Why did Trump win and what does his victory mean?

Donald Trump has won - and won bigger than most of the pollsters predicted (a hat tip to my friend James Johnson, whose firm JL Partners was one of the few who came close). At the time of writing it looks like he might win all seven of the marginal states and the popular vote. The supposed “gold standard” poll that predicted Kamala Harris would win Iowa, a Republican state in recent years, proved miles off (at the time of writing, Trump is winning Iowa by 13.5 percentage points).

For the Democrats, the inquest begins

Biden and his advisers will rightly be blamed for taking so long to work out he wasn't up to running again. Ditto Harris for not differentiating herself enough from him.

But even if Biden had announced he was standing down early enough to allow the Democrats to run a competitive primary, the size of Trump’s victory suggests that whoever they selected would probably not have beaten him. Incumbents are struggling across the world at the moment because we have been through a cost of living crisis that has left most voters worse off. And perhaps because they are worse off, voters are increasingly concerned about mass immigration - particularly if it is uncontrolled. Ultimately, these concerns trumped (excuse the pun) whatever concerns voters had about Trump’s character.

And whilst the Democrats' significant fundraising and therefore spending advantage might have saved them from an even heavier defeat, there is a clear lesson here that the right product is more important than a slick marketing machine.

So what does Trump’s victory mean?

The Republicans also gained the Senate (at the time of writing, Decision Desk HQ is projecting 53 to 47) and look like just holding the House (at the time of writing, Decision Desk HQ is projecting 218 to 217). Factor in a conservative Supreme Court and Trump could well be unconstrained.

In terms of what that means,the size of the Republicans’ victory in the Senate will make it difficult for the Democrats to turn things round in two years’ time.

A second Trump term will likely cement the conservative majority in the Supreme Court.

Trump will extend his tax cuts but probably not cut spending commensurately, so the US deficit is going to get even bigger. Will the markets finally lose patience?

He will deregulate, scrapping lots of President Biden’s environmental regulations in particular, and take the US out of the Paris Agreement on climate change again (and perhaps the UN Convention that underpins it, which would make it harder for a future US Administration to rejoin). However, some of the green subsidies in the Inflation Reduction Act will likely survive because they are benefiting Republican states.

He is going to increase tariffs. Other countries/economic blocs will inevitably respond (he is highly unlikely to implement the OECD agreement on corporate taxation, so one of those responses might well be a return to digital sales taxes that target big US tech companies). Time will tell whether the increases are a short term negotiating tactic as his supporters claim (Trump adviser Scott Bessent described Trump’s approach as "escalate to de-escalate") or a permanent shift to protectionism.

He has promised ”the largest deportation programme [of undocumented migrants] in American history”. Both that and the tariff increases will increase inflationary pressure.

Time will tell whether he will pursue those he perceives to have persecuted him for the last four years. Both the deportation of undocumented migrants and any attempt to take revenge on his opponents will only deepen polarisation in the US.

He will put pressure on NATO allies as well as the Japanese, South Koreans and Taiwanese to cover more of the cost of their defence. He has a point - but the more aggressive he is about it in public, the more Putin and Xi will question his commitment to collective security.

He will try to end the Russia/Ukraine war. The concern many have is that he has more leverage over Ukraine than Russia, so any such attempt is likely to be disadvantageous to Ukraine.

The Netanyahu Government is worried that although he will be publicly more supportive than Biden he may privately pressure Israel to set an end date for the war in Gaza and Lebanon. Many of the people who worry about the pressure he will put on Ukraine will welcome him putting such pressure on Israel.

His victory will encourage the populist right across the democratic world. Nigel Farage, Marine Le Pen, Viktor Orban and their equivalents will be celebrating this morning.

And finally he will bring unpredictability to geopolitics. His supporters see that as an asset. Ric Grenell - a candidate for Secretary of State - said recently that “predictability is a terrible thing”; others think predictability is key to deterrence. Trump is at heart a real estate deal maker, and the lesson he learned in his business career is play your cards close to your chest and see what people offer you. Unlike other heads of government, he doesn’t distinguish between allies and hostile countries - indeed, he sometimes seems to view allies as more of a burden than an asset and identifies with other ‘strong leaders’ whether or not they were democratically elected. What matters to him is what he is getting from the deal, not the US’s relationship with whoever he is dealing with.

