Opinion: Churn in No. 10: Around the Cabinet in 49 Days

Opinion: Churn in No. 10: Around the Cabinet in 49 Days
Downing Street and Whitehall” by Defence Images is licensed under CC BY-NC 2.0.

The spectacle of British politics has recently found new highs (or lows, depending on the observer). Although exciting to watch, it does nothing to placate the anxieties faced by businesses and households in the context of rocketing inflation, which was amplified by Liz Truss’s now collapsed administration and the failed ‘mini budget’. This article provides a brief history of the events – and explores the fallout – alongside some underlying economic risks.

A quick rewind 

If the UK’s top office follows the current trajectory, it will soon be picking leaders by musical chairs – on a weekly basis. The contender who does not find a seat when the music stops will still need to ask the monarch to form a government; but this time over Zoom, to save the taxpayer the frequent trips between Downing Street and Buckingham Palace. Although Westminster has experienced much upheaval in recent years – especially with the double-whammy ‘black swan’ events of Brexit and the pandemic – recent events have had international heads of state remark at the turbulence.

The unprecedented churn in Number 10 crowned Liz Truss as the shortest serving PM after only 45 days in post. Her resignation triggered another leadership contest, this time following quickly redrafted rules set by the 1922 Committee, the executive of the Conservative Party. The bar was set deliberately high to avoid more uncertainty and churn: the support of 100 MPs was required to secure a place on the ballot. Rishi Sunak, Penny Mordaunt and Boris Johnson emerged as contenders, despite the latter having only vacated Number 10 recently after a crescendo of scandals and dozens of cabinet resignations. After much speculation, Johnson stepped back from the contest, leaving Sunak and Mordaunt. It was clear Sunak had an insurmountable lead, and it was not long until, at 2pm on 24 October, he was declared the winner and PM-in-waiting.

A fiscal remix after two weeks’ silence

Truss’s time in office was marred by turmoil, with far-reaching consequences in both political and financial terms. Her first fortnight on the job was dominated by the official mourning of the Queen, who died shortly after asking her to form a government following Johnson’s resignation (and a lengthy Conservative leadership contest). Once given the all-clear, Truss and Kwasi Kwarteng, her Chancellor, unleashed a so-called mini-budget on 23 September, the essence of which was rooted in neoliberal hard-right economic thinking. Clues could be found in the self-published book Britannia Unchained, co-authored by both Truss and Kwarteng a decade ago. 

Kwarteng declared £45bn of unfunded tax cuts in a bid to steer the country into “a new era focused on growth”. Financial markets reacted unfavourably: Sterling plummeted against the dollar, hitting its lowest level in decades, and government borrowing costs surged after a bond sell-off by worried investors. U-turns are particularly unsavoury in British politics, and despite the chaos in markets, Truss and Kwarteng initially stuck to their plan. The IMF waded in and expressed strong concerns at the mini budget, leaving some to compare the UK’s actions to be more akin to one of an emerging economy. The Bank of England came to the rescue in an emergency bond-purchasing programme to steady the turmoil, which had spilled over to the consumer mortgage market, with record numbers of offers pulled the night before the intervention.

The political (and economic) risks

Business leaders are sanguine about Sunak’s appointment. However, they emphasise the need to restore stability, and create a predictable policy environment around which medium-term investment decisions can be made. Sunak acknowledged his predecessor’s mistakes as he stood in front of Downing Street and gave his first speech as PM, clearly signalling a change of course as he promised to fix her mistakes. This followed the continued recovery of bond yields to levels seen before the failed mini budget one month earlier, but comes alongside the backdrop of a gloomy economic outlook, and signs that the UK economy has already entered recession territory.

The cost of living crisis remains the biggest challenge facing households and small businesses, which affects the wider economy. Energy and food prices have soared, in part due to the war in Ukraine, with the latter still on an upward trend thanks to inflation at 14.6% year-on-year in September. Energy and resource intensive industries like brewers have sounded the alarm, all of which have knock-on effects for industries reliant on people’s disposable income, such as the hospitality sector. Strike action is another concern, and an indication of the wider discontent felt by workers in transport to logistics, and most recently higher education. All of which comes alongside a notable change in narrative from government, which has started signalling a return to austerity

How the country fares is somewhat down to factors outside its control, like international commodity prices, which have been affecting inflation. The Conservative party will do all it can to resist calls for an early general election (the next one must be held in just over two years’ time) with its polling lagging behind the Labour opposition’s by an eye-watering 30%. However, the likelihood of an election is low, given the Tories’ 80-seat majority in the House of Commons – why would an MP vote themselves out of a job? But with much of the current malaise caused by the incumbents, the Conservatives should remember that, when the music stops, the party’s over.

Categories: Europe, Politics

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