The result of the UK's third general election in less than five years marks a significant shift in the political landscape in the world's 5th biggest economy. After nearly a decade marked by political stalemate, the Conservative party now has a clear majority and authority to pursue its chosen Brexit strategy and manifesto commitments for the UK and its engagement with the rest of the world.
Deal Dynamics, the exclusive Hogan Lovells tracker of global M&A activity, has consistently demonstrated that inbound UK M&A has been remarkably resilient in the face of Brexit headwinds. The three years since the Referendum showing little, if any, discernible weakness relative to the levels of activity globally.
Will the election of a Government with a clearer mandate than at any time in the last decade make a difference for investors? Is it likely to change the attractiveness of particular assets in Britain? Should dealmakers look at the UK differently in 2020?
Here we explore some of the incoming Government's manifesto policies and what those might mean for UK M&A in 2020 and beyond.
The cornerstone of the Conservatives' election campaign has been their pledge to deliver Brexit. So their victory means that the UK's exit from the European Union is now almost inevitable. It will almost certainly happen by the end of January 2020.
For business this creates a degree of certainty in the short term. The deal between the UK and EU guarantees a transition period meaning that radical change is unlikely for the remainder of 2020.
In the medium term a degree of Brexit uncertainty remains. To avoid a "hard Brexit", the UK and EU will need to reach a further deal of some sort by the end of 2020. This means that those looking to do deals involving the UK over the coming months will still need to consider Brexit – in appropriate cases, deal terms will need to reflect the potential implications of various possible outcomes.
Politically however the last three years suggest both the UK and the EU will want to avoid a "no deal" outcome so some form of longer term accommodation remains likely.
The new Government's vision of a post-Brexit Britain places great weight on a high-tech, high-skill, innovationled economy which looks globally rather than to the EU for its trading relationships. This theme runs through its manifesto beyond Brexit and will set the climate for investment in the UK over the coming years.
One of the biggest differences between this Government and its immediate predecessor is its desire to uncouple UK regulation from that in the EU. Over time we are therefore likely to see divergence with the aim of making the UK a more business and innovation-friendly jurisdiction than its larger European neighbours, particularly in the industrial areas which the Government sees as the future.
A second key objective of the Government's vision of Brexit is rebalancing the UK's trade policy toward "global Britain".
This objective was reflected in the manifesto in a commitment to grow trading ties with Commonwealth countries (with India being specifically called out) and emerging markets. Investors can expect an emphasis from the new Government on concluding new trade deals in this area and promoting both exports to, and attracting inward investment from, those countries. This is also important to the Government as a demonstration of the benefits of driving Brexit forwards, as part of a post-Brexit strategy.
In addition, there is a plan to build 10 Freeports in the UK reinforcing the ambition to grow the UK's role as a trading hub, suggesting potentially significant investment opportunities.
Priority industry sectors
The Conservative manifesto trod a delicate balance.
A clear political priority was to rebalance aspects of the domestic policy agenda toward areas which are perceived to have been neglected since the global financial crisis. This meant demonstrating the Conservatives' commitment to the public services and to the UK beyond a London economy perceived to be dominated by financial services.
For investors this is reflected in the emphasis placed on a number of industries which are explicitly called out as priorities. Over the coming months and years we should expect measures specifically aimed at attracting inward investment into the UK in these sectors and incentives for UK businesses in these sectors to grow their global footprints both through investing globally and growing global partnerships.
Significant weight is placed on science and in particular:
- Life Sciences – with an explicit aspiration to make the UK the leading global hub for this industry
- Technology – in particular computing, robotics, artificial intelligence, design and space.
The Government has committed to a significant step-up in support for scientific investment and R&D accompanied by a statement of intent to unlock long term capital in pension funds for science.
In addition, there is reinforced commitment to support service-based industries in which the UK has been traditionally strong. This includes the creative industries, law and other professional services and financial services (given the emphasis on technology, we can expect a continued championing of the UK's role as a fintech hub).
Beyond these sectors, four other priorities are now likely to create significant investment opportunities:
- a desire to reverse the decline in retail and the "high street" through measures to rebalance the relative position of international online businesses and brick and mortar retailers
- continued emphasis on transport and infrastructure as part of the programme of making the UK an efficient and attractive destination for business
- addressing the "green agenda" through a commitment to grow affordable and clean energy (including committing £1bn to building a network of fast charging points for electric vehicles)
- improving connectivity by significantly increasing the reach of fast broadband by 2025.
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