The one thing that is not going to change is Donald Trump himself. Like him or loathe him, he is a chaos agent. The next four years are going to be a bumpy ride...

Spare a thought for Keir Starmer…

He can't admit it, but this is the result Keir Starmer was dreading. He would have found it much easier working with Kamala Harris both on a personal level and ideologically. When Trump says or does controversial things, Starmer will come under pressure from some Labour MPs to condemn him. If he does, Trump will take it personally - as I can attest from my time working for Theresa May. Starmer knew this result was a possibility, and he has prepared for it meeting with Trump on his last visit to the US and speaking to him in the wake of the attempt on Trump’s life. We will see now whether those plans survive contact with the chaotic reality. As Mike Tyson famously said: “Everyone has a plan until they are punched in the face”.

If your organisation would like a more detailed briefing on what the result might mean for you, get in touch.

If you are interested in more insight like this, NorthStar produces a weekly report for our clients on what's happened in UK and geopolitics and, more importantly, why it happened and what might happen next. We offer those reports for free for a few weeks so people can decide whether they would find them valuable. If you would like to be added to the mailing list, please email northstar@northstaradvisory.uk.

Where does the US election stand ahead of tonight’s debate?

With former President Donald Trump’s sentencing for his conviction on hush money payment charges now delayed until after the election and no prospect of trials getting underway any time soon on any of the three other sets of criminal indictments he faces, tonight’s debate with Vice President Kamala Harris is the last scheduled event that could change this most unpredictable of Presidential elections. And as the two candidates prepare for this high stakes moment with their advisers, the election currently looks like going down to the wire.

Harris replacing Biden has got Democrats back in the race, but some in the media have oversold her prospects

A couple of months ago in the wake of President Joe Biden’s catastrophic performance in his debate with Trump, it looked like Trump had the election sown up. However, Harris replacing Biden at the top of the Democratic ticket has turned things on their head. For a few weeks, she had the most-coveted asset in any election: momentum. And Trump was clearly rattled by the sudden change in his fortunes, questioning her ethnicity and accusing her of faking the size of the crowds at her events rather than sticking to the issues on which she is vulnerable: the border, the cost of living and some of the things she said when running for the Democratic nomination in 2020. The media - always keen to see a close contest - talked up her momentum, ignoring some of the underlying indicators that suggested Trump was still very much in it. And sure enough there have been signs in the last week or two that her momentum has stalled and that, while she has certainly got the Democrats back in the game, the race is a toss up.

So where exactly do things stand now?

As of this morning, Harris is 2.8 percentage points ahead in 538.com’s rolling average of the national polls, but national polls can only tell us so much - as Al Gore and Hilary Clinton found, the electoral system the US uses for Presidential elections means you can win the popular vote but not win the election (for those not familiar with it, each state plus Washington DC gets a certain number of representatives in an Electoral College roughly based on their respective populations; in 48 of the 50 states, it’s winner-takes-all - the candidate who gets the most votes gets all of that state’s Electoral College representatives; in Maine and Nebraska, candidates get one representative for each Congressional district they win and extra representatives if they win state-wide; to be elected President, you need the support of 270 of the 538 representatives in the Electoral College). Most states are either solidly Democrat or solidly Republican; the result is determined in a handful of swing states, which this time round look like being the Mid West states of Michigan [15 Electoral College votes], Pennsylvania [19 votes] and Wisconsin [10 votes] and the Sun Belt states of Arizona [11 votes], Georgia [16 votes], Nevada [6 votes] and North Carolina [16 votes] (and if the result is really close, Maine’s second district and Nebraska’s second district, each worth one Electoral College vote).

Harris is currently ahead by one percentage point or less in Nevada, North Carolina and Pennsylvania, and by between two and three points in Michigan and Wisconsin; Trump is ahead by one percentage point or less in Arizona and Georgia. In other words, all seven states are currently within the margin of error.

Reasons for the Harris campaign to feel optimistic

Harris raised $361 million last month, $230 million more than Trump. It leaves her with $110 million more cash on hand than him. Campaigns typically raise more every month as election day approaches, but Trump’s August number ($130 million) was less than he raised in July ($139 million) - and much lower than he raised in August 2020 ($210 million). Trump’s lacklustre fundraising is interesting because it is at odds with the polling. And of course Harris’ fundraising success means she is currently able to out spend Trump - she has more offices and staff in the swing states, and more television, radio and digital ads booked.

