The UK economy cannot afford three months without leadership
Why does Boris Johnson want to stay for another three months in No 10? Officially, it’s to allow for an orderly transition of power, although it was also rumoured that he was reluctant to leave because he wanted to celebrate his wedding at the Prime Ministerial country retreat, Chequers, in a few weeks’ time (he is now reported to have abandoned those plans after the rumours attracted much criticism).
Whatever the reason, a lengthy transition period could yet be the worst mistake of his premiership, because it arrives at a tipping point for the UK economy.
Inflation is at 9.1 per cent, its highest in 40 years; growth is flagging badly; the cost of energy is threatening a crisis which could drive millions of people into poverty; and the Bank of England has signalled that “the economic outlook for the UK and globally has deteriorated materially”. At the end of August the energy regulator Ofgem will announce it is raising the energy price cap for the second time this year, to around ￡3,000 a year for an average household on a standard tariff.
Once it had become clear that Johnson had little choice but to resign, the personal finance campaigner Martin Lewis voiced his concern. “We as a country, on a financial basis, are in a catastrophic situation,” he warned on Newsnight the night before Johnson resigned. “You cannot spend too long on [a solution]. We have a genuine catastrophic crisis hitting ten million people, potentially moving into severe levels of poverty. We haven’t got enough time to deal with this – we need to get this dealt with and get it sorted before winter comes.”
It isn’t just households that are struggling: businesses, still grappling with the aftermath of the pandemic, are also facing rapidly rising costs. Producer price inflation – the index that tracks the cost of the materials used by manufacturers to make products – rose by 22.1 per cent in the year to May, the highest rise since records began in 1985, according to the Office for National Statistics, while producer output (also known as factory gate) prices have risen 15.7 per cent in the past year. At the same time, a tight labour market is pushing wages up.
“We’re on limited time,” says Shevaun Haviland, director-general of the British Chambers of Commerce (BCC). “The government must reset, rethink and get their house in order and swiftly demonstrate that it is on the side of business if confidence is to be restored.”
Johnson and Rishi Sunak, his Chancellor until Tuesday 5 June, had reportedly been planning to address the crisis last month with a major speech setting out their plans to boost the economy but the speech was delayed, it is believed because of the rift between them. The speech was rumoured to include tax cuts for people and businesses, lower tariffs on food imports, and higher capital allowances from next year. Yesterday there were rumours that Johnson and his new Chancellor, Nadhim Zahawi, would give the speech soon, but less than 24 hours into the job Zahawi joined the cabinet ministers asking Johnson to resign, which may well prevent the two men reaching much further agreement.
Even if Zahawi and Johnson are able to thrash it out, is there any point in announcing measures, given that in a few weeks or months a new prime minister and chancellor could come in and change everything?
Tony Yates, a former Bank of England economist, says there would be one way to get around this. “[Johnson] could say he is going to offer more support at the time the energy cap goes up,” he says, but the only way for that promise to have any credibility would be for “all the other candidates who are likely to take over to agree to it”. And with the Conservative Party preparing to enter a fractious leadership battle, the likelihood of getting that kind of consensus is slim.
Now that Johnson has announced his Big Decision (with, it is worth repeating, no timeline), it appears he is doing what he spent yesterday insisting he intended to do: “getting on” with the business of running the country. Following the tidal wave of resignations, he has managed to dredge up some reasonably well-respected politicians to serve in his temporary cabinet; the former business secretary Greg Clark has been appointed Minister for Levelling Up, while James Cleverly became the third Minister for Education in three days. Any decisions they make could quickly be brushed aside by a new cabinet with its own agenda, however. The choice is between a quick transition and an economic disaster.
Further reading
- Boris Johnson promised to “fuck business”, and that’s exactly what he did
- Rishi Sunak leaves a legacy of economic confusion
- Why putting an oil executive in charge of your economy is a bad idea
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