UK hung parliament might weaken case for hard Brexit, say experts

Brexit negotiations are scheduled to begin on 19 June and it is not yet certain what the makeup of the government will be. May could form a coalition or an informal voting agreement with Northern Ireland's Democratic Unionist Party (DUP), whose 10 seats would give the coalition a majority in parliament.

May has said she will ask the Queen at 12.30 today for permission to form a government. The BBC reports that this is likely to be based on informal support from the DUP rather than a coalition.

Labour's shadow chancellor John McDonnell told BBC Radio 4 this morning that it would seek to form a minority government. Even if it agreed a coalition or informal voting agreement with the next two biggest parties, the SNP and Liberal Democrats, the Labour party would only control 308 votes, short of a parliamentary majority of 326.

May had sought a larger majority in order to be sure of gaining parliamentary support for her preferred hard Brexit deal, which she said would involve leaving the EU single market, prioritising immigration control and blocking any jurisdiction of EU courts.

The general election result throws those plans into doubt.

EU law and Brexit specialist Guy Lougher of Pinsent Masons, the law firm behind Out-Law.com, said: “As Conservative hopes for a clear majority have been dashed, the fate of the all-important Brexit negotiations hang in the balance. As all parties jockey for position amid the political chaos, it looks likely that negotiations will be put on ice as the stated 19 June start date looms."

“UK businesses are in limbo but must resist the urge to do nothing and wait until the dust has settled. This is not however the time for knee jerk reactions. While the parameters of the UK’s exit from the EU could drastically shift in the coming weeks, last year’s referendum result still stands. Those adjusting their business to prepare for a post-Brexit UK should continue as the risk of scrapping plans completely could prompt lengthy and costly delays when negotiations finally do begin.”

Pinsent Masons public affairs specialist Andrew Henderson said that it is not yet clear whether or not the result makes a hard Brexit more likely or less likely.

"Politically, the result may prove seismic for the direction of Brexit. In one analysis, a significantly increased majority would have equipped Theresa May with the electoral leeway to face-off to some of the more outspoken Brexiteers in her own party and perhaps soften her hard Brexit stance," he said. "She now enjoys no such luxury though, hard Brexit may be the only route the strongly preferred route of the returned cohort of Tory MPs."

"Equally, whilst the DUP is a pro-Brexit party, it will be very mindful of the economic and potential social risks that the establishment of a hard border between Northern Ireland and the Republic of Ireland would bring. It is quite likely that this would feature as a 'price' either for entering formal coalition or supporting a Conservative minority government."

Belfast-based Andrea McIlroy Rose of Pinsent Masons said: “It seems likely that the DUP will back the Conservatives possibly on an informal basis but this will come at a price. Investment in infrastructure and public services, reassurances about the border with the Republic of Ireland and the implementation of the lower corporation tax rate of 12.5% will be high on the agenda. Having the only border with Europe and being in a position to provide the balance of power suddenly puts Northern Ireland in the spotlight and allows them to carry a lot of weight and our politicians are unlikely to miss the opportunity to advance the local economy in return." 

Henderson said: "Uncertainty abounds over the country's future direction on Brexit, and will have been a key driver of the pound's hit overnight when parliament's new make-up started to become apparent," said Henderson.

The pound dropped 2% against the euro and the dollar on the announcement of the results of an exit poll which it turned out had predicted the result very accurately.

Pinsent Masons financial services expert Alexis Roberts said: "The result might mean that the prospects of a soft Brexit increases, particularly if the new government decides it has to build more consensus in parliament to get its agenda through. That would certainly be welcome to UK financial servcies businesses, as it would potentially make access to European markets after Brexit more straightforward.”

Pinsent Masons infrastructure specialist Richard Laudy said that the political uncertainty would be bad for the infrastructure sector.

"The UK desperately needs to attract investors if it is to improve its ailing infrastructure yet the political uncertainty in which we now find ourselves is precisely what puts off investors and will make our infrastructure problems more difficult to solve," he said.

"There must also now be a real fear that the government will be distracted away from addressing questions such as the UK's skill shortage as it seeks to shore up its own position. The UK needs an additional 36,000 workers every year to meet the current demand for infrastructure and the government needs to address this," said Laudy. "The problem is immediate and acute and will not be solved by reskilling or apprenticeships alone. There needs to be an open conversation between government and industry, recognising the need to collaborate, map the skills required to deliver our infrastructure and provide for this within any post-Brexit immigration system."