTO and so on. This could prove to be as big a problem for the next government as the forthcoming negotiations in Brussels.

There are still more questions than answers at this stage

Undoubtedly, the medium to long-term outlook for Brexit is more uncertain than before this election. How far this will impact where the UK-EU talks end up is incredibly difficult to know at this stage.

Firstly, despite being billed as the ‘Brexit election’, it is not even clear how much of the election result was motivated by the issue of Brexit. Clearly many of the results in London were the product of a Remain backlash, but this cannot explain Conservative gains in Scotland at the expense of the SNP (albeit on a different electoral ticket), which turned out to be crucial for them. Moreover, much of the campaign focussed on the issues of social care and public services and many voters will have placed these issues ahead of Brexit considerations.

Some have speculated that single market membership is back on the table. But it is hard to see how this is the case. The Labour Party has not resolved its own ambiguity over Brexit. There are at least three factions within the Labour Party. A small number of outright Brexiteers, a large number who feel that ending free movement of people is more important than single market membership and another faction that is effectively continuity Remain. Given the Conservatives’ and Labour Party’s commitment to ending free movement, unless the EU has an (extremely unlikely) change of heart over the free movement of people/single market trade-off, single market membership still appears out of the question.

Under the current arithmetic, the Prime Minister will have quite a job on to marshal opinion within and beyond her own party. How much sway will ‘single market Conservatives’ such as Anna Soubry and Nicky Morgan have? What shape will the new Cabinet take? How easily will the Conservatives and DUP agree on negotiating objectives?

A silver lining has to be the surprising return of a truly ‘British politics’ and the boost for Unionism. The argument – still often heard among EU officials and politicians – that Brexit would inevitably lead to dissolution of the United Kingdom now looks far weaker.

We are in for an interesting few days and weeks.