Sunak Wins Over the Markets. Voters Are Another Story


Two short letters have become famous in UK political history for their revelations about the state’s poor finances. Reginald Maudling, the outgoing Tory prime minister in 1964, told his deputy and Labor friend, Jim Callaghan, “Sorry old cock, to leave him like that.” In 2010, Liam Byrne, the Secretary of State for the Treasury, also offered a bogus apology to his Liberal Democrat deputy, David Laws: “I’m afraid, there’s no money.”

Their jokes were hung around their necks by their opponents, but both had the ring of truth. The governments that came after them were surrounded by their predecessors. Today’s opposition Labor Party should remember them as a warning.

With the Office for Budget Responsibility predicting that living standards in the UK will fall by 7% over the next two years (the biggest drop on record), the odds point to a Conservative election defeat in two years. The Office for National Statistics estimates that wage rises are easily outpaced by price rises and that the recession will last a year. Middle income earners – many of whom are Tory voters – will bear the brunt of the tax hikes announced in Thursday’s Autumn Statement.

Prime Minister Rishi Sunak, a former Goldman Sachs Group Inc. banker, has won the respect of markets for his fiscal conservatism, but he is struggling with voters. It’s bad in polls when it comes to “relationship” and “understanding the lives of ordinary people”. Maybe we’ll see less of his Prada suits and expensive office suits. Personality is always political. Sunak’s vast private wealth and his ex-wife’s non-resident status (which gave her an exemption from taxes on her overseas income) make them tempting targets for Labour.

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Sunak also lacked former prime minister Boris Johnson’s X-factor with many ex-Labour voters enjoying his political class. These converts may return to their previous allegiances in the next election. The Conservative Party has lost morals. Her favorite newspaper, The Daily Telegraph, asks what the Tories will vote for if they raise taxes and push through public sector reforms. The Institute for Economic Affairs, the UK’s leading free-market think tank, accuses the government of “deficit management”.

If the Tories lose, then Sunak’s serious finance chancellor, Jeremy Hunt, will not fall into the trap of writing a tongue-in-cheek submission note to his likely successor, Shadow Chancellor Rachel Reeves, a former Bank of England economist. But the unspoken message will be the same: No money.

Labour’s recent 20-point lead in the polls has put a spring in the party’s step, although an election victory is not ruled out, given the large number of seats Labor needs to win for a true majority. However, if they succeed, Reeves and her boss Keir Starmer will have to deal with an amoral Tory legacy. Hunt’s £55bn budget squeeze is delaying many public spending cuts until after the expected general election at the end of 2024.

A centre-left party that has historically supported generous public service provision will find the piggy bank empty. How will Labor make a difference if it cannot fund a growth strategy? Her ambitious green welfare plan, unveiled in September, which has a hefty price tag of £28 billion, looks dangerous under the current economic climate. Will Labor manage the deficit alone?

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Long before a general election campaign takes place, Labour’s traps are laid. Hunt can get Reeves to agree to his plans or show how he will find the money to reverse them. As Reeves himself observed in his sharp response to Hunt in the House of Commons, “The Tories want to party like it’s 2010.” That year, Chancellor George Osborne cut budgets and challenged Labor to say how they would balance the books. Osborne, not coincidentally, returned to Downing Street to give advice on how to defeat the opposition.

Yet the last time Labor set out an alternative budget – before the 1992 election – the party failed, despite being tired of 13 years of Tory rule. The Conservatives and their allies in the press warned against the opposition’s “double taxation scheme” and Labor did not respond.

Reeves and Starmer have taken a different route. Labor has been trailing the Tories on economic excellence for the past 15 years. The recent market turmoil has given them a lead in the polls, but that may only be temporary – the Tory prime minister’s last package of unfunded tax cuts led to her ouster.

In the 1990s, Labor’s Tony Blair and his shadow prime minister, Gordon Brown, faced the same dilemma. The Tory government of the day was beset by divisions, scandals and the recent economic collapse. But voters still needed convincing that their money would be safe in Labour’s hands, even though a large majority wanted to spend billions rebuilding dilapidated schools and hospitals.

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Reeves has chosen to emulate Blair and Brown, promising that a Labor government would not borrow to finance day-to-day spending. She even supported a Tory cut in the basic rate of income tax before it was dumped a few weeks ago.

But there is a big difference between the Workers then and now. In 1997, Blair and Brown were left by the Tories in a long post-Cold War economic boom. Due to globalization, inflation has decreased and the price of manufactured goods is decreasing. Today, globalization is reversed, war is on Europe’s doorstep and rising interest rates on government debt have left a black hole in the Treasury’s accounts. The tax burden has increased since World War II.

We are much closer to Britain’s maudling “stop-go” economy of the stall and Byrne’s disastrous post-recession failure. An optimistic OBR forecast for continued growth in 2025 highlights hope. More likely, there will be no “money”. The way back to power for the opposition party will be paved with misfortune.

More from Bloomberg Opinion:

• The UK Budget’s Deadly Silence on Housing: Therese Raphael

• UK Could Use A World Cup Win – for Finance: Andrea Felsted

• The UK Already Has an Improper Wealth Tax: Merryn Somerset Webb

This column does not necessarily reflect the editorial opinion of Bloomberg LP or its owners.

Martin Ivens is the editor of the Times Literary Supplement. Previously, he was the editor of the Sunday Times of London and its chief political commentator.

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