We voted for you as Leader and Prime Minister because we believed you were committed to a moderate, open-hearted Conservative Party in the One Nation tradition. A party of economic competence, representing the best of British business, delivering good jobs, opportunity and prosperity for all, funding world class public services and tackling inequalities. We had hoped you would also continue to modernise our party so that it could reach out and broaden its appeal to younger voters and to embrace and reflect the diversity of the communities we seek to represent.<doc-sep>Three Conservative MPs have quit the party to join an independent group in parliament, in a blow to Prime Minister Theresa May's attempts to unite her party around her Brexit plans. What does it mean? The Conservative Party does not have a majority in parliament and is only able to govern thanks to a deal with the DUP. The resignations mean that Mrs May's position in parliament has been weakened even further, at a time when she needs to be able to win a crucial vote approving whatever Brexit deal she is able to strike with the EU. There are now 313 active Conservative MPs in the 650-seat parliament. With the DUP support this means May now has a working majority of seven seats, down from 13. This is calculated based on the fact that some MPs do not take up their seats, and others act as neutral speakers. In reality, the three defectors have often voted against Mrs May's plan for exiting the European Union and she would not necessarily have been able to count on their votes anyway. Also, although the three have left the party, as independents they would still be free to vote with Mrs May's Conservatives at any time. Who are the MPs who have quit? Anna Soubry Ms Soubry is a former minister who has been outspoken against Brexit, advocating a second referendum and arguing against leaving the bloc without a deal. Earlier this year, she was subject to verbal abuse by pro-Brexit protestors during a live TV interview. She became a member of parliament in 2010. Heidi Allen Ms Allen campaigned to 'Remain' in the 2016 referendum on leaving the EU, and has since spoken about the dangers of leaving the bloc without a deal. She was elected to parliament in 2015 and supports a second Brexit referendum. Sarah Wollaston A Conservative MP since 2010, Ms Wollaston heads the Liaison Committee group of senior MPs who chair parliamentary committees. A doctor by training, she has warned about the impact of a 'no deal' Brexit on the health service. She supports holding a second referendum on Brexit.<doc-sep>Above: Anna Soubry, the most high-profile of Conservative party defectors. Image © Gov.uk. The Government's working majority in the House of Commons has now been reduced to 8 following the resignation of three Conservative party MPs who have opted to join 8 former Labour MPs in the so-called Independent Group, injecting a fresh dose of uncertainty into the Pound's outlook. Pound Sterling had been on a strong footing heading into late-morning London trade owing to supportive newsflow on the direction of EU-UK Brexit negotiations before three Conservative MPs - Anna Soubry, Heidi Allen and Sarah Wollaston - announced they were resigning the party owing to the government's handling of Brexit. News of the defections - while not entirely surprising as rumours had been circulating for days - has seen the Pound pare gains as the move increases the prospect of a general election and makes it harder for rebels to vote against the government and delay Brexit. The Pound-to-Euro exchange rate is quoted at 1.1492, having been as high as 1.1518 earlier in the day and the Pound-to-Dollar exchange rate is quoted at 1.3020, having been as high as 1.3079 earlier. "From GBP’s perspective there are positive and negative side-effects of today’s news that three Conservative MPs have left the Party to join the eight Labour MPs sitting as Independents. On balance, we think the negatives dominate," says Adam Cole, a foreign exchange strategist with RBC Capital Markets. While the near-term market impact on the resignations is not necessarily a hammer-blow to Sterling, in our view this development increases the downside risks in Sterling's outlook because of two reasons: 1) It lessens the chances of parliamentary rebellion 2) It increases the prospect of a general election I will deal with each point separately: On point 1: Now that rebels in the Conservative party have left, the party is devoid of the notable 'ring leaders' of previous rebellions, particularly in the form of Anna Soubry who was a galvanising force in the pro-EU wing of the party. Voting with rebels in your own party is one thing, rebelling and coordinating with an opposition party is quite another. Granted, this could therefore be a good outcome for May, and increases the chance of her deal passing. But, this misses a more immediate parliamentary issue: that of parliament's ability to force a delay to Brexit and avoid a 'no deal' outcome on March 29. The market has bid Sterling through 2019 on the growing realisation that parliament will be able to vote against the government and force it into adopting a delay to Brexit, with the view to perhaps formulating a softer Brexit. Can this assumption continue to hold now that three key rebels have left the Conservative ranks? We think it has gotten a great deal harder for those wavering on whether or not to vote against the government, and is therefore a negative for Sterling's near-term outlook. If parliament cannot vote to force the government into an extension of Brexit, the opportunity might come as early as February 27, then markets might become a great deal more nervous. That said, Nick Boles and Dominic Grieve remain Conservative party members, and they have been two crucial figures in formulating previous amendments that resulted in defeats for the government. If we see these two names defect over coming days then this becomes a scenario we feel markets might take more seriously. "Insofar as neither the electorate, parliament nor the EU favour a no deal Brexit it is our view (and that of the market consensus) that a deal will eventually be passed. That said, the odds in favour of a hard Brexit have grown as the March 29 deadline approaches," says Jane Foley, a foreign exchange strategist with Rabobank, commenting following news of the defections. On point 2: The Prime Minister's Majority in parliament is now down to 8 (or 