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What the hell happens next? Your post-election questions answered

As we head into election day, the polls are still neck-and-neck – meaning that neither Labour nor the Tory party is likely to be able to form a majority government. So, what happens now?

It looks like none of the parties will win outright. This is uncharted territory!

Not true. The outcome is no excuse for politicians and civil servants to claim that the UK is “unaccustomed” to hung parliaments. Of the 20 Westminster governments formed in the 20th century, five were coalitions and five were minority governments. And, of course, the parties muddled through a hung parliament in 2010.

If no one achieves a majority, who wins?

The party whose leader can command the “confidence” of the House of Commons – which basically means securing enough support from the smaller parties to form a viable government. It’s a common misconception that the leader of the party with the most seats automatically becomes prime minister.

But won’t David Cameron get first dibs at making a deal, as the incumbent?

There is no such convention. The Prime Minister will remain in Downing Street until it becomes clear who can lead the next administration, but making deals and speaking to the smaller parties will be a free-for-all. And neither is it the case that the party to win the most seats has the first shot at forming a government, or that the smaller parties are obliged to speak to that party before any others.

So if Labour or the Tories think they can form a workable government, what will it look like?

We could see another formal coalition, like the one we have now – though there is less appetite for that this time, and the Lib Dems are unlikely to win enough seats to rule alongside either the Tories or Labour with a majority. A confidence-and-supply arrangement (where a smaller party backs government bills on a case-by-case basis) is another possible form of partnership. A minority government ruling alone is looking increasingly likely, though it is generally seen as undesirable. We could even see a minority coalition, as New Zealand did between 1999 and 2008. All of these are dependent on the electoral arithmetic and each of the parties’ “red lines” for negotiating a deal.

Who’s running the country during these deals?

The “caretaker convention” allows government ministers to remain in place, though little official business can be done. Cameron would stay in office, signing off initiatives and stopping ongoing agreements from lapsing, but there would be no new policies, contracts or public announcements. The civil service would remain in the more exotically named “purdah”, operating under specific professional restrictions on conducting government business.

How will the new government test itself to see if it works?

It is for the parties themselves to determine who among them is best placed to govern. Once they settle on which party is most likely to be able to govern, its leader goes to the Queen to be appointed prime minister. But the first real test is the Queen’s Speech. This is when the new government puts its legislative programme to a vote in the Commons. It is currently scheduled for 27 May.

What if they haven’t decided by then?

If there is still deadlock by 27 May then the Queen will want to stay out of it, and the Leader of the House of Lords (Baroness Stowell) will make the speech instead. One of the parties will have to dare to give things a go. If its Queen’s Speech fell, it would almost certainly face an immediate no-confidence vote.

And if it lost the no-confidence vote?

Then the leader would be compelled to resign as prime minister and advise the Queen to invite the opposition to attempt to form a government. If an alternative administration isn't formed within 14 days, there would have to be a second general election.

How likely is a second election?

If the electoral arithmetic is irredeemably hung, we could end up with a second election this year. But it is unlikely, thanks to the Fixed-term Parliaments Act 2011. Support from at least two-thirds of the House of Commons would be needed for a motion calling for an early election. Or a majority would be required to pass a vote of no-confidence. It would be very difficult for a minority government to engineer either scenario, or to repeal the Act.

Does the Queen step in at any point to help to decide who governs?

No, not at all. The Queen’s private secretary will be in contact with Downing Street and will keep her updated, but she will be in Windsor and unreachable by politicians.

 

Anoosh Chakelian is senior writer at the New Statesman.

This article first appeared in the 06 May 2015 issue of the New Statesman, The Power Struggle

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation