On the eve of a general election that looks set to promise a wipeout for the Conservative Party and the first Labour government in 14 years, LB checked in with a range of City partners across a variety of practice area to gauge the temperature of the UK legal industry, find out what they think will change, what won’t, and what to watch out for.
Things can only get better?
‘As of now, the polls suggest that if Labour achieve the same majority as Tony Blair did in 1997, it would be a good result for the Conservatives.’ This from Paul Butcher, director of public policy at Herbert Smith Freehills in London, sums up prevailing sentiment among not just the legal community but the wider media.
Indeed, the BBC’s poll tracker shows Labour poised to secure 40% of votes cast, with the Conservatives languishing at 20% – a stunning reversal in fortunes for the two parties after the Conservatives roared to victory in 2019 with 43.6% of the vote to Labour’s 32.1% and a majority of 80 seats. Now, The Economist predicts that Labour will emerge with 434 seats – more even than it won in 1997.
Polls can of course be wrong. But things do not look good for the Conservative Party – and not a single partner interviewed for this feature expressed any scepticism about a Labour victory.
Given the near unanimous expectation of a Labour victory, it is encouraging that the market view on the party is broadly positive – if not wildly enthusiastic. ‘I view this election as relatively benign, especially from the perspectives of the financial services and legal sectors’, says Latham & Watkins corporate and capital markets partner Mark Austin. ‘Unlike the last election, we now have two relatively centrist main party leaders and parties.’
Views in the finance community are similar, says McDermott London managing partner Aymen Mahmoud: ‘The usual measure of market reaction to a change in government is any movement in treasury or gilt markets. The fact that we haven’t seen one tells us that whichever party wins the election will be pro-business and, in the case of the Labour government, pro-worker.’
This is at least in part the result of a concerted effort by Labour. ‘Labour has been courting the business community over the last couple of years, really listening to what it needs’, notes Katy Colton (pictured, below), head of the politics and law group at Mishcon de Reya.
Down to brass tax
However, opinions on the Labour manifesto are not unanimously positive, with tax one particular area of concern – and not just the proposals for VAT on private school fees. ‘The Chancellor made a surprise announcement a while ago about cracking down on nondoms, but Labour has committed to going further, whilst at the same time pledging to tax carried interest to income tax instead of capital gains tax, which will have implications for the private equity industry’, says Colton.
These proposals raise the spectre of what Colton calls ‘an exodus of high-net-worth individuals’. Other partners, meanwhile, point to the risk that tax increases could discourage investment into the UK. This would be especially damaging as Labour has acknowledged that it will struggle to finance even its more modest proposals for change, and has placed economic growth at the core of its pitch to voters. The party has spoken too about closing loopholes in the tax regime, but partners are sceptical that there are enough loopholes to close to garner the kinds of revenues that Labour needs.
Still, Butcher points out that the tax issue is ‘heavily derisked for businesses compared to 2017 or 2019’. ‘They will find ways of raising taxes,’ he explains, ‘As under either party they will always find taxes or allowances not subject to promises. However, they are far more pro-business and pro-private sector investment. Their vision involves a more interventionist approach and more co-investing. Nevertheless, they embrace private investment, which will be reassuring.’
Employment is another area where the two parties diverge. Says Colton: ‘There are changes that are going to be interesting for employment lawyers, with Labour promising to increase day-one rights for workers and to remove some of the restrictions on unions, while the Conservatives are saying they’ll increase restrictions.’
Butcher agrees: ‘Concerns are much less acute than they were with Jeremy Corbyn in 2017 and 2019, but it will be a very different government to the current one. They will want to intervene much more in the economy. For example, in employment rights, they propose what they frame as the biggest upgrade to workers’ rights in a generation.’
However, he also makes sure to temper expectations: ‘Admittedly, it would also be the only upgrade in a generation.’
Powering up
Of course, much of what any incoming government does will be dictated not by its ideology or priorities but by its response to long-term challenges. The struggle between energy security and energy transition looms particularly large here.
