Anvil's Situation Update - Rishi Sunak was appointed by King Charles III as Prime Minister of the UK on 25 October. Anvil News & Updates
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SITUATION UPDATE 25 October, 2022 Back

Situation Update - Rishi Sunak appointed prime minister following political and economic turbulence in the UK

Will Crouch

Rishi Sunak UK prime minister

Summary

      • Rishi Sunak was appointed by King Charles III as Prime Minister of the UK on 25 October.
      • Sunak's appointment came after the economic policies of Liz Truss eroded her authority, causing her to step down on 20 October.
      • Markets reacted positively to the appointment of Sunak, whom they perceive as more fiscally responsible than his predecessor.
      • Sunak may find it challenging to resist calls for a general election having been appointed without a vote among MPs, party members, or the general public.
      • Many of Sunak’s precise policies remain unclear after he was largely silent during the nomination process.

Situation

On Tuesday, 25 October, Rishi Sunak was appointed by King Charles III as Prime Minister of the UK after being selected as leader of the governing Conservative Party the previous day. Sunak’s appointment shortly followed a statement by his predecessor, Liz Truss, announcing her intention to resign after a turbulent period in office lasting 45 days. Her resignation sparked a rapid leadership competition, which Sunak won by default as the other candidates dropped out during the nomination process.

The ability of former Prime Minister Liz Truss to govern effectively rapidly deteriorated after she, alongside her then chancellor, Kwasi Kwarteng, drafted a so-called mini budget comprised of tax cuts that were considered as the flagship policies of the Truss premiership. However, as the policies were expected to be funded by an expansion of borrowing, the budget led to a fall in the value of the pound and an increase of government borrowing costs as the yields on 10-year gilts rose. Meanwhile, some lenders began suspending mortgage products as market volatility meant they could not be effectively priced.

The Bank of England embarked on a 65-billion-pound bond-buying programme to limit the impact on the market, which could have left some pension schemes at risk of insolvency and without cash to pay for collateral had action not been taken. Kwarteng was subsequently dismissed from his role and replaced with Jeremy Hunt, who reversed large portions of the mini budget in an effort to calm the markets. However, some Conservative Members of Parliament (MPs) questioned the economic and political decision-making capacities of Prime Minister Truss, with several of them publicly calling for her to resign and more reported to have expressed similar views in private.

The authority of Truss to govern was further eroded following the resignation of Home Secretary Suella Braverman, coupled with a disorderly vote on fracking in the House of Commons. As Truss announced her intention to resign, she suggested that it was unfeasible to implement her plan for government, thus making the position untenable. In order to reduce the level of political uncertainty brought about by the resignation of Truss, a rapid leadership selection process was initiated by the Conservative Party.

Rishi Sunak was the only candidate to formally enter the competition, which followed a short nomination process whereby prospective contenders needed to secure support from 100 other MPs. Former Prime Minister Boris Johnson was widely reported to have sought a return to the role, but his campaign stalled during the nomination stage after he achieved approximately 58 public supporters, although more reportedly backed him in private. Johnson subsequently pulled out of the process late on 23 October, and Leader of the House of Commons Penny Mordaunt withdrew her bid immediately prior to the nomination stage’s conclusion after it emerged that Sunak had the backing of approximately 193 MPs, more than half of the parliamentary party.

Upon taking office, Rishi Sunak outlined that the country faces a “profound economic crisis”, caused in part by the COVID-19 pandemic alongside the conflict in Ukraine, while he admitted that some fiscal mistakes were made during the premiership of his predecessor.

Analysis and Implications

Early indicators suggest that the financial markets have more confidence in Sunak than his predecessor, potentially as a result of him being vindicated after he expressed initial concerns surrounding the fiscal policies of Truss when the two politicians faced each other in the previous leadership contest to replace Boris Johnson. At the time, Sunak accused Truss of planning “fairy-tale economics” and suggested her plans would bring about high inflation. Although his predictions during the summer did not win him favourability among party membership at the time, they now propel the perception of him as being fiscally responsible, thus giving the markets more confidence in their assessment of the UK’s outlook.

News of Sunak’s appointment coincided a short-term calming of the country’s fiscal situation. The value of the pound increased slightly on Monday morning, following Boris Johnson’s withdrawal from the leadership competition, while the FTSE 100 opened trading up by 0.5%. BlackRock, a US-based investment company, also upgraded its assessment of UK gilts from underweight to neutral, suggesting that its perception of the UK’s fiscal credibility had improved. Despite this, there is little to suggest that the new prime minister’s premiership will be entirely free from difficulties.

