Will Rishi Sunak reintroduce austerity?

Rishi Sunak succeeded Liz Truss as Britain’s last prime minister, entering Downing Street on Tuesday with a stark warning that Britain is in the midst of “Deep economic crisis”.

Speaking outside Room 10, he said there were “difficult decisions” ahead, making it clear that tax hikes and public sector spending cuts were on their way to the Chancellor. Jeremy Huntmedium-term financial plan to be presented on Monday, October 31.

Mr. Hunt, who was only brought in on October 14 by Ms. Truss to replace the unceremoniously dismissed Kwasi KwartengUp to £40 billion needs to be found to fill the giant black hole in the national finances created by Corona virus infection covid-19 pandemic and partly by the “mini-budget” introduced during the comically short-lived Truss-Kwarteng alliance that has so spooked global markets and caused such chaos over the past month.

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Mr. Sunak made it clear in his speech that he is ready to impose strictness measures to balance the books, declaring: “The government I lead will not leave to the next generation, your children and grandchildren, a debt to repay that we were too weak to pay ourselves.”

He pledged to deliver on Conservative promises to deliver “a stronger NHS, better schools, safer streets, control of our borders” and play an active role in “protecting the environment, supporting our armed forces, raising standards and building an economy that embraces Brexit opportunities, where businesses invest , innovate and create jobs.”

Recognizing the national uncertainty surrounding the insurgency cost of living, Mr Sunak said: “I fully understand how difficult everything is. And I also understand that I need to work to rebuild trust after everything that happened. All I can say is that I wasn’t scared.’

There are in the markets answered passionately to the anointing of Mr Sunak as the UK’s new Prime Minister so far, but will the public trust him to fix the economy he has presided over for two and a half years Boris JohnsonThe US chancellor – admittedly during the exceptional and exceptionally difficult circumstances of the lockdown – remains to be seen.

Another big question he will have to answer is whether the super-rich Brexiteer, a former banker and hedge fund manager with an expensive education, can truly understand the plight of impoverished people forced to choose between heating and food this winter. “compassionate” management.

Fixing the economy is clearly set to be Mr Sunak’s top priority in Number 10, with many fearing a return to the discredited austerity programme. George Osborne years.

First Minister of Scotland Nicola Sturgeonfor example, has already named what she is afraid of “horror show” cuts imposed on her nation by yet another Conservative leader in London without a mandate from the voters.

Tony Dunker, chief executive of the Confederation of British Industry, also warned Mr Sunak that he should avoid “thought loop” raising taxes and reducing austerity measures in the public sector.

“Let’s remember that the 2010s started with some austerity and then ended with very low growth, zero productivity and low investment, right? It was not a successful growth strategy,” he told BBC Radio 4 today program for Tuesday.

In Mr Hunt’s statement on Halloween, Mr Danker added: “If all there is is tax increases and spending cuts, and there’s nothing about growth, the country could end up in a kind of doom where all you have to do is is to keep coming back every year to find more tax increases and more spending cuts because you don’t have growth.”

Also giving a stark assessment of what could result was City economist Thomas Pugh of RSM, who warned on Monday that the new prime minister was promising fiscal responsibility can only mean more austerity, which, combined with the cost of living crisis, threatened to lead to a longer recession than has already been predicted, even if it can be brought about inflation down from the current 40-year high and reduce the need for further action by the Bank of England on interest rates.

“For now, financial markets will be watching the new prime minister very closely and will want to see evidence that he intends to follow through on the message of fiscal discipline he set out during the previous leadership campaign,” Mr Pugh said. .

“Any sign of a derailment of fiscal discipline is likely to spook financial markets and lead to a fresh plunge in the pound and a surge in gilt yields.”

It is too early to say exactly what steps Mr Sunak will take in office on issues such as national insurance or the future of energy price freezes.

But even after Mr Hunt scrapped almost every tax-cutting initiative in Truss-Kwarteng’s mini-budget, that ominous hole at the heart of Britain’s finances continues to loom large.

Cutting government spending is likely to be a key focus in the early stages, but there is a risk of setting up potential battles with Tory MPs unwilling to face further budget cuts in their departments.

Defense spending could be a target as the former chancellor appeared to favor keeping it at 2 per cent of GDP until 2030 as a leadership candidate, rather than raising it to 3 per cent, as Ms Truss had suggested, which would save projected pounds sterling. 157 billion at the same time.

However, this could have a negative impact on Britain’s popular but expensive and ongoing commitment to support Ukraine.

He may also be prone to scrapping major infrastructure projects, although failing to deliver on promises on hospitals and rail lines – with the NHS under duress and train strikes just around the corner – is unlikely to lead to a popular and stable government.

As Mr Dunker suggests, spending restraint alone will not be enough to restore Britain to rough economic health, so Mr Sunak will also need to echo Ms Truss’s call for “growth, growth and growth”, even if he fully encourages it. another way (as he would be well advised).

This could take the form of supporting controversial policies he has previously seemed lukewarm to, such as fracking (popular among the right wing of his party), rolling back environmental reforms or loosening planning rules, regardless of their long-term consequences.

whatever happens next The IndependentSean O’Grady is certainly right when he warns that the new Prime Minister does not really represent break with the past or a meaningful new beginning.

“The cuts that Sunak and Jeremy Hunt are about to inflict on the nation are not just because of global trends, but because of Brexit’s self-inflicted damage,” he argues.

“They also stem from mistakes made by Tory governments over more than a decade, from Osborne’s infrastructure spending cuts to waste and fraud during Covid (on Sunak’s watch) to the disastrous Trus mini-budget.”