‘Whatever the make-up of the new government, it seems inevitable that legislation will be enacted to bring forward regulatory change, especially in the energy and infrastructure sectors’, says Vinson & Elkins London corporate head Ben Higson. ‘The new government will inevitably need to continue balancing the need for energy security and the drive to net zero: brought into sharp focus, I think, as real progress will need to be made during the five-year term on both fronts.’
Here, too, though, there is no sense that a Labour government will mean a radical break with the status quo. ‘Labour has a ‘moonshot’ proposal to decarbonise the electricity system by 2030,’ says HSF’s Butcher. ‘This could help focus efforts on issues like planning, as achieving this would be impossible without planning reform. This urgency also means they need to proceed with current plans rather than implementing new reforms. In energy, this is likely positive, as we have a good strategy for encouraging investment. Investors will likely welcome such stability over constant changes. Labour’s emphasis on quick implementation should reassure investors and could facilitate progress if executed well.’
Both Higson and Butcher point to nuclear power as one key area to watch for signals from the incoming government. Butcher expects that Labour ‘will be just as supportive as the current government. They recognise the reality that decarbonising by 2050 necessitates a significant amount of nuclear power; current technologies cannot achieve this alone.’ But he does not discount the possibility of further action: ‘The current government has established a solid foundation. Now, reforms to planning are needed to move forward, offering Labour a great prize if they can seize it. Currently, they appear as committed as the current government. However, I would urge them to go even bolder with the UK’s nuclear ambitions.’
Contentious matters
On the disputes front, Quinn’s Greeno is optimistic that a change in government will not present any unwelcome upheaval for litigators. ‘There’s no particular reason to think that anything’s going to change, at least in the short term’, says Greeno of the commercial litigation market. ‘Hopefully, the legislation on litigation funding pending when the election was called will be picked up and carried through by a Labour government. It’s pretty uncontroversial and in everyone’s interests to assist with access to justice.’
However, the dangers of an underfunded court system remain. Says Greeno: ‘We all know that the criminal justice system is crumbling due to lack of funding. One would have hoped, perhaps, that, as a former Director of Public Prosecutions, Keir Starmer would be alive to the risks of doing nothing to reverse that. None of the parties seem to think there are any votes in supporting a properly funded justice system, but as we see more years long delays and miscarriages of justice, I think this topic will gain more political traction.’
It is unclear what any government could do to relieve the stress on the system without an influx of cash. Increasing court fees would be ‘self-defeating’, argues Greeno, because ‘it would inevitably discourage some litigants from coming to London’, potentially sacrificing enormous funds. ‘Whatever the amount of revenue that would be raised by such a measure, a significantly greater amount would be lost if only one major case went elsewhere.’
The problem may be a hard one to solve. But that does not mean that the new government should shy away from it. For Greeno: ‘All governments are happy to talk about the rule of law, but they continue to take it for granted by underfunding the courts.’
Stable door
The feeling from the City’s corporate lawyers is that pre-election jitters from clients are, to date, relatively limited. The period since Rishi Sunak announced the election on 22 May has seen some businesses hold off on making any major moves until the new government comes in. But most define this as the usual waiting period that comes before any major election.
‘The timing is helpful’, says Austin, ‘because getting it done by mid-July means businesses and investors can confidently plan for the rest of this year and the first half of next year.’
Across the board, observers expect and hope for certainty. ‘It remains to be seen how the new government may impact the M&A markets’, says Higson. ‘But, at the least, a five-year term should provide some stability for businesses and investors going forward.’
For Colton, ‘Having an election, regardless of the outcome, is a good thing for the business of law, because there’s been so much uncertainty, and an election will give us more certainty in terms of who the next government will be.’
Butcher is encouraged on this point: ‘Stability has become the prevailing trend. Politics seems to be returning to a more normal state post-Brexit and post-pandemic. We are moving to a situation resembling more typical political dynamics, and I hope this leads to improved legislation – but time will tell.’
Alexander.ryan@legalbusiness.co.uk