When Rishi Sunak assumed the premiership of Britain in the last week of October 2022, after the painful culmination of a 49-days stint of Liz Truss, almost everyone was predicting a very bumpy road ahead for him. But, at the same time, it was expected of the chancellor-turned-prime minister to at least smooth out some of the disturbing wrinkles in the economic disposition of the country.
But nothing of the sort happened. The only major step he has taken so far is the reshuffling in his cabinet – and that too after spending three months in office. His decision to adopt a go-slow approach with regard to his team is now taking its toll on the approval rating of the Conservative Party.
As the date of spring budget approaches, he appears to be slipping fast into the quagmire of political and economic hitches. The sudden public appearance of Truss, former Prime Minister, has also added to his headaches. After a pause of some four months, Truss has again sparked a new debate by writing an essay in the Telegraph in which she claimed that her short-lived premiership was scuttled by a "powerful economic establishment" and that the "sentiment had shifted Left-wards." In this piece, Truss argues that Whitehall's "strength of economic orthodoxy and its influence on the market" meant that her tax-cutting policies were too much for them to succeed. With the rapidly approaching spring Budget on March 15, the Conservative Growth Group, a caucus of 50 Tory MPs, is advocating for Truss's tax-cutting agenda.
Tax revenue as a share of GDP is at a 70-year high, but Chancellor Jeremy Hunt is sticking with the plan to raise corporation tax from 19 per cent to 25 per cent in April 2023.
The increase in corporation tax is being targeted by Tory MPs, who are pushing for Hunt to announce that corporation tax will be frozen. This could potentially put pressure on the government's 80-seat majority. So, PM Sunak will have quite busy days ahead. There is also trouble ahead for UK businesses.
In April, government assistance for energy costs will be cut for all but the most energy-intensive companies, and the rise in corporation tax will add to the financial burden. The energy-corporation tax double whammy could cause many firms to fold, and those that do survive will invest a lot less, which could hinder the growth of the economy. Truss has described the corporation tax hike as "economically detrimental." From 2010 to 2017, as the corporation tax rate fell from 28 per cent to 19 per cent, receipts doubled from £31.7 billion to £62.7 billion.
However, the recent tax hike of six-percentage points is likely to take a toll on the cash flow of numerous small and medium-sized enterprises. These SMEs are the lifeblood of the UK economy, contributing to more than half of its output and providing employment to two-thirds of the workforce.
Truss's re-emergence into the public sphere has sparked a much-needed conversation on the economic debate, particularly on tax policy.
Rishi Sunak and Jeremy Hunt have to make tough decisions. Despite a recent reshuffle in the cabinet, a routine moving of deckchairs rather than a bold refurbishment to establish his control, things seem to be slipping out of his hands. His decision to create new ministries by splitting the business department – energy and net zero; trade and business: science, innovation and technology – is certainly a wise decision at the right time to prepare the UK for the industries of the future.
But recent polls suggest that the Tories would be trounced bitterly if the general election was held today – predicting that the Tories would end up third behind the Scottish National Party with around 45 seats. The cost of living crisis has practically devoured the Conservative Party. The Conservative Growth Group, a pressure group, is campaigning for the return of – not Truss, but – her supply-side tax-cutting agenda to re-galvanise the public support before the general election.
Regardless of the fact that the share of tax revenue to GDP is at a 70-year high, Chancellor Hunt is not ready to budge from Sunak’s plan in March 2022 when he was chancellor. This may add to more annoyances for Sunak, who is being brutally targeted by the Labour Party for his reported patronage of the culture of lavish spending in the British government sectors. The Labour Party now has enough ammunition to sabotage Sunak’s attempts to resuscitate the withering fortunes of his party.