What the UK Election Result Means for Brexit

June 9, 2017

1. Theresa May’s decision to call a snap[1] UK general election has backfired.  The Conservatives emerged as the biggest party in yesterday’s UK general election but lost their overall majority.  Theresa May’s authority and leadership have been greatly weakened, perhaps even fatally damaged, by the shock result. 
2. The Conservatives won 319[2] (down from 331) seats in the House of Commons.  A governing party needs 326 seats out of 650 seats for a majority.   The Labour party gained 29 seats, enjoying their biggest increase in the share of the vote since 1945.  A so-called "progressive alliance" between them and such of the minority parties as have indicated a willingness to work in coalition with Labour would not be sufficient to command an outright majority in the House of Commons.
3. As leader of the largest party in Parliament, Theresa May has been asked by Queen Elizabeth (as head of state) to form a government, relying on Northern Ireland’s Democratic Unionist Party (DUP) for support.  The DUP have won 10 of the 18 Westminster seats contested in Northern Ireland whilst the nationalist  Sinn Féin party have won seven.  Given that Sinn Féin MPs do not take their seats in the House of Commons, the Conservatives and the DUP should together have 326 out of 643 MPs, giving the two parties a combined majority of nine.
4. Theresa May has vowed to offer a "period of stability" and has said she has no plans to resign.  Arlene Foster, leader of the DUP, has confirmed her party’s in principle support for a Conservative-led administration and has committed her party to preserving the Union and bringing stability to the UK.  Detailed discussions of the terms of the Conservative-DUP understanding will begin shortly.
5. When Theresa May called the election on 18 April she had a majority of 17 MPs in the House of Commons and was 20 percentage points ahead of Labour in the polls.  She called the snap election in the hope of increasing her majority and strengthening her hand in Brexit talks with the EU.  But her position has been severely weakened.  Her wafer thin majority (taking DUP support into account) will make it even more difficult for her to make the awkward compromises that will be needed to reach a Brexit deal with the other EU member states.
6. It is possible that her leadership position will be challenged by Conservative MPs once an administration has been formed and the new session of Parliament has been opened.  Many MPs feel that this was an unnecessary election which has drastically weakened the strength of the Conservative government, and they hold Mrs. May and her closest advisers directly responsible for that.  It is possible that a new Conservative Prime Minster could seek a fresh mandate through another general election or that the Conservative-DUP pact could break down such that no government can be formed and a second general election has to be held.
7. Formal Brexit discussions between the UK and the EU are due to begin on 19 June 2017 (which is also the date for the opening of the next UK Parliament).  Delays in forming a new UK government, or even a second general election in 2017, could impede these Brexit talks, squeezing an already tight negotiation timetable.  The UK government triggered Article 50 (the official legal notification to the EU that the UK is going to leave the bloc) on 29 March 2017.  It means that, unless otherwise agreed with the EU member states, the UK will be out of the EU by the end of March 2019 – even if no withdrawal agreement is in place.  It is unclear whether Article 50 can be withdrawn once invoked.
8. It is not clear if the UK will stick to the Brexit policy mapped out before the election when Theresa May said the UK would leave Europe’s single market and customs union.  There is a possibility that the hung parliament could result in the UK stepping back from the "hard Brexit" stance taken by Theresa May and/or in the EU imposing a softer Brexit on the UK by virtue of the UK’s weaker negotiating position. 
9. The provisions in the UK Finance Bill which were deferred because of the election are likely to be enacted later this year. These include the corporate interest restriction rules, the shareholding exemption reforms and the reformed inheritance tax rules for non-UK domiciliaries with interests in UK residential property.
   

   [1]   The Fixed-term Parliaments Act 2011 introduced fixed-term elections to the UK Parliament.  Under the Act, Parliamentary elections must be held every five years, beginning on the first Thursday in May 2015, then 2020 and so on.  However, the Act provides that a snap election can be called when the government loses a confidence motion or when a two-thirds majority of MPs vote in favour.

   [2]   Subject to final confirmation following Kensington seat recount.

This client alert was prepared by London partners Stephen Gillespie, Charlie Geffen and Nicholas Aleksander and of counsel Anne MacPherson.  

We have a working group in London (led by Stephen Gillespie, Nicholas Aleksander, Patrick Doris, Charlie Geffen, Ali Nikpay and Selina Sagayam) that has been considering these issues for many months.  Please feel free to contact any member of the working group or any of the other lawyers mentioned below.

© 2017 Gibson, Dunn & Crutcher LLP

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