The enthusiasm of Democrat voters has been transformed by Harris replacing Biden at the top of the ticket and is at levels not seen in either party since Obama’s first campaign. For the first time in a long time, Democrats are now more enthusiastic than Republicans about their candidate.

If Harris wins Michigan and Wisconsin then she has multiple routes to victory: Pennsylvania on its own would be enough or any two of the remaining four states apart from the two smallest ones, Arizona and Nevada.

The results of recent primaries in Washington state suggest a roughly four-point Democratic lead in the national popular vote - slightly bigger than in 2020 (Washington uses a top two primary system in which candidates of both parties appear on the same ballot paper rather than having registered Democrats electing the Democrat candidate and registered Republicans electing the Republican candidate, thereby providing a useful barometer of public opinion).

Reasons for the Trump campaign to feel optimistic

Trump may be narrowly behind in the national polls and in most of the seven swing states, but there’s plenty of other polling which suggests he is in a strong position:

• His approval rating is better than it was at this point in either 2016 or 2020.

• He leads on immigration (53% to 42%) and the economy (56% to 40%). 

• This might surprise some British readers, but voters see him as closer to the centre than Harris - despite her efforts to portray herself as a centrist, a recent New York Times/Siena College poll found nearly half of voters say she’s too liberal or progressive.

• That same New York Times/Siena College poll found 51% of voters see Trump as representing major change whereas only 25% think the same of Harris. That’s a big problem given that 61% of voters say they want major change - and it explains why the Harris campaign has been trying to frame Trump as the incumbent, arguing that the election offers a chance to turn the page on him.

• A Democratic-funded poll released on the sidelines of their Convention showed that Trump holds advantages on the attributes that historically have been most closely correlated with vote choice: which candidate is up to the job of president, has the right vision for the country and is a strong leader.

 In addition:

• The prospects for a ceasefire in Gaza are not looking good (a ceasefire would make it easier for Harris to turnout Muslims and progressives).

• The Electoral College marginally favours the Republicans because smaller states - most of which the Republicans tend to win - get slightly more representation than their population deserves (which is why Gore and Clinton lost despite narrowly winning the popular vote).

• The polls under-estimated Trump in 2016 and 2020 and may well be doing so again.

Bottom line: it is going to come down to a few thousand voters in each of the swing states

Relatively fewer voters change their mind from election to election in the US - in the last six Presidential elections, the Republicans have never got less than 45.6% of the vote and never got more than 50.7%; the Democrats have never got less than 48.2% and never got more than 52.9%. And as discussed above, the electoral system means that it is only swing voter in the seven swing states whose votes really matter. It is going to come down to a few thousand voters in each of those states. In 2020, Trump would have won if he had got just 44,000 more votes in the right places (Arizona, Georgia and Wisconsin) - and this election feels closer than 2020.

The clock is ticking

Unlike in the UK, most people in the US vote before election day. The US Census estimates that in 2020 69.4% of votes were cast by mail or early voting. In other words, if this race is going to change, it needs to happen soon; by early November, most people will already have voted.

Don’t just focus on the Presidency

The media focus too much on the Presidency and not enough on the Senate and the House - from a business perspective, it matters whether Harris or Trump have free rein to do what they want or whether they are constrained by the other party controlling the Senate and/or the House. There are six possible permutations:

• a Democrat clean sweep;

• Harris as President and a Democrat House, but a Republican Senate;

• Harris as President and a Democrat Senate, but a Republican House (essentially the status quo, but swapping Biden for Harris);

• Trump as President and a Republican Senate, but a Democrat House;

• Trump as President and a Republican House, but a Democrat Senate; and

• a Republican clean sweep.

The Democrats and their allies currently have 51 of the 100 seats in the Senate. That means they can’t afford to lose any seats if Trump wins the White House and only one seat assuming Harris wins (if the Senate is 50:50, the Vice President has the casting vote). That’s a tough ask given the seats up for election this time round - they have to defend five seats in marginal states (Arizona, Michigan, Nevada, Pennsylvania and Wisconsin) and three in ‘red’ states (Montana, Ohio and West Virginia) and there are no marginal Republican seats for them to attack. They are almost certain to lose the seat in West Virginia because their incumbent is not standing for re-election, so that means they will lose the Senate if Trump wins the White House and even if Harris wins they have to win all seven of the other marginal seats.

