All Hung Up

by Martin Denholm, Senior Editor, Investment U
Friday, May 7, 2010

“Whatever you do, don’t retire to the UK. It’s a mess. High taxes, high cost of living, violent crime, corrupt politicians, failing healthcare. Yep, not pleasant. Most Brits would be gone to the USA if they could get the visas. Almost anywhere else in Europe would be better.”

So says Investment U reader, James, in response to Alexander Green’s recent column – How to Retire Overseas: Why You Should “Think Outside the Borders.”

Thanks for your comment, James. And as a fellow native Brit (working in America with a visa since 2000, by the way, but still awaiting the outcome of my Green Card application, four years after starting the process), allow me to add another negative factor into Britain’s sour mix: the country’s newly hung parliament…

And the Winner Is…

Mercifully, British general election campaigns are way shorter than American ones. Plus, as I tell my American buddies, not only do they include posh accents, they also feature tea breaks.

(Okay, I lied about that last bit!)

And the winner of this election is… nobody. Kind of.

For the first time since 1974, Britain has a hung parliament. None of the three major parties got the 326 parliamentary seats necessary to win an outright majority.

David Cameron’s Conservatives came mighty close, though, finishing with 306 – a gain of 97 from the 2005 election.

British voters delivered a damning verdict on incumbent Prime Minister Gordon Brown’s Labour Party, bumping them into second place, with 258 seats – a loss of 91.

Perhaps the most surprising result, though, was the loss of five seats for the Liberal Democrats, led by Nick Clegg. The Lib-Dems are a legitimate third party candidate behind the “big two” (albeit always finishing a distant third in general elections) and were expected to add a decent number of seats to their existing 62.

But despite Clegg having built strong early momentum after his performance in the first of three live US-style television debates (the first time that’s featured in a British election), Brits didn’t translate that to enough votes. Clegg said the uncertain economic times might have caused voters to stick with what they know and are more comfortable with, rather than opting for more sweeping change.

So what now?

Olde London Town Becomes “Haggle Central”

If you’re confused about what the next step is, you’re not the only one!

With no party gaining an overall majority, the kissing-up, sneaky backroom deals, haggling and compromising is already well underway, as the parties scrap to find a working coalition.

The incumbent Prime Minister (PM) has first choice to form a new government and regardless, it’s his duty to stay as PM until a resolution is reached, as there must always be a working government.

It’s similar to the 1974 hung parliament when incumbent PM Edward Heath stayed on for four days after the election while he tried to form a coalition. He couldn’t, though, and the Labour Party’s Harold Wilson became PM.

This time, with Brown having clearly suffered a heavy defeat and “lost his mandate to govern” (in Cameron’s words), he’s essentially waiting in the wings to see what happens.

With Clegg on record as stating that the party with the most votes has the first chance to form a working government, Cameron immediately reached out to Clegg and offered a “big, open and comprehensive offer” to do just that, “tackling our country’s big and urgent problems – the debt crisis, our deep social problems and our broken political system. I think we have a strong basis for a strong government.”

In it, Cameron would be installed as the new PM and a Conservative-Lib-Dem coalition government would ensue.

Talks between the two men are described to have been “very constructive” and there’s speculation that it could include cabinet seats for Lib-Dems. Cameron will need to satisfy Clegg’s major goal of voting reform, too.

Oddly, despite finishing in a distant third place, Clegg is the key man here. A hung parliament offers him the chance to propel the Lib-Dem agenda onto the front benches of the House of Commons if he and Cameron can reach an agreement. Saturday’s Independent newspaper sums it up, running Clegg with the headline: “One man’s moment. His party’s destiny. Our nation’s future.”

Brown is waiting to see whether the two men can reach an agreement and said he’s open to “discuss with Mr. Clegg the areas where there may be some measure of agreement between our two parties” and that it’s “our [politicians'] responsibility now to make it [the election verdict] work for the national good.”

Time will tell just how quickly that will happen. But I’d love to be a fly on the wall at the parties’ respective headquarters and during these talks.

So forget the tea breaks, lads – get on with it.

Best regards,

Martin Denholm

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