Johnson vows to ‘deliver Brexit, unite the country and defeat Jeremy Corbyn’

23 Jul 2019

Phil Shaw

Investec Chief Economist

Boris Johnson has defeated Foreign Secretary Jeremy Hunt by 66% to 34% to become leader of the Conservative Party, and the next PM.

What happens next?

Mr Johnson has to wait a little before he becomes Prime Minister. This is set to happen on Wednesday 24 July after current PM Theresa May conducts her final Prime Minister’s Questions in parliament, makes a farewell speech and sees the Queen to announce her resignation. ‘BoJo’ looks set to be formally appointed after that, following a trip to Buckingham Palace.

What are his immediate responsibilities?

New PMs normally enjoy a honeymoon period. However it is unlikely that Mr Johnson will be afforded that luxury. His first task will be to survive a day in parliament before it departs for the summer recess. On Tuesday former junior Foreign Office Minister Alan Duncan resigned his post in order to try to force an emergency debate in the Commons to test the new PM’s majority. This was turned down by Speaker John Bercow.
Earlier on Wednesday, junior Education Minister Anne Milton resigned and similar ministerial announcements are likely to follow over the next 24 hours. This partly reflects the reality of a reshuffle over the next couple of days, but the fact that ministers are resigning before they are pushed says something about the divisions in the Parliamentary Conservative Party.
The PM should come through his first full day (relatively) unscathed. But it will be thrown into focus when MPs sit again on 3 September.
Moreover the fragile party arithmetic in the Commons has become more brittle still after Conservative MP Charlie Elphicke had the whip withdrawn yesterday, following the announcement that he would be facing criminal charges for sexual assault. Technically now the effective combined Tory/DUP majority stands at just two. And after the Brecon by-election on 1 August, an expected Lib Dem victory would pull this down to one. And while in practice a small number of independents (including Elphicke) could vote with the government in key votes, the margins could be razor thin.  

What is the opposition up to?

On Thursday, opposition Leader Jeremy Corbyn could call a vote of no confidence. In practice though we suspect that he will not have the necessary numbers to win – we would expect at this stage for Tory/DUP solidarity to hold in a formal vote – so he will not call it. The new PM should come through his first full day (relatively) unscathed. But this will be thrown into sharp focus when the Commons sits again from 3 September.
Financial markets will be keen to see who is Chancellor, particularly given the tax and spending promises made in the leadership race. 

When will he name his team?

Exactly when Mr Johnson will name his Cabinet is not clear. Of course he cannot appoint his team formally until he is technically Prime Minister, which means that the official process may start late on Wednesday. Financial markets will be keen to see who is Chancellor, particularly given the tax and spending promises made during the leadership race.
In addition, the new Chancellor will be responsible for replacing Bank of England Governor Mark Carney, whose term at the helm of the central bank ends in January next year. Current Home Secretary Sajid Javid is the frontrunner, according to bookmakers. Another key (arguably lower profile) appointment will be the Chief Whip. This is a critical role, bearing in mind the parliamentary arithmetic and that every vote might be critical.

And... what about Brexit?

In what will be a somewhat brimming in-tray, Mr Johnson’s highest profile task will of course be to deliver Brexit. In pushing ‘no deal’ as a fall back option, and claiming that the UK will leave the EU on 31 October ‘do or die’, he has already fractured his party. Our guess is that the UK’s no deal Brexit preparations will become higher profile and that the PM’s tone in Brussels will be less conciliatory than his predecessor’s.
Persuading the EU27 that a no deal Brexit is a serious option seems to be one of the ways that Britain attempts to squeeze concessions out of Brussels, especially on the Irish backstop. But Downing Street needs to try to forge a consensus within its own party as well, perhaps limiting the PM’s operating space. And various attempts in parliament to block no deal may limit the effectiveness of his negotiations. Overall Mr Johnson faces a perilous balancing act.
In his (short) acceptance speech, Mr Johnson referred to the irreconcilable desires for free trade and democratic self-government. He stated that his aims were to deliver Brexit, unite the country and defeat Jeremy Corbyn. Overall Mr Johnson seems poised to offer a new approach on policy, especially Brexit.
Nevertheless he will face common constraints to Mrs May, especially with the parliamentary numbers, as discussed. Our baseline case is that a deal emerges that is based on Mrs May’s agreement, perhaps with changes to the backstop.
We expect the new PM will have some political capital to push this through parliament, perhaps with a delay into the early months of next year. In the meantime though, uncertainty is likely to pervade through markets, including further downward pressure on sterling. Indeed we could see the UK currency testing $1.20 and 93p against the euro. 
Last while our central scenario sees an election being avoided this year, we would not be surprised see a snap election taking place in mid-2020, providing that Brexit is delivered with a deal. But from the current perspective, this point seems like a long way away.