The Republicans currently have a majority in the House of Representatives, but they can only afford to lose three of their 221 seats. In practice, whichever party wins the Presidency is likely to also win the House on their presidential candidate’s coattails - but whoever wins, they won’t win by much: as a result of gerrymandering, there are relatively few marginal districts.

All of which means the two most likely scenarios are Harris as President and a Democrat House, but a Republican Senate; and a Republican clean sweep.

If Trump loses, he will not accept the result  

Finally, if it is close it could take several weeks for a winner to be declared - and Trump is already laying the groundwork to claim that the election was stolen if he is declared the loser (he has said he will gladly accept the result of the election “if everything’s honest”; if not “you have to fight for the right of the country”). And in the wake of Trump’s false claims about the 2020 election, fewer than half of Republican voters are confident that the election will be conducted fairly and accurately. Sadly, a repeat of the violence on 6 January 2021 is definitely possible, although the authorities will be more prepared for it this time.

If your organisation would like a more detailed briefing on the state of the race - and crucially what the different scenarios might mean for your business - get in touch.

If you are interested in more insight like this, NorthStar Advisory produce a weekly report for their clients on what's happened in UK and geopolitics and, more importantly, why it happened and what might happen next. We offer those reports for FREE for a few weeks to see if you find them valuable. If you would like to be added to the mailing list, please contact northstar@northstaradvisory.uk.

Prospects for the Barnier government

On 5 September, President Macron appointed Michel Barnier as France’s next Prime Minister. France has had a caretaker government since the resignation of Attal's government in mid July and Macron has spent much of the last 6 weeks trying to identify someone who would take on the job, and who stands a chance of constituting a government that will not be censured immediately by Parliament. Barnier will have the support of his own centre-right Les Républicains and Macron’s centrists, but not the left who won the most seats in the recent election.

Barnier’s first tests

The first indication of how long this government is likely to last will be Barnier’s ability to appoint a cabinet and to draw in figures beyond his political family. Barnier has said he does not want a government purely of the right and wants figures from across the political spectrum to serve, but any figure from the left who agrees to do so is likely to be disowned by their party. So the government is likely to be one of the centre and centre-right, dependent on support (or at least not a veto) from Le Pen's right-wing populist Rassemblement National.

The next test will be the economic programme Barnier's government can pull together. France is due to submit a budget reduction plan to the European Commission by 20 September (although this seems likely to be extended by a few weeks); to present a budget to Parliament in early October; and then to get it passed. 

It is unlikely that France can in practice meet the requirements of the EU's fiscal pact, which would mean reducing the deficit from 5.5% currently to 3% by 2027. The question for Barnier will be whether he submits a budget which meets EU requirements but which is unlikely to be achieved; or to grasp the nettle now and ask the EU for a longer runway to reduce the deficit.

Le Pen gets to have her cake and eat it

Assuming Barnier can put together a budget which Macron's centrist party (over which his influence has diminished) and his own party support, he should have the numbers to get a budget through Parliament, provided Le Pen's RN abstains. In appointing Barnier, Macron will have had reason to believe that Le Pen would not bring the Government immediately - as Le Pen said on 8 September, “Macron took the National Rally’s criteria into account in choosing his prime minister... [Barnier] seems to have reached the same conclusion as we have on ­immigration.” For his part, Barnier has put some distance between his view of the RN and Macron's: “I don’t have much in common with the ideologies of the National ­Rally, but I respect it.” Macron has in the recent past called Le Pen’s party “anti-republican” and a threat to democracy. All this means Le Pen gets to have her cake and eat it - some influence over the programme of the government without being directly associated with it; with the ability to bring it down if and when it suits her.

Less political instability - but for how long?

