The Decibel - Rishi Sunak takes on a fragile British economy
Episode Date: October 25, 2022Rishi Sunak is set to become the UK’s next Prime Minister. This comes after Liz Truss resigned from the job after a tumultuous six weeks. Truss is the shortest-serving Prime Minister in British hist...ory. Now, Sunak must try to repair the very shaky economic situation that the country currently finds itself in.Tom Rachman is a novelist and contributing columnist for The Globe based in London. He tells us why he thinks the problems in the UK all stem back to Brexit, about the mess Rishi Sunak is set to take on and what he could possibly do to fix the British economy.Questions? Comments? Ideas? Email us at thedecibel@globeandmail.com
Transcript
Discussion (0)
Hi, I'm Mainika Raman-Wolmes, and you're listening to The Decibel, from The Globe and Mail.
Rishi Sunak is set to become the leader of Britain's ruling Conservative Party and the country's Prime Minister.
The United Kingdom is a great country, but there is no doubt we face a profound economic challenge.
Sunak is replacing Liz Truss, who resigned after just six tumultuous weeks on the job.
Essentially, there's a gigantic hole in the budget caused in considerable part by what Truss did.
And it has to be filled somehow.
And everybody's afraid now of where the cuts are going to come.
Tom Rackman is a novelist and contributing columnist for The Globe, based in London.
I have to limit my size on there.
A few sizes is good. That kind of sets the ambience.
I think that should help.
He'll tell us why the political situation in Britain is so unstable
and what it all means for how the country moves forward.
This is The Decibel.
Tom, thank you so much for joining me today.
Thank you.
This week we learned that Rishi Sunak will be the new Prime Minister of Britain after both Boris Johnson and Penny Mordaunt dropped out of what would have been a race here.
Can you just start by telling us, though, who exactly is Rishi Sunak?
Well, Rishi Sunak is a 42-year-old fit and dapper and earnest Tory MP.
So in many respects, you could think of him sort
of as the anti-Boris. He's the son of immigrants of Indian origin. His father was a doctor. His
mother was a pharmacist. He was a gifted schoolboy, and he used to do the accounts for his mother's
pharmacy when he was a little boy. And he entered politics in 2015 when he won a parliamentary seat in
Yorkshire. And he gained notoriety, you could say, as one of the many Tory supporters of Brexit
before the 2016 referenda. But he only really leapt into prominence as a junior minister after
that, and then took a more senior role in the following government and finally had his key appointment in 2020
when he was named the Chancellor of the Exchequer,
which is the ministerial position where you're in charge of the economy in this country.
Like our Minister of Finance.
Yeah, and that really is the position where he gained public prominence
and even gained the nickname of Dishy Rishi,
Dish being British slang for very attractive. So Dishy Rishi, Dish being British slang for very attractive.
So Dishy Rishi became a popular figure,
not least because he was offering the country a 350 billion COVID recovery plan.
And so it was seen as a stable hand on the economy at that stage,
although later things got more complicated
because when Boris Johnson is the prime minister, there is only complicated. And ultimately, Boris Johnson ran into so many scandals and problems and such a pattern of dishonesty that everybody grew fed up with him, including Rishi Sunak, who finally quit his job. And that precipitated the fall of the government in this summer.
Okay. So he had kind of a key role this summer then when all of that was going down. Rishi Sunak
is the third prime minister in Britain over the course of the year. We started with Boris Johnson,
then Liz Truss over for a very short stint, and now Rishi Sunak. What's going on here? Why is
there such a revolving door of leaders in the UK?
Well, I think that the problem really derives from Brexit, because fundamentally, Brexit was sold on
a great deal of false claims. And the Conservative Party that's been in power ever since that
time, and before, has tried to square the circle here. How exactly can it achieve all of these
crazed promises that it gave while the economy is tanking? And it's led to all sorts of fractures.
It led to the rise of Boris Johnson, who was an inappropriate leader. Then it led to the rise of
Truss, and she again was inappropriate. And in both cases, they were operating on what's come to be known as cakeism.
Cakeism is an insane philosophy that was proposed by Boris Johnson,
and the idea is that you should be able to have your cake and eat it too.
It's an idea that came up during the Brexit negotiations with the EU,
where he wouldn't give up anything, he just said he would be able to have absolutely everything and everything would go fine.
And of course, none of that was true.
And reality interceded.
So ultimately, Boris Johnson fell as a result.
And trust was, you could say, another quintessential CACIST approach,
where she was saying, look, we can cut taxes and we can spend vast amounts of money on energy bills
and I'm not actually even going to bother explaining how
and there'll be no bad effects.
Of course, the markets felt like demonstrating that they did care
and you did need to show things
and you couldn't just get away with cakeism.
So it traces back to Brexit.
Unfortunately, Brexit is such a toxic issue,
such a force of division in the country, that both of the major parties are afraid to really revisit this in any serious way.
Can you remind us, what was Brexit supposed to achieve in the first place?
