Macro Digest: UK election - All change?

#Election2015: Farage the kingmaker?

https://www.tradingfloor.com/posts/farage-the-kingmaker-4549148

 

·        The UK election will be a protest vote 

·        Like many "extreme" parties, UKIP will outperform polls in the voting booth

·        Election could ring in a year of EU challenges: Grexit, Brexit and QE-xit

 

By Steen Jakobsen

 

"If voting changed anything, they would make it illegal" — Emma Goldman, Russian/American anarchist 

 

First there were two, then three, and now there will be four major UK political parties. No wonder it's getting more and, more difficult to make predictions for the UK election. 

 

The two "old" parties are both far from their historic support levels, and every new General Election sees them get diluted by newcomers to the scene. The Liberal Democrats have, of course, been around for a while now, but their rise created the hung parliament of 2010.

 

Source: FiveThirtyEight 

 

This time it's becoming a Scottish election as the Scottish National Party looks set to gain 41 new mandates while the Tories will lose 19, Labour will gain 15 and the LibDems will lose 32.

 

This leaves the major parties miles from the 326 seats needed for a majority government but –even more confusingly – even the likely coalitions are short of a majority:

 

Tories 283 + LDP 24 = 305 

or

Labour + SNP = 271 +47 = 318

 

A further 19 mandates are available but are split down the middle.

 

Source: FiveThirtyEight 

 

A lot can happen between now and May 7 but due to "first past the goal post" rules in the UK, a change in overall percentage vote share rarely changes the overall result. Note how the UKIP party with 23% of the popular vote might get only one or two mandates, while the LibDems with far less votes (8%) will get 18. No wonder there are calls for a new electoral law in the UK!

 

There is a tendency to run an election based on the "it's the economy, stupid" concept. This, however, has some potential downsides... In the UK, they talk about the 1945 effect – the Tories won the war with Churchill but were out of office by 1945 (despite doing all the hard work).

 

Similarly, the Tories are now running a dangerous campaign calling for voters "not to let Labour ruin the economy"

 

The Tory/LibDem coalition has stabilised the UK but the country's current account deficit is out of control, meaning that the improvement has effectively been borrowed. Still, the parties point to job growth, slowly rising wages and UK's relative GDP improvement.

 

The Labour Party have moved their rhetoric back to the 1970s, fighting for redistribution of wealth, wealth taxes and all the old-school policies which were so dominant during the era of big business, big tax, no growth, and over-unionised labour markets. This is a strategy that suggests a world of zero growth – again, arguing for redistribution rather than a path to new growth.

 

Still, Labour's platform does address the ugly growing extremes in inequality that have resulted from an aggressive monetary policy of low rates and support for the 20% of the economy which is made up of large, publicly-traded companies and banks. Meanwhile, the 80% of the economy – the small- and medium-sized enterprises (SMEs) and middle- and low income earners everywhere – are all worse off than ever.

 

I think this election will be decided on the basis of two factors: Inequality and how many mandates UKIP will get on May 7.

 

The UK's economic numbers may look okay on the surface, but inequality is hard to run from as the 80% have been the biggest losers since the financial crisis started. The problem for the Tories is that these 80% are also the middle class, the voters who are politically engaged. They feel left behind and (I am sure) frustrated by the lack of change and hope. This makes UKIP an interesting alternative. They are the "protest party" for many of these voters.

 

 

Will a desire to protest the current establishment see Nigel Farage's UKIP 

broaden its mandate in the upcoming election? Photo: iStock

 

We know from France and Spain how parties deemed to be "extreme" fare relatively poorly in polls but people are far braver at expressing their political opinion behind the curtains of the voting booth.

 

An Electoral Calculus table suggests that with 20% of the national vote (they have polled above 20% several times in the last two years), UKIP could win eight seats; 24% would produce 46 mandates.

 

Finally we need to address the elephant in the room which is that we are likely to see this UK General Election serve as a pivot point leading to a UK referendum on the European Union. A UK exit from the EU is the single biggest threat to the EU's future and is significantly more important than whether we see a Grexit or not.

 

The UK is the "anchor" for most liberal European countries – certainly for Denmark, Sweden and The Netherlands. We all count on the UK to step up when Brussels (and often Club Med) gets too busy handing out "presents" paid for by Europe's taxpayers. Losing the UK will not only render the EU rudderless but will also create a massive need for the European financial industry to redefine itself.

 

This UK election will mirror many elections around Europe (since the crisis started) in focusing on inequality and the need for political protest. This could make for big moves in the mandates...

I foresee Scottish National Party and UKIP protest votes proving far more numerous than the latest polls suggest.

 

This could lead to a likely Tory/LibDem coalition supported by UKIP. UKIP's support will come with a UK referendum on the EU in 2016. This opens a can of worms as the EU will have to fight for its life by as it juggles the potential fallout from a Grexit, Brexit and a QE-exit.

 

Whatever happens on May 7, the UK is moving towards a dramatic change in its political spectrum. It is heading away from a two-tier system and towards a vote for or against the EU. 

 

This will mean that if you want "no changes", there has never been a better time to make elections illegal.

 

Heavy is the head that wears the... democratic mandate. Photo: iStock

 

— Edited by Michael McKenna

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
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