Britain’s third Prime Minister in seven weeks takes office today as the head of a divided party and an uncertain country. This is Arden’s assessment of the challenges facing Britain’s 57th Prime Minister.
The Truss Interregnum has strengthened Sunak and humiliated the Small-Staters
Liz Truss and Kwasi Kwarteng tested to destruction the idea they had pamphleteered, that the UK should be a lower tax, lightly regulated, smaller State, enabled by herculean levels of economic growth. To put it mildly, that experiment has proven to be sub-optimal. Not only have many of Sunak’s criticisms of Trussonomics been validated, but Truss’ economic failure should secure him from carping by his backbench fiscal minimalists.
We got you into this mess, but I know how to get you out of it…
Back in 1992, before Black Wednesday, John Major confounded the pollsters by winning a General Election amidst a recession. His argument was, in part, ‘I know you think we got the country into this recession, but who do you trust most to get us out of it?’
While the politics of the past few months feels analogous to Black Wednesday, more than any other recent recession, the nation’s financial position is more challenging now than in early 1992. Could a similar partial mea culpa strategy work again?
Britain likely now has two Chancellors
Britain’s PM is also officially the First Lord of the Treasury. But Rishi Sunak is likely to go further and operate as a Chancellor come Prime Minister. He felt most at home at the Treasury and it’s where he may reach back to, to recruit some of his new top team.
In his first campaign for the premiership, Sunak promised a “return to traditional Conversative economic values.” And while he opposed Truss’ tax cuts he was nevertheless committed to a gradual tax cutting agenda including cutting income tax by 1p in 2024 and a further 3p by the end of the following Parliament. Several of Jeremy Hunt’s policy reversals of the last few weeks have reset spending plans back to where they stood under Sunak as Chancellor back in March’s spring statement though the cut to the basic rate of income tax has been lost.
The Remainers’ Brexiteer
Liz Truss won the leadership as the Brexiteers’ Remainer, can Sunak pull off the same trick in reverse? As the UK consciously uncouples from some of the world’s autocracies, we need to work with economic and political partners of scale and substance. This could lead to an economy-first approach to engaging with allies. Having backed Brexit in 2016, Sunak could lead the government to meaningfully re-engage with our largest and nearest market.
The much-vaunted UK embrace of a bilateral trade deal with Washington has been unrequited, while our membership process for the CPTPP progresses – albeit slowly. That leaves one major trading block – the EU. But a party split on the Northern Ireland Protocol may have limited room for tactical manoeuvre. This may be an unforced, economically painful error at a time when the EU appears willing to compromise to avoid further discord.
After a fifty-day hiatus, Levelling Up may be back in fashion
Each of the five Conservative PMs over the past six years has had their own big idea, such as Cameron’s Big Society or Truss’ Go for Growth. While not an instinctive advocate of Johnson’s levelling up policy, we may see Levelling Up 2.0 with renewed focus on regional inequality, more elected mayors, and infrastructure projects outside the South-East.
Vote blue, get slightly less green
The new PM is committed to net zero by 2050, albeit far less convincingly than Boris Johnson. We are likely to see an emphasis on the economic utility of the transition and the opportunities for UK business in carbon capture, hydrogen and agri-tech. As PM, he is likely to advocate boosting homegrown renewables, home insulation and EV charging networks. He has advocated further North Sea exploration, fracking where communities support it, and re-establishing a separate Department of Energy. He may also revisit a previous plan to introduce a legal target to make Britain energy self-sufficient by 2045.
An even tougher line on China
Sunak has been instinctively attracted to economic engagement with allies and strategic rivals, including China. This had earned him the opprobrium of Liz Truss who accused him of being insufficiently robust with President Xi’s regime.
Under pressure, he has recalibrated his position and would now close all of China’s 30 ‘Confucius Institutes’ in the UK, guarantee greater transparency on Chinese partnerships with UK universities, review certain UK-China research partnerships, and examine the need to prevent Chinese acquisition of key British assets.
A Party that may not want to be led
One recent opinion poll had the Conservatives at only 4 per cent above the UK inflation rate. Sunak has challenged his Party to “unite or die” as he tries to lead his fractured party on another journey of reinvention. He will want to convey that his elevation is a change of government rather than just a change of leader. Be prepared for some big symbolic political moves.
But his party is fractured and frustrated. Despite, or perhaps because, he was crowned rather than elected he will face significant internal turbulence. He secured the premiership without a campaign speech, a substantial media interview or a current manifesto; nor was he confirmed by the party members. The collection of ex-ministers and frustrated wannabee ministers grows ever larger. The red-wall insurgent MPs have had a pandemic and three PMs to navigate, and some find little common cause with their more established colleagues. And at this stage of the election cycle ever fewer Conservative MPs will be willing to vote through all the public spending cuts that the government is likely to advocate for.
Not being Boris Johnson was sufficient this week, but it won’t sustain him in the months ahead. This feels like the Conservative’s last best chance of avoiding defeat in 2024.