Theresa May is most likely to form a “confidence and supply” arrangement with the DUP.
Their policy agendas are broadly aligned – for example DUP are in favour of reducing corporation tax to compete more easily with Eire-based businesses, although they will be particularly interested in a soft border and free trading arrangements with Republic of Ireland.
These are my take-aways as to what a new coalition may mean:
1) Most commentators view this as a positive sign we may get a “softer” Brexit. I’m not so sure, as there is still a strong Eurosceptic arm within the Conservative Party that may try and block this, leading to a higher risk of falling out into no deal and WTO rules.
2) The EU’s chief negotiator Michel Barnier has struck a conciliatory tone in remarks on Twitter, and appears to want a meeting of minds.
3) A leadership election, or indeed a further general election, if May cannot secure approval for a Queen’s Speech, would further damage prospects of reaching any form of Brexit deal within the remaining 21 months. This is the reason she cites for hanging on in post.
4) For markets, we will see some short-term volatility, which will settle once we have a stable government in place. Upward pressure on bond yields will be lower than under an alternative Labour-led coalition.
5) For pension policy, it appears the DUP support the triple lock and universal Winter Fuel Payments, so the Conservatives may have to retain these as part of a deal.
6) I think we are unlikely to see tinkering with pensions annual allowances for the next 2-3 years especially as the Conservative manifesto gives flexibility to raise personal tax rates and other taxes instead.
Jon Dean is senior consultant at Altus