Well, the promise was that Britain would regain a sort of magical sovereignty, that they wouldn't be responsible
or tied to any other place. They could do what they wanted and they could use this new freedom
to develop different and beneficial trading relationships with different countries around
the world, that they could profit as this kind of buccaneering free nation, and that they wouldn't be tied down to foreign bureaucrats who
would also allow all sorts of immigrants to come in. Now, I stress that is not my view. That is the
claim that the Brexiteers were giving. There were different strands behind that, though. There was a
xenophobic element. There were people who were pushing for Brexit because they were very upset
about the number of foreigners who were coming here,
particularly from EU nations. And then separately, there were those who had this fantasy of a kind of
untrammeled free market paradise where there were no regulations and no environmental protections
and all these things could be cut and Britain could benefit as a result.
So there were differences.
There was also kind of an underlying, a lot of it, a kind of nostalgic vision of Britain as if it once was this great nation and had been humbled by history and could regain its
past again.
And those different strands have led to different mistakes, but they've all been mistakes.
And how exactly does it harm the country?
What's the economic harm that's happening there?
Well, the economy has shrunk considerably compared to what it would have been expected otherwise.
The most obvious reason for this is just that Britain has erected trade barriers against its closest trading partners. So whereas the claim was that the
value of breaking from Brussels would be that you wouldn't have all of this irritating red tape,
actually, the amount of red tape has increased immensely. And you have gigantic queues at the
borders. And just a mass, tons and tons of British exporters don't even bother to try
exporting anymore, because it's such a nightmare. So when they were in the EU trading block, it's a lot easier to then exchange goods,
labor as well. And so what you're saying is they've kind of made themselves an island here
and separated themselves from that easy trade.
That's correct. And you additionally have the problem of not having labor force that you need.
So for example, the health service is suffering tremendously because
tens of thousands of jobs that are not filled. It's a vast, vast mess. And since 2016, it's been
more or less all that the country could discuss and talk about. And so the opportunity cost is
immense as well, because it's sidelined a country that otherwise could have pursued
more serious things and instead has been dealing with a terrible, terrible tangle.
We'll be back after this message.
The beginning of the end of Liz Truss,
who is the shortest-serving prime minister in British history,
the beginning of her end seemed to be the release of this mini budget that came out on September 23rd. It was criticized for lack of
detail and especially for cutting taxes on the wealthy, which really shook up markets. It sent
markets into a tailspin. It sunk the British pound. So now that she's stepped down though,
Tom, is there a new economic plan? Well, oddly enough, there was a new economic plan even when she was still in power,
because what happened was that she really had power confiscated from her after that disastrous beginning.
So the powers that be in the party looked at the fact that the British pound had tanked
and that borrowing costs were way up,
that mortgages were way up, that basically the country was in serious threat of crashing
economically. And so bit by bit, she started to cancel some of her plans, including the unfunded
tax cut that you mentioned. But eventually, she sacked her chancellor, Kwasi Kwarteng,
and brought in a replacement, Jeremy Hunt, who, in effect, then had full power over the economy.
And he just, he actually, I think he said more or less directly that he was reversing absolutely
everything that he possibly could of what she had done.
And do we know what Hunt is going to do going forward in terms of
the economic plan that he's going to bring for the country? Well, he's only been in the office
for a short period of time. And he'll, of course, have to have to come up with an agreed plan with
Rishi Sunak, who has been in power for barely even a day. So I think that it'll take a little bit of time.
On the other hand, there isn't much time
because the markets have already reacted very, very badly
to what happened before,
and they're counting on a more sensible, stable approach.
And I think that the sense is that there will be probably higher taxes,
at least that's what's suggested by the Jeremy Hunt plan.
There will also probably be cuts to public spending, which is something that everybody
is afraid to talk about, but seems inevitable. Essentially, there's a gigantic hole in the budget
caused in considerable part by what trust did, and it has to be filled somehow. And everybody
is afraid now of where the cuts are
going to come. I also want to ask you about the energy bill crisis. The annual price to heat homes
was set to increase to over 3,500 pounds in October. And Liz Truss put in place something
called the Energy Price Guarantee, which would cap energy bills to an average of £2,500 per year for the next two years.
So what's happening to that?
Well, that was changed as well. So that was another immensely expensive move, because
there are different ways that it could have been done. The way that the opposition Labour Party
had proposed was that they impose a windfall tax so that energy companies making a huge amount of
money would have to pay a higher tax on that and that that would help people who were struggling
to pay their bills. But the trust government instead preferred to cover the huge cost
through public spending again. And when Jeremy Hunt took power, he decided that that really wasn't
affordable. And so he ended that program after six months, or at least that is the plan. It's
supposed to end in April. At that time, we'll see what state the country's in and see how it goes
forward. But I mean, even in the best scenario, the price of energy is absolutely soaring here.
I mean, it seems like the country is in a little bit of a mess right now, frankly, Tom.
Why is the Conservative Party still in power
after all this turmoil?
Might a general election be called?
Well, the Conservative Party has every reason not to call it.
