Monday, June 27

Sunak as PM? You better not wait until the chickens come home to roost | larry eliott

Rishi Sunak is the Chancellor of Covid. Few outside of Westminster had heard of him when he replaced Sajid Javid in office at the start of 2020, but since then he has spent two years in charge of the government’s economic response to the pandemic. Now, as restrictions are lifted, he is the bookmakers’ favorite to replace Boris Johnson if the prime minister is forced to resign over partygate. It’s a meteoric rise.

Since the Second World War, only three former Conservative chancellors have reached 10 Downing Street, and one of them, Winston Churchill, had left the Treasury more than a decade before the exceptional circumstances of 1940 gave him the job of prime minister. .

Indeed, the list of post-war prime ministers Britain never had includes a long list of chancellors, both Conservative and Labour. Rab Butler, Roy Jenkins, Denis Healey, and Ken Clarke were all big beasts who fell short of the top job, suggesting that the Treasury Department isn’t always the best government department to run if you want to make and keep friends.

In the early part of the pandemic, Sunak’s political stocks rose as fast as one of Wall Street’s must-have tech stocks. It wasn’t just that he seemed to know what he was doing; what he was doing, showering the economy with money, was popular. Not many foreign ministers say that money is not an issue, which was Sunak’s message as the economy entered its first lockdown.

Denis Healey (right) with Harold Wilson in 1974.
Big beast… Denis Healey, pictured (right) with Harold Wilson in 1974, is one of many heavyweights who never crossed over from No. 11 to No. 10. Photograph: Roger Crump/Rex/Shutterstock

In truth, he had no choice. Locking people down in their homes at the end of March 2020 caused the economy to shrink by a quarter in just two months; Without the licensing scheme and a variety of business support measures, the damage would not only have been massive but permanent. There are times, usually when things look really bad, when the British state works well, and this was one of them.

Life has gotten tougher for the chancellor since those first few months in office. He was eager to end the permit in the fall of 2020, but was later forced to extend it in a series of mini-budgets. The eating out scheme to help out in August 2020 was a stunt that may well have reseeded the virus. The stamp duty exemption for property was unnecessary and has helped fuel a boom in house prices. Still, the fact that unemployment has returned to pre-pandemic levels and never reached the double-digit levels forecast by the Bank of England and the Office for Budget Responsibility is a real achievement. Sunak had a good war, which explains why he’s the favorite to replace Johnson.

However, peacetime brings its own set of challenges, especially for those who see themselves as the custodians of the nation’s finances. By the fall of last year, it was no longer a case of “money for no purpose” but rather of trying to reduce the government’s record deficit while providing reduced support to the economy.

As a result, furlough came to an end, the £20 a week increase to the universal credit was removed and it was announced that the extra money for the NHS and social care should come from increased national insurance contributions. The first of them, liquidating salary subsidies, was a bet that paid off; the UC and NI changes look much less smart in a context of rising energy prices, 5.4% inflation and falling real wages. It’s never good news for governments when prices rise faster than incomes, which is why Sunak, assuming he hasn’t moved next door by then, will put up extra money in his latest mini-budget on March 23.

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So much has happened in the last two years that it is easy to forget that we are still mid-term in the current parliament, a time when governments tend to be unpopular. Even if 2022 is the evil it threatens to be, there is still time for the Conservatives to work things out before the 2024 election. By then, the Bank of England expects inflation to be close to 2% again, there could be room for tax cuts and Downing Street party memories will fade. The political calculation of the Conservatives who want Sunak to replace Johnson is that Labour’s opinion poll advantage is a function of public discontent with the prime minister rather than great affection for Keir Starmer.

That said, the more Johnson hangs on, the worse it will be for the chancellor’s hopes of being the first Tory since John Major to move from 11 to 10 Downing Street. There is much talk that the UK is headed for a 1970s-style period of stagflation (a period where the economy is stagnant and prices rise rapidly), but it seems more likely that 2022 will see a first period of rising inflation and then a period of stagnation. Rising energy bills, higher taxes and falling real wages will slow the economy in the second half of the year, and if Sunak remains chancellor he will be blamed.

One of those who moved in next door to 11 Downing Street, Gordon Brown, used to joke that there were only two kinds of chancellor: those who failed and those who got out on time. As for the outlook for the economy for the rest of this year, Brown’s advice would presumably be for Sunak to leave as long as things aren’t too bad or he risks being the political equivalent of the Omicron variant: someone who bursts onto the scene. , it’s everywhere for a while, but it fades just as quickly.

Sunak is smart and ambitious. You’ve probably figured it out for yourself.

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