FIFTH IN SIX YEARS

"British Indian is what I indicate on the census. I am British, this is my home and my country, but my religious and cultural heritage is Indian, my wife is Indian. I openly say that I am a Hindu." This is a quote from Rishi Sunak’s interview with Business Standard (2015). He became not only the first ever non-white head of government, but also the youngest British Prime Minister in more than 200 years. The 42-year-old Sunak was also the first British Prime Minister to be sworn in by King Charles III.

And this man faces his toughest test as the British leader since the Second World War.

Bleak picture

The Bank of England believes that the economy is in recession. And there is growing evidence supporting this view.

The UK is the only G7 economy that failed to return to pre-pandemic GDP levels by the second quarter of 2022. Moreover, the production volume in the country fell by 0.3% in August, following growth of just 0.1% in July.

A government report published shortly before the election of the next prime minister shows that retail sales fell by 1.4% in September, which was worse than expected. Sales are lower than before the pandemic and will continue to fall as high energy prices force households to cut back spendings. Inflation reached a 40-year high (10.1%). British pound fell 1.4% against the US dollar amid gloomy reports.

The bleak picture of the UK's financial situation became more evident after the publication of figures showing that the government borrowed £20bn in September, £5.2bn more than the country's fiscal estimates.

"Increased political and economic uncertainty led to the decline in business activity at rates not seen since the global financial crisis in 2009, barring months of lockdown during the pandemic," according to S&P Global Market Intelligence.

Fairy tales and reality

Sunak is not promising a programme of reforms. His objective is to rescue Britain’s financial credibility, suppress inflation and end the crises in the Conservative Party. After all, he is the party's fifth leader since the Brexit referendum back in 2016.

He was involved in the overthrow of the third premier, Boris Johnson, who resigned in July, and could have been the fourth, but Liz Truss beat him to it, albeit briefly.

It is now important for the party that Sunak stays in office long enough to help lead the Tories to the next general election in January 2025. And then they’ll see how lucky he is.

In the current polls, the Tories are trailing the Labour by more than 30 points. Keir Starmer, Labour's leader, is by far the most preferred prime minister in the eyes of Britons. If the election were right now, Starmer would be voted for in 389 constituencies against 127 for Sunak.

Yet Sunak is stepping into office quite justifiably. After all, he warned back in the summer that his predecessor’s unfunded tax cut package at a time of rising inflation was like a fairy tale. But she refused to heed his advice.

In the end, her idea of borrowing to stimulate higher tax cuts failed immediately after her first contact with creditors. The infamous "mini-budget" of September 23 triggered a sharp sell-off in public debt. This in turn provoked a sell-off of pension funds forcing the Bank of England to buy securities to protect financial stability, leading to Truss’s swift political demise.

But as soon as Sunak's victory became apparent, the prices of British government bonds rose sharply. The exchange rate of the national currency stabilised. The market breathed a sigh of relief.

In his first speech as Prime Minister at Downing Street 10, Sunak said "mistakes" had been made under Truss and that he had come to correct them: "We need stability and unity and I will make it my top priority to unite our party and our country."

However, Sunak's mission as prime minister is further complicated by deep-rooted divisions within his home party. The Conservative party of 2022 is characterised by factionalism and divisions over personal preferences and loyalties, making it unmanageable for both Johnson and even for Truss.

Sunak's success will largely depend on his ability to encourage his party and unite it under his new economic and political vision for the country's future. That is why, unlike Liz Truss, who selected members of his government solely on the basis of personal loyalty, Rishi Sunak takes into account the interests of the major party factions whenever possible. Besides, he has to make sure that his appointees can work till the next election. The country is tired of the ministerial merry-go-round. In the last seven weeks before Sunak, the government saw the replacement of three interior ministers and four chancellors of the exchequer.

And one of Sunak’s first adequate decisions was to keep the post of the exchequer for Jeremy Hunt, who at Truss's own request was already working to correct her mistakes.

There is still time

For the sake of reassuring the financial markets, the Truss cabinet announced a while back that the medium-term corrected fiscal plan would be released on October 31, just a few days before the next meeting of the Bank of England's Monetary Policy Committee. The previous government thus wanted to avoid a sharp rise in interest rates by the central bank and the negative consequences for mortgage holders. It was desperate to show that it was serious about the state of public finances.

Today the situation looks somewhat different. The market has reacted positively to the change in government and there is no longer any threat of interest rates rising. Investors believe that Sunak is unlikely to challenge the fiscal and economic orthodoxy of the UK as his predecessor tried to do. The publication of this important document for the country has therefore been postponed until November 17, which means he and Jeremy Hunt have time to refine their plans, which are expected to include tens of billions of pounds in public spending cuts.

This is especially important given that the Labour plans to force parliament to vote on each proposal individually. The Conservatives will be forced to vote for cuts in funding for education, health and so on separately, rather than as an overall list. This threatens them with a serious loss of votes in the next general election.

Unpleasant aftertaste

First elected to parliament in 2015, Rishi Sunak was appointed a junior minister in Theresa May's cabinet three years later. In 2019, under Boris Johnson, he became the Chief Secretary to the Treasury and Chancellor of the Exchequer a year later.

His fame and popularity skyrocketed with the Covid-19 epidemic hitting Britain a month later. He oversaw a generous government programme to guarantee the wages of employees whose employers temporarily shut down operations and to provide government loans to affected businesses.

But popularity also means drawing more attention to your own personality. It soon became known that the second man in the UK government holds a US Green Card, which means he may well not be fully committed to his country.

In addition, it has become known that the Sunak’s wife, daughter of Indian billionaire Narayana Murthy, is an Indian national and has non-domiciled status in the UK. This allows her to be limited to an annual contribution of £30,000 and not pay income tax earned outside the UK.

All this is legitimate, but does not correspond to the status of the wife of the prime minister, who is responsible to making sure that everyone in the country pays taxes. The conflict of interest was quickly resolved, yet it left a gall in the minds of Britons.

Popular demands

Legally, Sunak is not obliged to call an election until January 2025. But he may feel compelled to do so much earlier as he has been given the reins of power without any voting, even among his fellow partisans. On the other hand, the Labour's continue to insist that Sunak is not entirely eligible to hold the highest political office in the country without a popular mandate. After all, YouGov polls conducted on the day he won the premiership showed that 56% of the British population demanded him to call an early election.

Apparently, as Rishi Sunak tries to patch budget holes with unpopular measures that will inevitably raise the cost of living in the country, these demands will become louder.

The tenure of the new British prime minister will certainly be longer than that of his predecessor. But how much longer?