(Bloomberg) — The UK will finally find out Boris Johnson’s successor as prime minister on Monday, after a bitter Conservative Party contest between Foreign Secretary Liz Truss and former Chancellor of the Exchequer Rishi Sunak.
Truss, 47, is the bookmakers’ odds-on favorite to become the Tories’ fourth leader in just over six years and inherit the brutal economic storm facing Britain. Voting in the two-month contest closed on Friday, and a result is due to be announced at 12:30 p.m. in London. The winner will take power on Tuesday after the outgoing and incoming premiers have met with Queen Elizabeth II at Balmoral, her castle in Scotland.
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The foreign secretary has risen through the Tory ranks by unashamedly modeling herself on former premier Margaret Thatcher, and would be Britain’s third female leader. Sunak, 42, would be its first from an ethnic minority. He only entered Parliament in 2015 and had a dizzying ascent through the ranks to become chancellor in early 2020, just as the Covid-19 pandemic hit. That brought him to national prominence as he unrolled hundreds of billions of pounds of support to help businesses and workers through successive lockdowns.
The new leader will have a forbidding in-tray, with the UK facing a grim winter of surging inflation, recession and a record squeeze on living standards spurred by energy prices. Markets have been flashing red through August, with the pound, gilts and corporate bonds seeing their biggest sell-offs in years.
Truss spent the weekend in talks with her team to finalize her Cabinet appointments and thrash out the details of her plan to help Britain through the energy crisis this winter, which has been a closely guarded secret during the contest.
Truss told the BBC on Sunday that she would “act immediately” to announce plans to help struggling households cope with a surge in power and heating prices that means domestic energy bills this winter are set to be triple last year’s level. She said that announcement would come within a week of her taking office on Tuesday, if she wins.
Truss has pledged an emergency budget in her first month in office, probably before Parliament breaks for recess on Sept. 22. She’s vowed to help Britons by scrapping a 1.25% uplift in National Insurance, a payroll tax, and slashing green levies from energy bills, saving an annual £150 per household. But she’s refused to give specifics on how she’ll help pensioners and the lowest earners, who wouldn’t benefit from the National Insurance cut.
She’s also ruled out imposing any new windfall taxes on energy profits to finance help for households, even as a Treasury analysis estimates the sector generating as much as £170 billion of excess profits over the next two years. Without turning to tax, Truss will need to lean on extra government borrowing or cuts to spending elsewhere to pay for further support.
Businesses — who aren’t protected by a regulatory price cap on energy — are also clamoring for assistance to keep them afloat.
Writing in the Financial Times on Monday, Kwasi Kwarteng, who is expected to become Truss’s Chancellor the Exchequer, insisted that her government would act in “a fiscally responsible way.” Truss’s team told the paper they would assess the Treasury’s fiscal rules, including that debt should be falling as a share of national income between the second and third years of a forecast period, once the latest data had been considered.
Kwarteng’s comments appeared to be an attempt to calm markets after Truss’s campaign pledges to “turbo-charge” the economy by slashing taxes worried investors amid double-digit inflation. She would aim for trend growth of 2.5%.
Sunak, for his part, has said he will scrap value-added tax on energy bills — saving the average household about £180 a year — and expand assistance programs he announced in May when he was chancellor, to help lower earners and the elderly. He’s yet to say how much he’ll increase help by, and has warned that Truss’s tax-cutting plans risk stoking inflation.
The scale of looming economic pain is significant. The Bank of England predicts almost two full years of recession or stagnation through 2023 and 2024, with inflation — already at a 40-year high — predicted to rise further.
Other burgeoning issues for the incoming premier will be fixing a National Health Service on its knees after the pandemic, overcoming widespread industrial discontent in critical areas such as education and transport, and navigating a fraught relationship with the European Union that could yet descend into a trade war. In Scotland, Nicola Sturgeon’s Scottish National Party is demanding an independence referendum that threatens to break up the United Kingdom.
Blue on Blue
They’ll also have to quickly unite the Conservative Party after a bruising and ill-tempered campaign highlighted divisions in the party.
The contest to succeed Johnson became increasingly bitter in recent weeks, with senior Tories including Deputy Prime Minister Dominic Raab and former Cabinet minister Michael Gove disparaging Truss’s plans. Meanwhile Truss’s campaign accused Sunak of “mansplaining” and criticized his record of raising taxes as chancellor.
The new prime minister must also fix the Tory Party’s standing with the electorate after a series of damaging scandals under Johnson’s leadership. A period of governing paralysis over the summer, with Johnson in place but his administration holding off major decisions, has not helped.
The Conservatives trail the Labour Party in the polls and have suffered heavy special election defeats in recent months, both in their traditional southern and rural heartlands and in parts of northern England that Johnson won from the main opposition in 2019.
Neither candidate boasts the charisma that Johnson deployed to such effect when spearheading the campaign for Brexit in 2016 and securing his party’s biggest majority since 1987 at the last general election. The new prime minister has until January 2025 — the latest possible date for an election — to turn the party into a vote-winning machine again.