It has been a volatile few weeks for the Prime Minister, and this looks set to continue for the foreseeable future. If you could buy shares in Boris Johnson, should you buy, sell or hold?
The bull case
Despite the travails of recent days, the Prime Minister still has a number of advantages which can keep him in the number one job.
Patronage: The PM has a huge amount of patronage that he can either grant or dangle in front of otherwise hostile MPs. This includes:
- Promotion to or within the Cabinet
- Recommendation for a peerage
- Extra money for an MP’s constituency or pet cause
- Government support for an MP’s private member’s bill
And of course all of these can be inverted and turned into threats, e.g. demotion within the Cabinet.
Hesitant rivals: There’s no doubt that Rishi Sunak, Liz Truss, and every other Cabinet minister would like the top job at some point, but are they ready to strike now? Despite the PM’s optimistic tone, we are still in a pandemic and there is a cost of living crisis already unfolding for the poorest in society, and this is likely to move up the income bands over the next few months. It might be better to hold fire for now and let the PM take the blame.
Local elections: Mid-term elections tend to be bad for the sitting government, because they are a good opportunity for voters to ‘send a message’ that they are unhappy with the way things are going, and there are always some voters who are dissatisfied. However, the fact that they are a few months away provides a convenient excuse for hesitant MPs to put off a decision about writing a letter of no confidence, as they can convince themselves ‘let’s wait and see what happens in the local elections’.
Police investigation: At first glance, the police investigation into alleged breaches of coronavirus regulations seems terrible, however I think at this moment in time it helps the PM. The reason for this is that it effectively neutered the Sue Gray ‘update’, which ended up as 90% filler and a few bullet points saying that the culture at Number 10 wasn’t great. If the police later decide not to take action, the PM can claim he’s been cleared and is innocent as a result, though whether people will believe him is another matter.
Barriers to removal: Unless the PM can be convinced to resign, 54 Conservative MPs need to write a letter requesting a vote of no confidence. If that threshold is met, at least 181 Conservative MPs (i.e. a simple majority) need to vote against the Prime Minister. This means that a lot of MPs have to be prepared to strike at the same time in order to remove the PM.
If the PM wins the confidence vote, he can’t be formally challenged for another year, although carrying on when you know a significant minority of MPs have voted against you would be difficult (both the letters and the vote are secret, so Johnson wouldn’t know who the discontents were unless they decided to reveal themselves).
The bear case
Although there are plenty of things the Prime Minister can do to cling on, it is by no means a smooth ride and he could still be forced out of office (I don’t think he will resign – he will throw everyone else under the bus first).
Police investigation: As mentioned in the bull case, I think this could swing either way for the PM. At the moment it has bought him time, made the Sue Gray update fairly pointless, and offers the chance of no further action being taken. However, if the police investigation were to result in fixed penalty notices or further criminal investigation, then I think that will be the end for Johnson’s premiership.
Cost of living crisis: The ending of the temporary increase in Universal Credit, the increase in the energy price cap, high inflation and a doubling of the Bank of England interest rate are combining to cause a cost of living crisis for households. The upcoming increase in National Insurance will also reduce take-home pay for those in work. Regardless of whether the government has control over inflation or energy prices (arguably they are both driven by global events), when things get tough people look for someone to blame, and the most obvious candidate is the government and particularly the Prime Minister.
No good news: Looking ahead to the coming months, there isn’t any obviously good news on the horizon. The pandemic isn’t over, Brexit continues to rear its ugly head – especially in Northern Ireland – and ‘levelling up’ is a long-term project whose benefits won’t be felt for years, if not decades. Barring a staggering good local election result or a reversal in the cost of living increase, I can’t see anything boosting Johnson in the near term.
Recommendation
If you can stomach the volatility, I think there’s a case for marking Johnson as a short-term speculative buy. I don’t think he will resign, and he probably has at least a few weeks left purely based on how long it takes for MPs to send in letters requesting a vote of no confidence and then for that vote to be held. However, I do think he is likely to leave office this year, so for anyone else my recommendation would be to sell.