Europe

Rishi Sunak, With Elite Pedigree, Must Now Sell Britain on Austerity

LONDON — Jeremy Hunt, Britain’s finance chief, presented a doom-and-gloom budget this week, but it is ultimately the job of his boss, Rishi Sunak, to sell it. And it is hard to imagine a more improbable evangelist than this 42-year-old Conservative prime minister and former Goldman Sachs banker.

With an elite pedigree and a privileged lifestyle, Mr. Sunak must now persuade ordinary Britons that they should support his government through a painful ordeal of tax increases, spending cuts and a recession that could result in the biggest fall in household income since the records began in 1956.

While Mr. Sunak has tried to cushion the blow by increasing the national living wage, which protects lower-income people, and by lifting funding for schools and the National Health Service, his budget also reinforced stereotypes about the Tory Party as a defender of the establishment.

Amid a raft of tax increases on individuals and companies, for example, the government lowered taxes on banks. Mr. Sunak did not reverse a decision by his predecessor, Liz Truss, to lift a cap on bonuses paid to bankers, a measure that even Prime Minister Boris Johnson resisted because he feared a backlash.

Most symbolically, Mr. Sunak has rejected calls to eliminate a loophole that allows people to claim non-domiciled status in Britain and avoid paying British tax on income from outside the country. His wife, Akshata Murty, the daughter of an Indian technology billionaire, was a beneficiary of this loophole, though she agreed to pay British taxes after an outcry over the situation threatened her husband.

The opposition Labour Party lost no time in making this an issue, suggesting that Mr. Hunt, a wealthy former entrepreneur who also has a foreign-born wife, would have been unable to persuade Mr. Sunak to approve getting rid of the loophole.

“He refuses to act, and I wonder why. Maybe that was the one policy that couldn’t get signed off by No. 10,” said Labour’s shadow chancellor, Rachel Reeves, alluding to the prime minister’s residence. “I say, if you make Britain your home, you should pay your taxes here too.”

Rishi Sunak’s wife, Akshata Murty, with his parents at a Conservative Party campaign rally in August. Ms. Murty was a beneficiary of the non-domiciled tax loophole, though she did eventually agree to pay British taxes.Credit…Hannah Mckay/Reuters

Some political analysts said they were surprised the government did not seize the chance close the loophole and neutralize an easy line of attack. They suggested it was less a reflection of Mr. Sunak’s family circumstances than of his party’s deep-rooted resistance to eliminating it.

“It would be such an easy thing to do and yet they didn’t do it,” said Steven Fielding, emeritus professor of political history at the University of Nottingham. “It does suggest that he hasn’t got the capacity to transcend the problems his party is in.”

Mr. Sunak inherited a party exhausted and divided after 12 years in power. Its image has been tarnished by Mr. Johnson’s lockdown-breaking parties during the coronavirus pandemic, and by Ms. Truss’ ill-fated experiment in trickle-down tax policy, which rattled the financial markets and led to her ouster after only 50 days in office.

Mr. Sunak’s swift return to fiscal orthodoxy has soothed the markets. Even before Mr. Hunt’s speech, the government had largely removed what market wags referred to as Britain’s “moron risk premium,” the extra borrowing costs it was forced to pay because investors no longer trusted it.

“This was not about the market’s reaction,” said Mujtaba Rahman, an analyst at the political risk consultancy Eurasia Group. “The story now is political. Has Sunak done this in a way that will keep the Tory Party together?”

Mr. Sunak’s strategy is to stabilize the public finances, without prolonging a recession, in the hopes that a recovery would begin before the next election, which must take place by January 2025. By then, the Conservatives could try to persuade voters that, having weathered the storm, it was not worth risking a change of government that could jeopardize any recovery.

But Mr. Sunak, however competent, lacks charisma. Analysts said he has yet to hone a compelling political message, particularly for the far-flung coalition forged by Mr. Johnson in 2019, which included working-class voters in England’s industrial north drawn by his promise to “Get Brexit done.”

The headwinds he faces are immense. The projected 7 percent decline in household income over the next two years means that Britons may not return to the living standard they had last year until 2027, said Matthew Goodwin, a professor of politics at the University of Kent. That would be a lost decade of prosperity, which he said voters are currently blaming on the Conservative government.

A woman enters Westminster Station in London. Jeremy Hunt, Britain’s chancellor of the Exchequer, unveiled £55 billion in tax increases and spending cuts on Thursday, intending to close a huge budget gap.Credit…Sam Bush for The New York Times

“Sunak is going to have to try somehow to hold together an electorate that is about to be pounded,” Professor Goodwin said. “How on earth, in that economic context, do you hold together an electorate that has become more working class and more economically precarious than it was in the 2010s?”

In postponing most of the spending cuts until after the next election, Mr. Hunt did put off some of the pain. He also confronted Labour with a dilemma because the party will be challenged on whether it would stick to those plans if elected.

When Labour last came to power, in 1997, it adhered to the outgoing Conservative government’s fiscal plans for two years after winning power. But doing so this time would be a big constraint. At a time of proliferating labor unrest, Mr. Sunak may also try to exploit Labour’s ties to trade unions.

The opposition, some analysts said, should emphasize the damage that would be done to Britain’s public services if the spending cuts proposed by Mr. Hunt were carried out. Unlike the last round of austerity, engineered by Prime Minister David Cameron in 2010, there is far less fat to cut this time.

“If I were Labour, I would say, ‘You’re still proposing very large pay cuts for public servants and for public services, which are already flat on their backs,’” said Jonathan Portes, a professor of economics and public policy at Kings College London. “We need to rebuild the public sector.”

There is no evidence in polling that Mr. Sunak’s family wealth is, by itself, a problem for voters. But the disclosure of his wife’s tax status almost derailed his political career last April because, analysts said, it raised fairness issues. His thin-skinned reaction to the criticism, they said, revealed a lack of political instincts.

Though Mr. Sunak may be proficient at the basics of governance, Professor Fielding of the University of Nottingham likened him to the captain of the Titanic, who sees the electoral dangers looming ahead but has not fully changed course.

“He’s not going to sufficiently change public perceptions of his government, which are uniquely bad,” Professor Fielding said. “He’s hoping the iceberg moves — and icebergs tend not to move.”

Back to top button