And at the moment, they have all the power
not to call it as well.
The latest polling shows them behind by about 30
points, which is an unbelievable margin that has rarely been seen. It would mean that if the
election were held and if the results came out true to that prediction, then they would be wiped
out. It would be like the 1993 Canadian elections that wiped out the Progressive Conservative Party in Parliament. It would be a serious, serious, devastating blow to the party. So the last thing they want is that
these MPs are themselves afraid of being jobless. They themselves are afraid of paying huge mortgages
that have now gone up because of what trust did. So they're desperate not to lose their jobs. And
the last thing they want is to risk them. So the election doesn't have to be held until 2024 unless they call it.
And most likely the plan in hope is that with Rishi Sunak in charge, they will be able to regain some sort of a reputation for a little bit more stability.
And some of them will save their jobs, they're hoping.
What if this new prime minister, Rishi Sunak, what if it doesn't work out with him? I mean,
is there a chance that we could see yet another change of power in the coming months?
It seems unlikely that there would be another change of power in the next few months. I can't
imagine there could be another government that falls without there being a general election,
because the clamor for one would be just so great. But I think that, again, for that reason,
there's a strong incentive to stick with what Rishi Sunak does, provided he doesn't do anything
too insane. And he was really elected as somebody who wouldn't do the insane. You know, he is the is this this sort of anti-Boris figure. The idea is that he
will be serious and he will attend to to to business in a serious manner. And he will
try to rectify this mess that Liz Truss left in her wake.
Is there anything that Rishi Sunak, the new new leadership, can actually do to
to fix the tailspin that Britain's economy is
currently in? The most likely thing that they will do is try to placate the markets. And that
puts Britain in an odd and very difficult situation, one that typically troubles emerging
economies, where you have problems and the market descends and warns you that you've got to stabilize.
But then once you're in their crosshairs,
your ability to vary that, vary your policies,
becomes very limited because anything you do
will send the cost of borrowing way up,
which means that you can't do anything.
So you do become somewhat reliant on their goodwill.
And I think that that is going to limit Rishi Sunak's ability to do
anything that is too dramatic. He's probably just going to be doing things that are not
necessarily shocking, but are very, very painful for Britain, including cutting services at a point
when they can't really manage being cut, because there have been years and years of austerity
measures that already cut many public
services down to the bare bones. So it's going to be a really challenging time ahead for the country,
I fear. I mean, it sounds like there can be some pretty dramatic consequences for all of these
things, as you say here, Tom. And, you know, the way you're talking about how a lot of this does
go back to Brexit, I've got to wonder, like, is there any chance that Britain might decide to rejoin the EU?
Is that a possibility? It's a possibility, but certainly not a possibility for quite a while,
I would say that it's completely ruled out for the time being. And even if it were to happen,
it wouldn't be just like you left the exit and you go back in and you're granted admission as before. I mean, there are 27 other
EU nations that have to agree to this. Britain had very favorable
and advantageous terms that it had negotiated for years in its
membership, and it won't get all of that back, even if it wanted to. But the
bigger problem at the outset is even getting this
issue into mainstream politics.
Both political parties have been so fearful of talking about it, so fearful of alienating people,
that they have tended to avoid talking truthfully about the damage that this is doing to the country. And as a result, when politics isn't dealing openly and honestly
with the problems that face a country,
then it can't possibly hope to resolve those problems.
So there's quite a way to go, I think,
and it requires some political courage to get there.
And I've got to wonder about Scotland and Northern Ireland as well.
Will they stay in the UK given everything that's going on?
I don't think that there's a likelihood of the breakup of Britain immediately, but there are
serious strains and pressures right now, some of which have been caused by Brexit too. A lot of
them have been caused by Brexit.. A lot of them have been caused by Brexit.
Already there was an existing Scottish nationalist independence movement
that had had a referendum that failed in 2014.
But the Scottish nationalists now make the point that, well,
that was really in a different country.
That was pre-Brexit.
And many of them, in fact, the majority of Scotland,
opposed the idea of leaving the EU. And so it's very upset about it. And that has revitalized
the movement. Separately, the problems in Northern Ireland are even more frightening,
really, because you had this border between Northern Ireland and the rest of Ireland that
during the membership in the EU was barely noticeable anymore. And it allowed for peace to overtake the years and years of violence there, in part because
that you couldn't really tell there was a difference between those sides.
So you could get away with it.
But now the most pure and extreme Brexiteers in Parliament and in the
Tory party are pushing for a hard border, in effect, and that could set off violence. So
that's something that is really going to be, we're going to be seeing the effect of that in the
coming days and weeks. That's a really an imminent problem.
Tom, it was great to chat with you. Thank you so much.
Thank you.
That's it for today. I'm Mainika Raman-Wilms. Our producers are Madeline White, Cheryl Sutherland,
and Rachel Levy-McLaughlin. David Crosby edits the show. Kasia Mihailovic is our senior producer.
And Angela Pichenza is our executive editor.
Thanks so much for listening, and I'll talk to you tomorrow.