NOTE

Theresa May—More Merkel than Thatcher?

by Jacob Funk Kirkegaard | July 11, 2016

The unexpectedly rapid ascendance of Theresa May as the next prime minister of Britain averts a damaging leadership struggle this summer within the Conservative Party. But it also suggests an increased probability that Article 50 negotiations over the terms of Britain’s exit from the European Union will be acrimonious, especially as May has challenged the EU-27 demand for speed by stating that she will not start negotiating until 2017.

Upon her emergence as leader, May reiterated her earlier statement that “Brexit means Brexit” and seems dedicated to pursuing it with vigor, apparently realizing that this is her only chance to maintain unity inside a still deeply split party. May is a relative hardliner on immigration issues, however, despite her lukewarm endorsement for the Remain cause. That stance implies a tough UK negotiation position on free movement on labor with the EU-27 amid all indications that the EU-27 are unlikely to yield on that issue.

To survive politically at home, May must deliver Brexit at almost any cost, suggesting that she might well in the end be compelled to accept a “hard Brexit” that puts the UK entirely outside the internal market. Lacking a public mandate in a fractious party that retains only a slim parliamentary majority, May not surprisingly opposes new general elections, which would focus on Brexit and thus easily cost the Conservatives their majority, along with their new prime minister’s job. Unless the UK suffers substantially additional economic hardship in the coming years, the next UK elections may well occur as late as 2020.

In the economic policy sphere, relatively little is known about May’s views. Her first campaign speech, delivered on July 11, shortly before her last opponent withdrew her candidacy, offers a few important pointers, some of them surprising for a Conservative leader.

Sounding like many Labour Party leaders, May pledged that “under my leadership, the Conservative Party will put itself – completely, absolutely, unequivocally—at the service of ordinary, working people.” She modified the British government’s open door view of foreign direct investment (FDI) by noting how a review process similar to the United States’s on national security concerns “wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain.” She also called for the introduction of German-style cooperative arrangement with worker representatives on corporate boards (Mittbestimmung), so that “we’re going to have not just consumers represented on company boards, but employees as well.” And she called for dramatic changes to UK corporate governance rules, to “make shareholder votes on corporate pay not just advisory but binding…. [and for] the full disclosure of bonus targets and the publication of ‘pay multiple’ data: that is, the ratio between the CEO’s pay and the average company worker’s pay.”

For a country currently soliciting more investment from China, the United States, and elsewhere, these appear quite far-reaching policy changes, lessening its attraction for many such investors. These positions could also conflict with the chancellor of the exchequer’s previously published intention to lower UK corporate tax rates to 15 percent or less to counter the effects of Brexit. If May is serious about this agenda, she could be in for a fight to avoid dampening investor interest in the UK, at least from many US businesses, which oppose similar proposals in the United States. Since many of her proposals also go against the 2015 Conservative Party election manifesto, and she still lacks her own public mandate for change, a fight with her own party looks similarly likely. Perhaps ominously for her, the last British prime minister to be appointed by acclimation by his own party, Labour’s Gordon Brown in 2007, did not manage to keep his party together for long.

On the other hand, with the UK Labour Party about to enter into a potentially devastating leadership contest of its own, risking a split on the left, May’s apparent shift to the center makes political sense. With Labour busy fighting itself, she has the opportunity to seize the middle ground of UK politics in a manner reminiscent of the outgoing prime minister, David Cameron, laying the potential groundwork for winning her own first general election as prime minister. Certainly by openly stealing a lot of her center-left rivals’ economic policies, May would put a stamp on the office quite different from her only female predecessor, Margaret Thatcher, and copy the key domestic political strategy of Europe’s great political survivor, Chancellor Angela Merkel of Germany.

Copyright 2016 the Peterson Institute.