After Rishi Sunak was installed as the United Kingdom's prime minister by King Charles III on Tuesday, 25 October, the new premier said that he had been elected to "fix the mistakes" made by his predecessor, Liz Truss.
Truss' resignation last week as the prime minister triggered a leadership contest in the Conservative Party, and after his rivals – Boris Johnson and Penny Mordaunt – dropped out, Sunak was elected as the Tory Leader.
Sunak takes on the role at a time not only studded with a deepening economic crisis, but also a growing divide within his Conservative Party.
Let's take a look at the political and financial challenges Sunak faces as he takes up the mantle from Truss.
The first political challenge for Sunak is convincing the British people of his worth. Remember, he does not have the people's mandate.
The 2019 general election which was swept by the Tories crowned Boris Johnson as the leader, with the party winning 80 seats more than the majority threshold.
The Labour Party is making noise on the mandate issue. Angela Rayner, the party's deputy leader was quoted as saying in The Guardian that there should be a general election right away because "the Tories have crowned Rishi Sunak as prime minister without him saying a single word about how he would run the country and without anyone having the chance to vote."
The fact that he is not white doesn't help him either. On LBC London, one of the country's most popular radio shows, a caller, claiming to be Boris Johnson's supporter, called in and said that "Rishi Sunak isn't even British in most people's opinion... He doesn't love England like Boris does."
Sunak's second major political challenge is to unite the bitterly divided Conservative Party. After all, his first message to his colleagues as the new party leader and the prime minister was to "unite or die."
Sunak's allies have reportedly said that the new leader would reach out to MPs across the party, which is the opposite of what Liz Truss did when she became PM.
"Unlike Boris, who did have a mandate, we now have the prospect of having a Conservative party leader who doesn’t have the mandate from the country and won’t even have a mandate from the membership either."MP Christopher Chope told The Guardian
The third challenge is to prepare his party for the 2024 elections. During the contest to replace Johnson, polls showed that Sunak was the only Tory who could beat Labour's Keir Starmer if a general election was held immediately.
The situation for the Conservative Party has worsened since then, given Truss's disastrous plans to tackle the economy.
But it's not going to be easy. "He couldn't beat Liz Truss last month; he's not turned into an election winner less than two months later," one senior Conservative lawmaker told Reuters.
Indeed, Sunak, who has loudly claimed that he is the man best positioned to defeat Starmer in 2024, will have to remarkably turn around the economy and fix the cost-of-living crisis if the Tories don't want to get wiped out by Labour in the next general election.
When Sunak took over as chancellor of the exchequer in February 2020, he spent heavily to try and protect businesses from major economic challenges from the COVID pandemic.
But that was a different time – inflation was low and the Bank of England, the UK’s central bank, was purchasing government debt, giving the government more spending power.
Now, when Sunak has been named leader of the Conservative Party and moves into 10 Downing Street, he faces a starkly different economic landscape.
Inflation in the UK has reached 10 percent, a 40-year-high and like countless other countries, facing the looming threat of falling into a recession amidst economic slowdowns.
The Bank of England has desperately raise interest rates to fight inflation and has rather planned to slowly sell the government bonds it had purchased. In a scenario like this, Sunak will have to turn more to investors, who’s interest rates are even higher.
First, Sunak needs to find ways to support households amid rising energy prices owed to Russian war-induced volatility in the energy market.
Currently, a household’s energy bills have been frozen from October to April 2023 at an average cost of £2,500 (about $2,800) a year, but Sunak is expected to form a cheaper policy for the most vulnerable households.
Secondly, after he spends tens of billions of pounds and hopes to keep energy bills down, Sunak is also facing pressure to find effective solutions to keep borrowings in check and restore the UK’s credibility in the markets.
It is important to remember that after Truss and former chancellor Kwasi Kwarteng’s “mini budget,” the UK markets were spooked and took a plunge, with investors constantly losing confidence.
Meanwhile, Truss-installed but Sunak-backing finance minister Jeremy Hunt is set to give a fiscal address on 31 October.
Hunt said that he would ask government departments, who are already stretched thin, to save more money and added that taxes are likely to rise as well. However Sunak doesn’t necessarily need to keep Hunt around as chancellor, or stick to the current timetable for the fiscal statement.
Thirdly, Sunak will have to deal with the pound, which is trading at around $1.13, a little higher than what it was as a reaction to Truss’ tax cutting plan, announced on 22 September, Truss’ plan roiled markets and steeply pushed the pound down, leading to increased borrowing costs as well.
But these are just the latest in the government’s list of economic concerns. Previous issues, which remain unresolved, include supporting low income families against the cost-of-living crisis, bringing more investment to improve growth, improving the UK’s trade relations with the European Union and voluminously growing employment markets in the UK.
While lower interest rates will comfort Sunak, which could ease spending cuts and tax rises by reducing the amount the Treasury sets aside for interest payments, the to-do list of economic concerns remains hefty.
(With inputs from The Guardian, The New York Times, and Reuters)
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