Sunak is half the PM Truss could have been

 People ask if the 2024 election could be as bad for the Tories as 1997. Under profligate Sunak, they’ll be lucky to do that well

Source - Daily Telegraph - 18/09/23

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We're approaching a year since the notorious “mini-Budget”, widely regarded as the cause of Liz Truss’ downfall. With the luxury of hindsight, it is increasingly clear that her approach, while imperfect, has been vindicated in certain key respects, and the position of her Conservative critics shown to be empty.

It remarkable that Rishi Sunak, a man whose career was built upon spending hundreds of billions on a furlough scheme that took public spending from 39 to over 53 per cent of GDP, running an unprecedented 15 per cent of GDP deficit, and who continues to plan to spend nearly 45 per cent of GDP for the foreseeable future, has somehow managed to paint himself as the fiscal conservative in intra-Tory economic debates. Truss’ position during her Conservative leadership election campaign (and a key reason she won) was that simply spending and borrowing more and more, every time an economic shock turned up, and meanwhile accepting economic stagnation, couldn’t be an acceptable answer.

She wanted to see the economy grow faster, so public spending would fall relative to the size of the economy over time, back closer to its levels before the pandemic. Her plan was to develop pro-growth policy reforms, across a wide range of areas from planning rules to housing to the Bank of England’s mandate to education to new tech regulation to green energy, breaking the stasis that policymaking and the economy had become trapped in for around 15 years. Once these plans had been worked out, it would be possible to assess how much faster they might make the economy grow and, from there, it would be clearer how big the fiscal consolidation she planned to announce in November 2022 would need to be.

As is well-known, she never got as far as announcing any of her pro-growth reforms, let alone her fiscal consolidation plans. Spooked into a panic by some not-all-that-dramatic financial market moves, Tory MPs turned against her, she u-turned (as she had done many times previously in her career, under pressure), fired her chancellor, and her entire agenda collapsed.

Her tendency to U-turn after talking tough and various other personality traits said to make her unsuitable as Prime Minister have been widely discussed and there is little point in rehearsing them again. But it is of more interest to see how both her political and economic agendas have been vindicated over the past year.

She believed the Tory Party had no chance of winning the next general election unless it took risks and brought about change. Opinion polls demonstrate that in abundance. The latest Electoral Calculus “MRP” poll, which takes account of differences between constituencies, has the Tories falling to 90 seats, down from 365 in 2019. People ask if the 2024 General Election could be as bad for the Tories as 1997, but merely being “as bad as 97” is currently the outer limit of over-optimistic Conservative hopes. The Sunak government offers no sliver of an attempt to change that. Just pretending to be “the sensible ones” isn’t going to win. Truss was right.

On the fiscal side, it wasn’t the reversal of the top rate tax abolition or the raising of corporation tax that calmed markets in September 2022. Those changes left the turbulence intact. Markets calmed where Jeremy Hunt announced the limiting of Truss’ extravagant open-ended energy package, to six months. But the way energy prices evolved meant Truss’ package’s costs would have largely vanished after six months anyway. And Hunt’s measures didn’t address the more fundamental issues driving up government bond yields. UK longer-term interest rates were rising rapidly by September 2022 because markets had realized that the Bank of England would feel it had to raise interest rates much higher than previously feared. 

And the UK’s fiscal situation remains dire. The Hunt/Sunak plan involves public spending remaining unprecedentedly high into the medium term, with GDP growth almost stagnant, and taxes rising far above levels the UK economy has ever shown itself capable of generating. Hunt’s numbers can’t, in the end, add up, and markets know it.

Hence recent government bond yields have been just as high, and sometimes higher, than they ever were during Truss’ term. The “grown-ups” have proved themselves to have no answer better than hers.

The UK economy needs growth, UK public spending needs to fall, and the UK political right needs to embrace change. The past year has only made these truths of Truss’ position plainer for all to see.