PremiumAs the political convulsions that made Rishi Sunak its PM are traceable to Brexit dissonance, he should play myth popper not just on London’s fiscal policy but on its dismal EU exit too
It wasn’t the slogan “Ready for Rishi" that finally ushered Rishi Sunak into No. 10 Downing Street, London, as the UK’s prime minister, but his promise of no “fairy tales" amid political convulsions caused by a raft of gasp-inducers. And while we in India may wonder whether Britain’s politics has evolved far enough for leadership by a 42-year-old man of Indian descent who openly follows a minority faith, or marvel at his wife Akshata Murty’s wealth as Infosys co-founder N.R. Narayana Murthy’s daughter, what’s relevant to Sunak’s job is how he’ll deploy his experience as a politician, former finance minister and Stanford MBA with stints at Goldman Sachs and a US hedge fund to confront what he has called a “profound economic challenge". As an instant priority, this would mean assuring markets London will not widen its fiscal deficit to such an extent that it squeezes its ability to repay debt and hollows its currency. After all, Sunak won power from Liz Truss in a spasm of ruling-party panic set off by routs in the value of UK government bonds and the British pound as a fallout of her lurch for unfunded tax cuts and upped state spending, a mix he’d called out for being out of touch with economic reality.
By the time Truss’s short-lived government withdrew its reckless ‘mini budget’, it was too late. With pandemic outlays and high inflation as the context, only an administration credibly committed to fiscal restraint could get London’s cost of borrowing down again. While Sunak had reeled out a generous covid-relief package as chief of the exchequer, he is widely seen as a champion of low-spend governance. Public expenditure in normal times, he once said, must not exceed 37% of GDP. Long-tenor UK gilt yields, which had shot up by over a percentage point under Truss, have fallen since; the pound has recovered from its fright; and the Conservative politicians of Westminster who chose Sunak must hope he’ll steady their economy before they need to face the electorate again (by early 2025). If they fail to unite, he’s reported to have told them, the party’s chances were bleak. Instability within the UK and its ruling party—Sunak is its third PM in 2022 and fifth since Tories won power in 2010—could dim their future, no doubt, and this is fix-it time indeed, but the big dose of reality that Britons need is on Brexit, their 2016 referendum vote to exit the EU that led to all this dissonance.
Sunak has been pro-Brexit, like Boris Johnson most volubly, in a party that saw authority shift towards ‘leavers’ to execute the ‘leave’ call after ‘remainer’ David Cameron resigned as PM soon after. Apart from the technical headache, getting it done was sure to expose the proposal’s overhype. Brexit was a lose-lose deal for the UK economy, but the nationalist spin put by Tory leaders on ‘border control’ not only attracted hordes, it took on shades of xenophobia. An anxiety to ‘prove’ the decision right was evident even in Truss’s rightist but ill-timed pitch for a “low-tax, high-growth economy" as part of a freedom bonus from the EU, portrayed as being addicted to squishy leftist policies that dampen market dynamism. The Brexit lobby has sought to play down the trade adversity of isolation, although a jumble of bilateral pacts—with India, for example—could soften that blow. Whether the UK can do better on its own overall, however, is the real question. It’s doubtful. If it still manages to make a go of its EU break-off, it’ll take time and reforms. Sunak should level with Britons on Brexit. The UK needs a larger salvage plan.