LONDON—Former Chancellor Rishi Sunak, who warned that Liz Truss’ economic plans for Britain were a “fairy tale,” won the race to succeed her as prime minister on Monday, taking over the world’s sixth-largest economy at a time of deep financial turmoil. and political turmoil.
Mr. Sunak will formally enter Downing Street after his only remaining rival for the job, former defense secretary Penny Mordaunt, said on Twitter she would drop out of the race. “Rishi has my full support,” she wrote.
Mr Sunak’s rise to the top job in Britain marks a historic moment. The grandson of Indian immigrants to Britain, the 42-year-old will be Britain’s first person of color and the first Hindu to lead the country. But his success will be determined by how well he manages the growing challenges to Britain’s economy as high inflation and a looming recession create a sense of growing despair.
The former hedge fund manager will come with a mandate to bring calm to the ruling Conservative Party after a period of unparalleled chaos that will see the country run by three prime ministers in seven weeks – a first for Britain On Sunday night, his main rival for the job resigned the colorful but controversial former leader Boris Johnson out of the leadership race citing the fact that he could not unite the party.
Sunak takes over from Mrs Truss, who became the shortest-serving prime minister in British history after her flagship economic program to stimulate the economy with tax cuts amid rising inflation was rejected by investors, sending the pound to a record low and the Bank of England to intervene bond markets to stabilize the price of UK government debt.
On Monday, the financial markets reacted positively to Sunak’s victory. Interest rates on government debt fell as investors bet that Mr. Sunak, an experienced finance official, will oversee public spending cuts to shore up the country’s finances.
The decision limits Mr. Sunak’s second attempt to secure his seat as prime minister in months. He campaigned over the summer to become UK leader but lost to Truss. During the campaign, Sunak criticized Truss’ plan to borrow money to immediately cut taxes. He said Britain’s high inflation, currently at 10.1%, must be tackled first before any tax cuts.
“Liz’s plans promise Earth to everyone. I don’t think you can have your cake and eat it,” he said in August.
Mr Sunak lost, but his argument won later in the day. Truss was forced to withdraw his experiment to use unfunded tax cuts to stimulate economic growth.
While Mr Sunak’s rise will calm markets for now, his government will face tough and unpopular spending decisions. Britain’s Treasury is expected to outline plans on Oct. 31 to cut spending and possibly raise some taxes to plug an estimated 40 billion pound, $45 billion, deficit in the public finances. “The choice the party makes now will determine whether the next generation of Britons will have more opportunities than the last,” Sunak said on Sunday.
His fiscal caution is likely to reduce pressure on the Bank of England to raise its key rate sharply from 2.25%. Market expectations for the peak of the BOE interest rate next year fell to 5% from 6% in the days after Truss’ economic plan was scrapped.
The wider outlook, however, is bleak. Mr. Sunak is likely to face a winter of discontent as inflation, fueled by rising energy costs from the war in Ukraine, rises faster than wages and a recession takes hold that economists believe could last a year. The early stages of his term are likely to be marked by labor strikes and questions about whether blackouts will be needed as Russia curbs gas exports to Europe.
Unlike most other rich countries, Britain’s economy has yet to return to its pre-pandemic size. The UK economy grew very weakly in the three months to June, making it 0.2% smaller than in the final quarter of 2019, the last before the Covid-19 virus began to spread.
“The increased political and economic uncertainty has caused business activity to fall at a rate not seen since the global financial crisis in 2009 if pandemic lockdown months are excluded,” said Chris Williamson, chief economist at S&P Global Market Intelligence.
Mr. Sunak also faces another potentially more difficult challenge: unifying a party that has been at war with itself for years. The Conservative Party is at a record low in the polls against the opposition Labor Party. A recent survey by Opinium shows that 23% of Britons vote for the Conservatives against 50% for Labour. Gauges believe the scale of that deficit, combined with the fact the Tories will seek a record fifth term at the next election in 2024, is potentially insurmountable.
Mr. Sunak, who is not a famous political actor, must find a way to bring together lawmakers who hold opposing views on the direction the UK economy should take. In the wake of Britain’s exit from the EU, conservative lawmakers are torn between embracing low regulation, smaller government and free trade, or protectionism and more government intervention as an aging population puts more pressure on public services.