As was clear during the Brexit negotiations, Barnier is not a policy details person. But he has skills of communication and consensus-building which could see him survive the critical first few weeks of this government. If he does, the chances of his government surviving until the first anniversary of July's election (the first point at which new elections could take place) improve dramatically. This would represent progress in political stability in France - but from a low-base and it is not clear for how long.  Not in recent memory has the political leadership of France and Germany been so weak at the same time, with inevitable consequences for the ability of the EU to make progress on the big issues, not least the pressing challenges of competitiveness detailed in Mario Draghi’s recent report produced for Commission President von der Leyen.

If you are interested in more insight like this, NorthStar Advisory produce a weekly report for our clients on what's happened in UK and geopolitics and, more importantly, why it happened and what might happen next. If you would like to be added to the mailing list, please contact northstar@northstaradvisory.uk.

What’s going to happen on Thursday?

In just over 48 hours, we will know the result of the General Election, but its broad outline is already clear - the polls rarely get things exactly right (they failed to predict just how well Boris Johnson would do in 2019 or how well Jeremy Corbyn would do in 2017), but such is the size of Labour’s poll lead that even if the polls are a bit off we are still going to wake up to a Labour Government on Friday morning. What’s harder to predict is the exact scale of Labour’s victory and how well each of the other parties will do, but here’s our best guess.

Getting our excuses in early

Predicting how many seats the Conservatives will win - and therefore the size of Labour’s majority - is particularly difficult this time because of the scale of the collapse in Conservative support. They are on course for their lowest share of the vote in modern history. Why does that matter? Because under our first-past-the-post electoral system, once the Conservative Party’s share of the vote falls below 25% very small further reductions in its share of the vote lead to large changes in the number of seats it wins - in other words, you only have to be a bit out on your prediction of the Conservative share of the vote to be quite a long way out on your prediction of how many seats they will win (and therefore on your prediction of the size of Labour’s majority).

The headline story: an unprecedented Labour majority and an unprecedented defeat for the Conservatives

The polls may differ on exactly how big they are going to win, but it is clear that Labour are going to win by a landslide - and probably a larger one than Tony Blair achieved in 1997. They will therefore likely be in government for at least two terms (we say “likely” because we would have said the same about Boris Johnson immediately after his victory in December 2019, and that would have under-estimated Johnson’s capacity for self-destruction).

For the Conservatives, the best case scenario is that they win a similar number of seats to 1997 (165). That would not be wholly uncharted territory, and would at least be enough for them to mount an effective opposition (the Official Opposition needs to shadow 90-odd Commons Ministers and because some MPs will either not want frontbench jobs or not be suitable, you probably need 130-140 MPs to have 90-odd that are appointable). The worst case scenario is that they come third behind the Liberal Democrats (in which case, both Rishi Sunak and Liz Truss could lose their seats). That would make it much harder to recover.

These scenarios imply a Labour majority of somewhere between 160 and the high 200s (by way of reference, they got a majority of 179 in 1997).

We think the Labour majority will be towards the lower end of this scale - there is some evidence that Farage’s comments about Ukraine and the deluge of stories about the views of Reform candidates have halted or maybe even slightly reversed its surge (and the worse Reform do, the better the Conservatives do), and there is also some evidence that former Conservative supporters who are currently undecided are increasingly worried about Labour winning by a landslide.

We should pause for a moment to reflect the enormity of what is about to happen - no party in living memory has won an election from so far behind.

Although Labour will make unprecedented gains, they may lose the odd seat to the Greens or independents (Shadow Secretary of State for Culture, Media & Sport Thangam Debonnaire is vulnerable to the Greens in Bristol Central, Shadow Secretary of State for Justice Shabana Mahmood is under pressure from an independent campaigning on Gaza in Birmingham Ladywood and Labour is under pressure in a number of other seats with large Muslim communities).

‘Portillo moments’

Lots of Cabinet Ministers are going to lose their seats. There may be a few surprises because at an individual constituency level we are likely to see some very variable swings. This variation will be strongly correlated with variations in Reform’s support around the country - because Reform draws most of its support from former Conservatives, in those areas where Reform does well the swing from the Conservatives to either Labour or the Liberal Democrats will be much larger.

