Sunak beat the market. Voters Are Another Story


Two short letters became famous in the history of British politics for their honesty about the country’s finances. Reginald Maudling, the outgoing Tory chancellor in 1964, told his Labor successor and friend, Jim Callaghan, “I’m sorry old cock, leave it in this form.” In 2010, Liam Byrne, Labour’s Chief Secretary to the Treasury, also offered his Liberal Democrat successor, David Laws, an apology for lying: “I’m afraid, there’s no money.”

Their jokes are hung around their necks by their opponents, but both have the ring of truth. Successive governments are beset by the profligacy of their predecessors. The opposition Labor Party should now remember them as a warning.

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

Prime Minister Rishi Sunak, a former banker of Goldman Sachs Group Inc., has won the respect of the market for his fiscal conservatism, but he is struggling with voters. He polls badly when it comes to “relating to” and “understanding the lives of ordinary people.” Maybe we’ll see less of Prada loafers and expensive office wear. Personal forever political. Sunak’s vast personal wealth and his ex-wife’s non-domiciled status (which gives her an exemption from overseas income tax) make her a tempting target for Labour.

Sunak also lacks the X-factor appeal of ex-Prime Minister Boris Johnson and many ex-Labour voters who like his cheek from the political class. These switchers can return to their old loyalty in the next election. The Conservative Party is demoralized. His favorite paper, The Daily Telegraph, asked what was the point of voting for the Tories if they raised taxes and reformed the public sector. The Institute of Economic Affairs, a British free-market think tank, accused the government of “managing the decline”.

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

Labor’s 20-point advantage in recent polls has put a spring in the party’s step, although the election victory cannot be taken for granted, given the high number of seats Labor must win for an outright majority. If they are to win, however, Reeves and his leader Keir Starmer will have to overcome a demoralizing Tory legacy. Hunt’s £55 billion fiscal budget is pushing for more public spending cuts in the run up to a general election expected at the end of 2024.

Center-left parties that have historically supported the generous provision of public services will find that the piggy bank is empty. How will Labor make a difference if it can’t fund a growth strategy? The ambitious Green Welfare Plan, announced in September, with a price tag of £28 billion, looks vulnerable in the current economic climate. Will Labor just manage the decline as well?

Long before the general election campaign got under way, the trap was being laid for Labour. Hunt can challenge Reeves to accept his plan or set up how he will find the money to pay it back. As Reeves himself observed in his sharp response to Hunt in the House of Commons, “The Tories want a party like that in 2010”. That year, Chancellor George Osborne cut the budget and challenged Labor to say how they would balance the books. Osborne, not coincidentally, has been invited back to Downing Street to give advice on how to snooker the opposition.

Yet the last time Labor set an alternative budget – before the 1992 Election – this party was defeated, despite weariness with 13 years of Tory government. Conservatives and their allies in the press warned against the opposition’s impending “double tax whammy” and Labor has no answer.

Reeves and Starmer have taken different paths. Labor has trailed the Tories on economic competence for the past 15 years. The recent market turbulence finally gave them a lead in the polls, but that was only temporary – the Tory prime minister’s last package of unfunded tax cuts led to his ouster from office.

Labour’s Tony Blair and his Shadow Chancellor Gordon Brown faced a similar dilemma in the 1990s. Today’s Tory government is beset by divisions, scandals and recent economic failures. But voters still need convincing that their money will be safe in Labour’s hands, even though a large majority want to spend billions rebuilding dilapidated schools and hospitals.

Reeves has chosen to emulate Blair and Brown, pledging that a Labor government will not borrow to finance day-to-day spending. He even backed the Tory cut in the basic rate of income tax before it was dropped a few weeks ago.

But there is a big difference between Labor then and now. In 1997, Blair and Brown were handed a financial windfall by the Tories in the midst of a long Cold War boom. Inflation is low and prices of manufactured goods are falling due to globalization. Today, globalization is in reverse, 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 risen to heights not seen since World War II.

We’re closer to a stuttering “stop-go” Maudling British economy and Byrne’s miserable post-recession bust. A glint of hope beckons in the optimistic OBR forecast for steady growth in 2025. But Labor can’t bank on that yet. More likely, there will be “no money”. The road back to power for the opposition parties will be paved with poverty.

More From Bloomberg Opinion:

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

• England Can Use World Cup Victory – for Economy: Andrea Felsted

• England already has a nasty Wealth Tax: Merryn Somerset Webb

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

Martin Ivens is 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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