Can Rishi Sunak tame recessions, rising rates, and political turmoil in the UK?

British Prime Minister Rishi Sunak (Image via Twitter/RishiSunak)

Rishi Sunak’s election as the first person of colour and the first Indian origin to become the Prime Minister of Britain on the day of Diwali may have made the festival of lights on Monday especially memorable for Indians.

It is a different matter that the fireworks within his faction-ridden Conservative Party would last much longer.

Infighting in the party has deposed four prime ministers in six years -- two of them in the last three months. Sunak became Britain’s third prime minister in as many months.

His victory in the Tory leadership marks a remarkable turnaround for someone who was beaten in the last leadership contest, barely seven weeks back.

The twin challenges before Sunak

Sunak has two major challenges to deal with. They are also interlinked. He must urgently repair the economy. He must also establish himself as a leader who can control the Conservative Party that has a majority in parliament but is riven in factions.

He cannot take up the economic challenge unless he has the full backing of the party.

Britain is currently facing an economically toxic combination of recessions and rising interest rates.

As the Bank of England is trying to bring down double-digit inflation, consumers are dealing with rising fuel and food prices while their real incomes have been falling sharply.

The government is also busy restoring its international financial credibility that took a serious beating after former prime minister Liz Truss announced plans for unfunded tax cuts and a costly energy price guarantee.

Prudent fiscal policy only way forward

Whoever takes over will have to enact some sort of prudent fiscal policy, and that means some form of austerity, say experts.

The Bank of England has reportedly asked government departments, apart from health and defence, to reduce budgets by as much as 15 percent and has put an April 2023 deadline on energy support payments.
Experts say the UK economy is expected to be in recession until the middle of 2023.

Spending cuts, tax increase ahead?

Sunak has acknowledged that the country was facing a “profound economic crisis.” He may be forced to announce spending cuts and increase tax in the statement he is scheduled to make on October 31.

But the cost-of-living crisis is being driven by soaring energy prices and 40-year-high inflation, compounded by rising interest rates.

The government is under pressure to take measures to help the vulnerable sections that are facing a painful financial squeeze from a jump in mortgage costs and rising food, heating, and fuel prices, largely due to the war in Ukraine.

There are reports that COVID-19 cases are climbing and the National Health Service (NHS) is bracing for its “toughest ever winter”, with around 100,000 NHS jobs lying vacant.

The biggest fall in real pay since 1977 has led to widespread industrial action by groups ranging from transport and postal staff to barristers.

During the COVID-19 lockdown in Britain in 2020, Sunak became widely popular as the free-spending chancellor and the face of the 69-billion-pound furlough scheme to keep people in work.

Experts say as finance minister, between February 2020 and July 2022, he had sent Britain on course to its biggest tax burden since the 1950s.

The Financial Times wrote that government bonds that determine ordinary people’s mortgage bills and the government’s borrowing costs are still nowhere close to bouncing back to where they started.

Sunak, who backed the independence of the Bank of England and stressed the importance of government policy, working alongside the central bank to tame inflation, had outlined a plan to cut income tax from 20 percent to 16 percent by 2029.

He will also have to show that he can control the Conservative Party where members differ on all key issues -- from Brexit and immigration to economic management.

The future relationship Britain proposes to have with the European Union will continue to be a contentious issue within the party.

Though the issue of trade with Northern Ireland is still under negotiation with Brussels, the new prime minister will be under pressure from party members to ensure that the EU has little say in the matter.

Immigration another challenge

Sunak will also face a challenge in dealing with the issue of immigration and the measures the government proposes to deal with them.

His becoming the prime minister of Britain this year when India celebrates its 75th year of independence from British colonial rule is especially significant.

It also indicates the changes that have been undergoing in the British socio-political system.

Until 2010, Britain did not have any minister of Indian origin. Today, the cabinet of both the Conservative Party and the Labour Party have people of colour in charge of key portfolios.

However, Sunak becoming Britain’s first Prime Minister of colour marks a new chapter in the country’s political history.

A bigger challenge for Sunak will come not only in uniting the Tories but in winning back the voters.

The general elections are not due before two years but there is a growing demand from all opposition parties for fresh elections.

Surveys show the Labour Party has a much better chance of winning the next elections with a 53 percent popularity, compared to the Conservatives’ 21 percent.

However, Sunak’s biggest challenge could still be in pushing for the required cuts in spending and raising tax while telling voters he is the most qualified leader to ask for it.

He and his wife Akshata are estimated to have a net worth of over 700 million pounds and were ranked among the UK’s 250 wealthiest people.

For the richest politician in the country, it will be no easy task to tell people to tighten their belts, even more, to deal with the worst economic crisis the country has faced in decades.