The Liberal Democrats back as a serious force in Parliament

The Liberal Democrats will win a lot more seats without getting many more votes. If that seems paradoxical, the explanation is tactical voting: in many constituencies Liberal Democrat supporters will vote Labour to make sure the Conservatives don’t win, but in a few places Labour supporters will vote Liberal Democrat to achieve the same end, so the Liberal Democrats will get a better return in seats for a given level of votes. We expect them to do about as well as they did in 2005 (62 seats), which was a high-water mark for them. Ed Davey has been widely mocked for his various stunts, but the result will be a vindication of his approach.

The strategic challenge for the Liberal Democrats in the next Parliament will be how to shift from being an anti-Conservative Party to a party in opposition to a Labour Government.

Reform: lots of votes, not so many seats

We expect Reform to get a similar share of the vote to the Liberal Democrats (13 or 14%?), but to win far fewer seats (although we do expect Nigel Farage to win in Clacton). Predicting how many seats Reform will win is perhaps the hardest thing to do - we don’t know how well the various MRP polls have picked up concentrations of support for them in particular constituencies. They may win a few more seats than most of the MRPs are predicting.

A bad night for the SNP as well as the Conservatives

In Scotland, we expect the SNP to win fewer than half the 59 seats. It will not therefore be able to claim the result is a mandate for a second independence referendum, so that issue will be kicked into the medium grass (we say “medium grass” because underlying support for independence hasn’t declined, so when Labour inevitably becomes unpopular at some point in the future there is every chance that the SNP will recover and the possibility of a second referendum will be back on the agenda).

The DUP’s difficulties may present a headache, but also an opportunity, for Keir Starmer

In Northern Ireland, the DUP may well lose seats (including their new leader Gavin Robinson). We expect Sinn Féin to hold their seats and therefore become the biggest or level-biggest Northern Irish party at Westminster (although they don’t take up their seats), as they already are at Stormont and in Northern Irish local government. The result may well push the DUP into demanding further changes to the Northern Ireland Protocol, which would be an immediate headache for Keir Starmer (although he could turn it to his advantage, arguing that there are no more Northern Ireland-only fixes available and therefore using it to press for some of the changes to the overall EU/UK relationship that he wants).

Cue concerns about the electoral system

If we are right about the above, this will be the least proportional result ever. It is likely Keir Starmer will get a lower share of the vote than Theresa May in 2017 - and possible that he will get a lower share of the vote than Jeremy Corbyn in 2017 - and yet win a larger majority than Tony Blair or Margaret Thatcher ever achieved. If that also seems paradoxical, the explanation is that our electoral system rewards parties based on relative performance, not absolute vote share - in 2017, the Conservatives got 42.3% but Labour were only just behind on 40%, whereas this time the opposition to Labour is completely fractured. First-past-the-post works well in a two-party system, not so well in a three party system and it really struggles once you have more than three parties getting significant shares of the vote, particularly if as now one is more popular than any of the others. The result will prompt much talk of the case for electoral reform, but it is hard to see Labour adopting that cause when the current system is so clearly working in its favour.

It will also prompt much discussion about Labour’s mandate. In one sense that mandate will be very strong - Labour will win nearly two-thirds of the seats - but their vote share will be one of the lowest achieved by a governing party in modern history. They will have won because the current Government is so unpopular, not because of any real enthusiasm for them, and they in turn could become unpopular quite quickly if they don’t deliver the change they are promising.

What will all this mean for the future of the Conservative Party?

The size of Labour’s victory will influence the contest to succeed Rishi Sunak - several of the would-be candidates (Penny Mordaunt, Grant Shapps and Robert Jenrick) may lose their seats.

We think it is less likely than was the case a few months ago that the Conservatives will seek a merger with Reform. Had Nigel Farage sat the election out, he would have been well positioned to portray himself as a unifying figure, settling the Conservatives’ and Reform’s differences. As it is, he has tried to destroy the Conservative Party - and his comments on Ukraine have reminded those who agree with him on Brexit and immigration that he does not share their world view on everything.

And finally, were Labour too cautious?

If Labour does win big, it is bound to intensify the debate about whether they have been too cautious in their manifesto and unnecessarily boxed themselves in. We have some sympathy with this argument - as well as loosening the fiscal rules to allow themselves to borrow more to fund capital spending, they are likely to have to increase taxes by more than they have promised and/or deliver spending cuts in some areas, leading to either a betrayal narrative on taxes and/or a “No better than under the Conservatives” narrative on public services - but of course it is much easier to say they have been too cautious now we know they are going to win big than it would have been for them to risk being more bold several months ago when the outcome was less clear cut.

