The New UK Government
On 25 October 2022, Rt Hon Rishi Sunak MP became Prime Minister of the United Kingdom. The appointment comes after the recent incumbent, Rt Hon Liz Truss MP, resigned following negative reaction to her economic policies (which promised unfunded tax cuts) from the markets, the media and the public. Sunak inherits a country with profound economic challenges and a divided Conservative Party that is far behind the Labour Party in the polls.
Key challenges: The political turmoil of 2022, under the leadership of first Boris Johnson and then Liz Truss, has led to a loss of confidence in the UK as a destination for foreign investment. The war in Ukraine has further exacerbated Britain’s post-Covid and Brexit-related economic and energy challenges.
Approach: Sunak is expected to take a more measured tone than the Truss Government. Importantly, and in contrast to Liz Truss, he has pledged to fulfil the promises made in the Conservative Party’s 2019 election manifesto. Although an ideological proponent of a smaller state and lower taxes, Sunak is clear that his urgent priority is to provide economic stability and tackle inflation before any tax cuts.
However, he will have to balance the need for economic stability and his desire to adhere to fiscal rules with the strong wishes of his own MPs who fight against more tax rises and spending cuts ahead of an expected 2024 General Election.
As a former Chancellor and Goldman Sachs employee, Sunak recognises the importance of attracting foreign direct investment (FDI) as a way to grow the economy. This strategy may now be crucial if he is to avoid both widespread tax hikes and budget cuts.
Key Sectors: Financial services, energy, and emerging innovative markets.
Securing the UK’s Global Position: Despite voting for Brexit, Sunak has a much more conciliatory approach to relations with the EU than Liz Truss. This stance is also mirrored in his warmer relations with China and the US.
Security vs Private Capital: Sunak has come under fire for prioritising private capital and not committing to increasing the UK’s defence budget in the wake of the Russia-Ukraine conflict and weakening commitments to international development.