Sunak's promises to keep: ex-chancellor's likely agenda if he becomes UK PM

Managing welfare spending while promoting business will be among his top tasks if he wins leadership contest

Rishi Sunak, the Conservative Party MP, is the top contender for the party’s leadership, and thus to be the next Prime Minister of UK.

Sunak, a former Chancellor of the Exchequer, Wednesday secured 137 party votes compared to the 113 for foreign secretary Liz Truss. The two will battle it out in the last stage of the contest to replace Boris Johnson as PM.

If Sunak were to be elected PM, what might be his outlook for the troubled British economy? 'Business Standard' looks at three crucial topics likely to feature on his economic agenda.

Tax cuts

Sunak, in his Spring Budget, promised the first cut in 16 years to the basic rate of income tax: from 20 to 19 per cent and to be brought to effect April 2024. In his leadership pitch however, Sunak refrained from any immediate tax cuts, unlike his opponent.

UK is still not out of its cost-of-living crisis. The Office of Budget Responsibility (OBR) recently projected real livings standards to fall by 2.2 per cent in 2022-23--the largest financial year fall on record--and not recover their pre-pandemic level until 2024-25. Sunak’s handling of the crisis was criticised when he declared he will continue with a planned national insurance rise in April.

Sunak had tried to offset the insurance rise by aligning the primary threshold with the basic personal income allowance in July. Combined with the removal of VAT on energy-saving equipment, and reduction in national insurance payments for small businesses, he had deemed his budget the biggest net cut on personal taxes. However, OBR reports say that Sunak managed to undo only one-sixth of the tax rises he had previously announced to fund the NHS and social care in the wake of the Covid-19 pandemic.

Energy independence

Sunak has promised to make the UK energy-independent by 2045 and insulate the economy from supply shocks, like the one caused by Russia's invasion of Ukraine. This plan seems in sync with the country’s current energy consumption trends. According to a report by International Energy Agency, UK saw a 57 per cent drop in energy production from 282 Mtoe in 1999 to 120 Mtoe from the decade of 2007-2017. Oil production fell by 39 per cent, gas by 45. A significant drop in energy consumption saw Britain’s dependence on energy imports, primary in oil and gas nearly double during the decade of 2007-17. The trend has been reversed since 2014.

As crude oil and gas production increased by 14 per cent, UK’s import dependency stabilised. Coal demand has also dropped significantly in recent years, both in industry and in power generation. The overall energy import dependency, therefore, has declined from 50% in 2013 to 38% in 2017. According to government data this figure further dropped to 35 per cent in 2019.

However, the move away from energy dependency, especially in oil and gas, needs to be swifter. High global energy prices in the wake of Russia’s Ukraine invasion are a prime driver in UK’s rising CPI inflation.

Focus on British business

The Conservative government’s manifesto emphasised on strengthening small and medium businesses, post-Brexit. Sunak’s election promises on his official page include the pledge to “support local enterprises.”

One of the major efforts made towards this goal under Sunak’s chancellorship has been the self-employment income support scheme (SEISS) launched during the pandemic. OBR estimates, that without the SEISS, the incomes of its 2.2 million beneficiary sole traders and partnerships would have fallen 31 per cent, but actually rose 14 per cent thanks to the SEISS support. The British exchequer had incurred a cost of £28.1 billion towards the SEISS, with a total of 2.9 million individuals receiving the grants.

However, as businesses begin to reopen and the pandemic appears to recede, the OBR points at the similarly receding credit lines financial support towards small businesses thanks to the government cutting back on its welfare spending. A major challenge for Sunak, if he becomes the next PM, would be to balance his commitment to backing small businesses while not stretching the budget too thin on welfare. It would be important to keep watch on whether Sunak translates direct credit lines into institutional support including “reforming business rates, less regulation, incentivising investment, rewarding innovation.”