Once we have the results and we’ve listened to Keir Starmer’s first speech as Prime Minister outside that famous black door, we’ll post a follow-up to this post setting out what the change in government will mean for public policy.

If you are interested in more insight like this, NorthStar Advisory produce a weekly report for their clients on what's happened in UK and geopolitics and, more importantly, why it happened and what might happen next. We are making those reports available to everyone for FREE until mid-July given the interest in the UK election. If you would like to be added to the mailing list, please contact northstar@northstaradvisory.uk.

What Will Happen To The Conservative Party After It Loses?

Conservative MPs know their party is headed for defeat - possibly a very heavy one - on 4 July, and their minds are already turning to what the party should do in the aftermath of that defeat.

The Omens Are Not Good

History tells us that parties nearly always initially draw the wrong lessons from defeat (think Labour in 1979, the Conservatives in 1997 and Labour again in 2010); it normally takes one or two more defeats before they finally get the message. And it may be even harder for the Conservatives this time - they are caught in an electoral pincer with Labour and the Liberal Democrats to their left and Reform to their right, and as a result have no good strategic options.

Braverman's 'Unite the Right' Strategy

In an interview with The Times on Monday, former Home Secretary Suella Braverman set out her preferred strategy: she argued that there was “not much difference” between Reform and Conservative policies and that the two should therefore merge because “we shouldn’t be divided on this side of the political spectrum”. Expect others such as Priti Patel and Jacob Rees-Mogg to adopt this ‘unite the right’ mantra.

There are two problems with such a strategy however: first, there is evidence that some Reform voters wouldn’t vote Conservative even if there were no Reform; and second, some current Conservative voters would stop voting for the party if Nigel Farage had a leadership role. In other words, you can’t just add the Conservative and Reform shares of the vote and assume that’s what a merged party would get - the Conservatives would do better with Farage on board, but unless Labour seriously messes up they would probably also be condemning themselves to perpetual opposition.

But Braverman’s critics have to acknowledge that she has a point: merging with Reform may not be the answer, but it will be very hard for the Conservatives to get more than 40% of the vote while Reform is on its right flank. The right is currently divided in exactly the same way the left was in the 1980s after the formation of the SDP - and that division on the left allowed Margaret Thatcher to win two landslide victories on just over 42% of the vote.

What Is Farage Up To?

If the Conservatives are unsure how to respond to the huge hole Boris Johnson and Liz Truss have left them in (and Rishi Sunak has proved incapable of extricating them from), Farage has a plan - indeed he has three of them. He is not stupid: he knows full well that Reform is unlikely to win many seats (though he may win in Clacton), and that the effect of his intervention will be to increase the size of Labour’s victory. His objectives is to destroy the Conservative Party and for Reform to take its place, as happened in Canada in 1993. But if that doesn’t work, he has two other options: a leader like Braverman might open the gates and let him in; or, if Sunak is succeeded by someone who is hostile to him, he can use his support among the shrunken Conservative grassroots to try to mount a hostile takeover.

What is not clear is whether his decision to stand in this election and take over the leadership of Reform from Richard Tice will help or hinder these plans. Thus far, it has clearly boosted Reform in the polls and if that is sustained through to polling day it will mean more Conservative MPs losing their seats. But if all he does is wound it deeper rather than destroying it, he may find that many of those Conservatives who do get elected are deeply hostile to him. The right of the party have spent years deluding themselves that Farage is an ally - Patel famously danced with him at last year’s Conservative Party Conference. Now he has made it clear that he is trying to destroy them (“Priti Patel represents a party that let 2.4 million people come into our country in the last two ears - sorry Priti, you haven’t protested enough”). Will they forgive him?

Why Does Any of This Matter?

At first glance, the internal debate within the Conservative Party after the election may not feel that important - after all, the party may well be out of power for a generation. But it matters because it will determine what type of opposition Labour face - and given Keir Starmer’s caution, that is likely to have some impact on the policies Labour pursues. A Conservative Party that turns its back on Farage and tries to re-establish itself on the centre-right will present a very different challenge to a populist right Conservative Party led, or heavily influenced by, Farage.