7, depending on your source), this includes those DUP's backing the government in a confidence and supply agreement. If she loses 8 more Conservative party MPs, for whatever reason, the government is left in a very difficult position and cannot effectively govern. We would imagine that under such a circumstance May would have little choice but to call a fresh general election and request a lengthy delay to Brexit from the EU to would allow for a new parliament to form. "The defections reduce the government’s working majority in the Commons from 13 to seven, though the defecting MPs have said they will vote with the government on some issues (which probably includes confidence motions). Nonetheless, the risk of a near-term election has risen," says RBC Capital's Cole. According to betting markets, the risk of an election this year has risen from an already elevated level of 36% to a record 44%. A general election would open the door to months of uncertainty, with no guarantee that any one side of the Brexit argument will gain a majority in parliament that will allow for a conclusive settlement to the Brexit question. The Pound detests uncertainty, and under such a circumstance we would warn the currency becomes prone to months of underperformance while more businesses delay investment plans and even trigger Brexit contingency plans i.e. ship operations and capital abroad. "An early election would presumably be fought under a different Conservative leader (May has committed not to fight the next election) and likely under a more Eurosceptic one. It is hard to argue either an election victory for a more Eurosceptic Tory party, or a Labour-led government would be anything other than negative for GBP," says Cole. May will hope that further defections are limited and that she will continue fighting for a deal with the EU that can ultimately command a majority in the House of Commons; crucially any deal must satisfy the DUP who say they will withdraw their supply of votes if parliament passes a Brexit deal that threatens the integrity of the UK. So, we could also end up in a scenario where a Brexit deal has passed (good for the Pound) but the government has lost its majority, thereby forcing a general election (bad for the Pound). All eyes now turn to the outcome of May's overnight meeting with Jean-Clause Juncker in Brussels.<doc-sep>
If the resignation of Anna Soubry, Sarah Wollaston and Heidi Allen means the Tories are becoming a narrower and less tolerant party, it is a disaster. The Conservatives cannot afford to decline into a sect which drives out all those who are unable to subscribe to whatever its stern, unbending ideology happens to be at any particular moment. It must remain a broad church within which a continuous and never finally settled argument about doctrine can take place. Only then is it able convincingly to offer its services to the nation as a party of government. Theresa May looks so weak because she has been attempting to hold her party together. She is not herself of a sectarian disposition: an accusation which can more justly be levelled at Jeremy Corbyn. She is a pragmatist, who hopes she can persuade the vast majority of her backbenchers to support a pragmatic Brexit deal, even though it does not conform in every particular to the different and mutually incompatible things they would like in an ideal world to see. The danger of making a complete mess of Brexit is so acute that any deal is likely to seem better than the alternative This is not a glorious position for a leader to be in. It entails cajoling your discontented followers into the recognition that the best is the enemy of the good. Few Conservatives are prepared to admit quite how difficult the prime minister’s task is, and many have ceased to trust a word she says. Her critics on the liberal left of the party think she has allowed herself to be pushed around too much by her party’s Eurosceptics. They are deeply dissatisfied with May’s handling of things, but their real quarrel is with members of the European Reform Group. At least three of them, we saw today, can no longer bear to stay in the same party as the ERG. In 1981, only one Tory MP, Christopher Brocklebank-Fowler, joined the group which broke away from Labour and founded the SDP. According to Alan Clark, who watched from the Conservative benches as “Brocklebank” crossed “in a rather stilted little display” from one side of the Commons to the other, “The whole house roared with laughter, which was not the reaction intended by the Social Democrats.” The Conservatives were in 1981 deeply divided. Many of the Tory wets believed Margaret Thatcher was leading them and the country to perdition. Yet they refrained from joining the four former Labour ministers, Roy Jenkins, Shirley Williams, David Owen and Bill Rodgers, who as the Gang of Four set up the SDP. The Conservative party held together, Thatcher led it to two more general election victories, and only at the end of 1990, by which time she had become an electoral liability, did her MPs throw her overboard. May already is an electoral liability, and today’s defections will be harder to laugh off than Brocklebank-Fowler’s was. For Brexit cuts through the party like a knife, and will go on doing so while May struggles to get her deal through the Commons. This is not just an argument about ideology. It is an argument about what the government actually does, which is why it has such divisive force. And yet I do not expect the Tory tribe to shatter into fragments. For the danger of making a complete mess of Brexit, and being blamed by the country for making a complete mess of Brexit, is now so acute that any deal, even whatever fudge May brings back from Brussels, is likely to seem to most Conservative MPs a better bet than the alternative. Most of them know they will never be forgiven, and their own political careers will be over if they get this wrong. Conservatives as various as Jacob Rees-Mogg and Nicky Morgan have recognised this, which is why they put their names to the Malthouse compromise, as a possible way forward through the Brexit negotiations. So the paradox of these three resignations is that in the short term they could conceivably strengthen May’s position, by terrifying her MPs into obeying the great dictum attributed to that altogether more brilliant, resourceful and unscrupulous Tory leader, Benjamin Disraeli: “Damn your principles! Stick to your party.”