Mr. Sunak has previously campaigned for both fiscal conservatism, tight immigration restrictions and support for tackling climate change. His foreign policy outlook is less well defined. While he has expressed support for helping Ukraine fight Russia’s invasion, he may need to cut military spending to get the finances under control. Mr Sunak is a Eurosceptic – having supported the vote to leave the EU in 2016 – but is seen as more conciliatory towards Europe than either Truss or Johnson.
Mr. Sunak represents an unusual mix of both continuity and novelty at the top of British politics. He grew up in the south of England with parents of Indian origin, his father was a doctor and his mother ran a pharmacy. Mr. Sunak attended Winchester – an elite private school that has produced several British prime ministers – before attending the University of Oxford and then finding a job at Goldman Sachs.
He married Akshata Murty, the daughter of an Indian billionaire businessman. The couple met while Mr. Sunak studied for an MBA at Stanford. He co-founded a hedge fund called Theleme Partners.
As the richest member of the House of Commons, Mr. Sunak finds himself in the awkward position of declaring support for spending cuts that could make life harder for the working class. Supporters say he will argue that sound finances will allow Britain’s economy to improve competitiveness to create wider prosperity down the road.
In 2015, Sunak was elected to parliament in Yorkshire, a northern English and mostly white agricultural district. Mr. Sunak took his parliamentary oath to the monarch on the Hindu scripture, the Bhagavad Gita, and had to explain to many of his farming constituents that he did not eat beef. But he quickly proved popular and moved to a manor house in Yorkshire.
Mr Sunak’s star rose rapidly in the Conservative Party. He advocated Brexit, which he argued could enable the UK to become more internationally competitive outside the EU. The move went against the then prime minister, David Cameron, but put him on good terms with Mr. Johnson, who identified Mr. Sunak like a rising star. In 2019, he was given a senior role in the Treasury and placed his wealth in a blind trust to avoid allegations of impropriety. A year later he was appointed Minister of Finance.
It was during the 2020 Covid-19 pandemic that Mr. Sunak came to the nation’s attention when he set up a job protection program within days. The decision to have the government pay a percentage of people’s wages while they were unable to work during the lockdown was well received.
The former financier proved a good foil for the surviving Mr. Johnson. Unlike Mr. Johnson drew attention to Mr. Sunak the details. People who have worked with him say he diligently reads briefing notes and cross-examines officials. During the pandemic, he repeatedly questioned the need for lockdowns. Mr. Sunak also has a nerdy side. The Star Wars fan once surprised a group of school children by telling them he has a ‘coke problem’. He then went on a minute-long monologue about his favorite brand of Coca-Cola,
which is made from cane sugar in Mexico.
Last summer, however, Mr. Sunak and Mr. Johnson disagreed. Mr. Sunak had successfully lobbied for taxes to be raised to help pay for Britain’s struggling nationalized healthcare system. But many in the Tory ranks questioned the fact that the tax burden was at its highest level for 70 years. Mr. Johnson, meanwhile, was embroiled in a “partygate scandal” where he was fined by the police for attending his own Downing Street birthday party during a Covid-19 lockdown. Mr. Sunak was fined for participating as well.
Mr Sunak was caught up in a scandal of his own. His wife Murty this year had to change her tax rules after admitting she benefited from tax rules which meant she could not pay any UK tax on her worldwide income. She says she changed that status and now pays UK tax on the worldwide income. The debacle prompted some Tory lawmakers to question whether Mr. Sunak was too rich to connect with the party’s blue-collar voters.
But as more scandals washed over Mr. Johnson, moved Mr. Sunak to depose him. Last July he announced his resignation, triggering an avalanche of further dismissals that made Johnson’s position untenable. Within days, a polished ‘Ready4Rishi’ website was online.
Mr. Sunak’s apparent eagerness to knock out Mr. Johnson soon played against him. In the subsequent leadership competition, Mr. Sunak won the most support from lawmakers but failed to convince the Conservative Party’s 170,000 members.
This time, after Mrs Truss quit, many key lawmakers were quick to announce their support for Mr. Sunak and prevent another vote among party members.
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