The Trump Factor

There is one final factor to bear in mind: what happens in the US in November. If Donald Trump wins, the right will argue that the Conservatives should ape his strategy; if he loses to an historically weak Democrat candidate, that argument will be much harder to make.

Brexit destroyed the Conservative Party’s coalition. It thought it had found a new one in 2019, but maybe that was only true for as long as Jeremy Corbyn was leader of the Labour Party. It will have to decide after the election whether to keep trying with the new coalition or go back to its old one.

If you are interested in more insight like this, NorthStar Advisory produce a weekly report for their clients on what's happened in UK and geopolitics and, more importantly, why it happened and what might happen next. We are making those reports available to everyone for FREE until mid-July given the interest in the UK election. If you would like to be added to the mailing list, please contact northstar@northstaradvisory.uk.

Emerging Economy Elections

2024 is an exceptional year of elections, most in the developing world. Democracy has been in retreat globally over the last decade. But recent elections in several major emerging economies have shown that democracy is more resilient than sometimes thought. 

Surprise Indian Election Result

Prime Minister Narendra Modi’s BJP emerged from India’s elections last week as the largest party, but failed to secure the 272 seats needed for outright victory. Modi not only failed to meet the target the BJP had set of 370 seats, but fell back significantly from their 303 seats in the last election. Opposition parties who looked disorganised and on the back foot performed better than predicted by the (notoriously unreliable) Indian polls, forcing Modi into a coalition with his National Democratic Alliance (NDA) allies.

It is the first time since 2014 that the party has been unable to govern alone, piercing the aura of supremacy that Modi has built up and demonstrating that his self-confident, upbeat Hindu nationalist campaign did not resonate with large parts of the population in more mixed areas of the country, where bread and butter local issues proved decisive.

The outcome is good news for Indian democracy. There were legitimate concerns about what a large BJP majority would mean for the authoritarian tendencies of Modi. It is a significant setback for Modi, but it is too early to assume he is on borrowed time. He is only the second Prime Minister to secure three consecutive terms in office, and the opposition Congress Party - which has ruled for much of India’s modern history - still secured fewer than half the seats of the BJP. 

It will, however, complicate some of the economic measures, particularly in relation to land and labour market reform, which India will need if Modi wants to continue growing India’s industrial sector. 

President Obrador’s Protégé Wins in Mexico

Claudia Sheinbaum of the left-wing Morena party won the presidential election to become Mexico’s first female leader, having secured 59.1% of the vote after an extremely bloody run-up to the elections. Sheinbaum succeeds her political mentor Andrés Manuel López Obrador (AMLO) and has promised to continue his agenda - “more rights, a welfare state, education, health, access to housing, and that a living wage is a right, not a privilege”. Markets are concerned that Sheinbaum will extend AMLO’s state-centric economic approach and entrench the party’s dominance of Mexican politics in ways unhealthy for democracy. On the face of it, however, Sheinbaum does not have the pedigree of a national-populist - her previous roles include working as an author for the IPCC.

ANC Fails to Secure a Majority

These two major emerging economy elections follow those of South Africa two weeks ago and Indonesia earlier this year. In South Africa, the ANC comprehensively lost its majority, slumping to around 40% of the vote. When apartheid ended in 1990, the advent of ‘normal’ politics, with non-ANC parties progressively growing in importance, was seen as inevitable if the country remained a functioning democracy. That in itself, however, was not inevitable; and while it has taken longer than anticipated, it is testament to the strength of South Africa’s democracy that it has happened.

There are major questions about what happens next in all of these countries. For example in South Africa, what coalition can the ANC form and will Zuma’s party resort to violence? In Mexico will Sheinbaum extend AMLO‘s approach or move towards the centre? But in these recent elections the incumbents and main opposition have accepted the results and are getting on with the business of forming a government. Democracy in these major emerging economies may be imperfect, but is functioning. It remains to be seen whether the same holds true in the most important elections this year in the US.

If you are interested in more insight like this, NorthStar Advisory produce a weekly report for their clients on what's happened in UK and geopolitics and, more importantly, why it happened and what might happen next. We are making those reports available to everyone for FREE until mid-July given the interest in the UK election. If you would like to be added to the mailing list, please contact northstar@northstaradvisory.uk.