Sunak stayed largely silent during the recent leadership process, barring two posts on Twitter announcing his candidacy and thanking Boris Johnson for withdrawing. Because of this, his supporters, detractors, and political commentators have not had the chance to effectively scrutinise his policies, with many of them remaining somewhat unclear in terms of substance. It is expected that many of his strategies will be similar to those he propelled during the summer leadership race, but the UK’s economic situation has changed in the three months since, potentially forcing him to implement a more limited attitude to public spending than previously planned.

Furthermore, having had a ministerial career focussing almost entirely on economics, Sunak’s policy leanings in other spheres are less well-known. For example, his pro-Brexit stance is documented, but his overall foreign policy goals have not been fully laid out, barring brief indicators and soundbites. He suggested during his first prime ministerial speech that support for Ukraine will continue, but Sunak’s focus on the UK’s fiscal situation could mean less economic and military aid for Ukraine in the near-term.

Moreover, an early point of contention may arise with the Ministry of Defence should Sunak choose to drop a planned increase in defence spending. Ben Wallace, who is expected to keep his position as Defence Secretary which he has held since 2019, actively sought to increase spending to 3% of gross domestic product (GDP) by 2030, a policy put forward in the wake of the conflict in Ukraine. However, the increase may prove incompatible with Sunak’s programme for government, which may deploy a form of austerity.

Divisions within the Conservative Party also remain over economic policies, with Truss emphasising during her final speech as prime minister on 25 October that her government was correct in scrapping the planned rise in national insurance payments, an earlier policy of Sunak’s that he propelled as Boris Johnson’s chancellor. Sunak has not personally stated whether he will revive the policy, which would likely cause friction among his MPs.

Disagreements within the party also go beyond those surrounding specific policies, with former Business Secretary Jacob Rees-Mogg previously labelling Sunak as a “socialist”, although the comment was later retracted. However, it speaks to the level of ideological discord within the party that could cause resentment among MPs forced to implement decisions that contravene their political beliefs. Mogg resigned from the government shortly after Sunak became prime minister, potentially doing so in anticipation of being dismissed, while Justice Secretary Brandon Lewis and Chief Whip Wendy Morton also offered their resignations, among others.

While the UK’s parliamentary system does not mandate a ballot at every change in leadership, pressure may be applied on Sunak to hold a vote if he deviates too far from the manifesto based on which the current government was elected in 2019. However, he is likely to be aware of frequent opinion polling placing the Conservative Party behind the Labour Party. Although opinion polls conducted mid-term are not always indicative of an election’s result, current polling by multiple organisations suggests the Conservative Party could not only lose an election, but potentially face the biggest loss of parliamentary seats since its official founding in 1834.

Such considerations are likely to make Sunak resistant to calls for an election, but they may also increase the opposition’s persistence in seeking one, potentially citing issues surrounding his legitimacy which could resonate with the general public. Similar questions were raised of his predecessor, but she nonetheless had the backing of a majority of Conservative Party members, adding some validity to her position, whereas Sunak secured the role without a general election, ballot of party members, or a vote among MPs.

Nonetheless, Sunak sought to settle the matter early on during his first speech as prime minister outside the door of 10 Downing Street, suggesting that the mandate on which the party was elected in 2019 “is not the sole property of one individual”, likely referring to Boris Johnson, adding that he plans to “deliver on its promises”. Currently, the next general election is scheduled to be held no later than January 2025, potentially giving Sunak over two years before facing a ballot.

Yet, if the new prime minister faces difficulties in implementing his programme for government, a possibility exacerbated by political divisions within the Conservative Party, he may be forced to call an election to break the deadlock in a similar manner to Boris Johnson’s election in December 2019. This would do little to quell the UK’s political instability in the short-term but may facilitate the creation of a government in ownership of a greater perception of legitimacy among the UK’s population. Nonetheless, despite the potential challenges of his tenure, the immediate economic indicators suggest that the markets are somewhat confident in Sunak to exercise fiscal responsibility, potentially placating political divisions and easing the job of governing.

In addition to the political challenges facing Sunak’s government, there is a capacity for protests across the country as he is viewed by some as a controversial figure. Such events may lead to transport disruptions, increased security deployments or in some cases, incidents of violence. Exemplifying the potential for protests, the group ‘Power to the People Glasgow’ is planning to organise a demonstration in the city on Friday, 28 October, to voice opposition to public spending cuts while questioning the legitimacy of a prime minster being appointed without a general election.

Advice

  • Keep abreast of reputable news sources for the latest political developments.
  • Be mindful of the possibility for protests over political-related issues.
  • Bypass any large political gatherings or demonstrations should they arise.