New day, new PM, familiar policies?

Rishi Sunak will end today as Prime Minister; a position only held by 56 people before him. A lot has been made of his heritage; being the first Hindu Prime Minister, the first British Asian Prime Minister. He is said to be intensely smart, bold in his thinking and humble despite his well recorded wealth and privilege. “There’s no doubt we face a profound economic challenge,” Sunak said shortly after his election as Tory leader showing he’s adept at understatement as well.

We at Audere wish him well, as he has a hell of a job to tidy up after the last administration.?

We noted last night that his first job should be to ‘Make Britain Boring Again’. The pound, gilts and mortgage markets are only fit for the front pages when things are going wrong and both businesses and consumers need some certainty to return. Markets have reacted favourably to the news that he will be leading the UK, this should continue if no sudden moves on Cabinet staffing are made.?

Keeping Jeremy Hunt as Chancellor too makes sense with a fiscal statement due in less than a week. Everyone from the Bank of England down will be running their eye over what this new group in Downing Street wish to do fiscally. Sound spending decisions riven of ideology would be an apposite antithesis to September’s mini-budget that precipitated so much pain for UK assets.

Moving past the immediate next few weeks, Sunak will have to unite a fractured party and prepare the country for what could be a tough winter. Whilst some are eager to point out that gas prices have fallen in recent weeks, UK storage is already brimming, and energy companies are likely to have hedged at higher prices than current spot. The marginal benefit to consumers may be as fleeting as this recent run of unseasonably warm October weather.

Similarly, with discretionary spending by UK consumers falling to weaker levels than the Global Financial Crisis and only beaten by the first month of the Covid pandemic, a country of shopkeepers will ask where is consumption set to come from?

While Sunak’s fiscal bearing is probably closer to George Osborne than any other Tory Chancellor of recent times, given the growth outlook in the UK does look quite so rotten we hope that his administration’s plans fall closer to Kenneth Clarke of the 1990s than Osborne of the 2010s. If deficits need to be cut and debt reduced, then it should be done by marginally higher increases to taxes than cuts to spending.?

If the ratio a government is targeting is debt as a percentage of GDP, you don’t bring that number down by hammering the denominator, in this case growth.?

Talks of ‘growing the pie’ must be consigned to the waste heap alongside those that espoused that belief, if only because I’m yet to meet a farmer that can grow a pie. Secondly, the pie only feeds more if it is stuffed full of filling – and that is government spending.?

Investment has naturally paused in recent weeks whilst businesses sat back and watched the UK’s economic standing implode but those global businesses must be tempted back. Increase the amount that businesses can invest tax-free, tempt them into areas of the UK that need those companies and get the infrastructure that binds them in the ground.?

The broad remit of his longer-term plans is likely to focus back on the 2019 General Election. That document contained a commitment to the “triple lock” that guarantees the state pension rises in line with whichever is the highest of inflation, average earnings or 2.5 per cent. With inflation running at around 10%, funding an increase in the state pension at that rate will cost the Treasury around ￡7bn more than if they only raised it by 2.5%.

Also pledged in that manifesto were bans on house-building on greenfield sites, offshore wind farms only and a continuation of Brexit law changes to draw the UK further away from the European Union.

Sunak has an inbox chock full of risk but also opportunity. For now however, a bit of boring would go a long way.