LONDON (Reuters Breakingviews) - Britain has voted for a government with little power to do anything of note. That may be just what the economy needs. The hung parliament that emerged from June 8’s election leaves room for a middle-ground approach to tax and spending, while some of the worst manifesto ideas on migration, Brexit and nationalising industries are likely to be consigned to the policy dustbin.
After Prime Minister Theresa May’s Conservative party lost its majority, horse-trading will follow. That might result in a government with a wafer-thin hold on power, or another election within months. While memories of the 1974 hung parliament will resurface, this time is different. The incumbent party has the largest number of seats and the British economy is not in recession.
Look past the uncertainty, and stalemate has its economic charms. Both major parties were planning to interfere with the ability of companies and investors to create jobs and grow the economy. The Conservatives had proposed levies on foreign workers and a brutal cap on migration that would have left employers starved of talent. Labour leader Jeremy Corbyn wanted to crank up corporation taxes and nationalize rail, mail and energy companies.
Then there’s Brexit. Theresa May had asked for a strong hand; whoever follows her will have a weak one. That might make European trading partners more willing to push out key deadlines or offer transitional arrangements that keep financial and trade flows going. It will certainly mean that ideology takes a back seat to pragmatism, and that a majority is unable to railroad through irreversible decisions.
The financial industry in particular can consider this a lucky escape. May had virtually pretended the sector didn’t exist, even though finance generates twice as much economic value per employee than the economy overall. Corbyn wanted to instate a punitive financial transaction tax. The surplus generated by the City of London urgently needs to be spread around the country more fairly, but not stamped out of existence.
There will be anxiety ahead, for sure. But Britain is not Italy, a country that has had more than 60 governments since 1945, in need of major reforms but with no political party strong enough to push them through. If anything, the UK needs a state with better things to do than meddle too much with the economy. That’s what it is now likely to get.