UK economy, taxes come into focus as candidates begin race to become next prime minister

SIX people remain in the race to become Britain’s next prime minister, with the successor to Boris Johnson set to be announced on Sep 5.

After the first round of voting on Wednesday (Jul 13), 2 candidates - finance minister Nadhim Zahawi and former foreign minister Jeremy Hunt - were eliminated. Leading the pack is former chancellor of the exchequer Rishi Sunak, who obtained the support of 88 Tory Members of Parliament (MPs), followed by Minister of State at the Department for International Trade Penny Mordaunt, who obtained 67 votes.

The other 4 candidates still in the running are Foreign Secretary Liz Truss; attorney-general Suella Braverman; the chair of parliament’s foreign affairs committee Tom Tugendhat; and former equalities minister Kemi Badenoch.

In the first round, each of them had to secure at least 30 votes from the ruling Conservative party’s 358 MPs to get through to the next round of voting, with the bottom 2 getting eliminated. The process continues over the next few weeks until there are just 2 people remaining.

What’s clear is that the winner, whoever he or she may be, will have the unenviable task of taking over from a disgraced Johnson, who announced his resignation last week but will stay on as a caretaker prime minister until the new leader is named.

The health of the UK economy is expected to be come into sharp focus as the candidates make their voices heard. The economy is dealing with soaring inflation, mounting debt and slow growth, as Britons grapple with rising unemployment and a deepening cost-of-living crisis.

According to fresh data from the Office for National Statistics (ONS) on Wednesday, gross domestic product grew by 0.5 per cent in May, an improvement over the 0.2 per cent contraction in April. A recent Reuters poll of economists had indicated that growth would be zero in May from April.

The pound rose slightly after the data was released. Still, the currency is hovering at a 27-month low of 1.189 against the US dollar and is currently 16 per cent below what it was just a year ago.

The FTSE 100 index is slightly up from its June lows but is still 7.5 per cent below the levels at the end of 2021. The FTSE 250 index, which is made up of mainly domestic companies, has fallen by 22.5 per cent in the same time frame. 

Despite the better than expected growth, there are ongoing fears that inflation will surge from the current 9.1 per cent to 11 percent, and that the Bank of England will raise interest rates again in August.

In his first speech of his campaign, Sunak said he did not regret the fiscal decisions he made both during and after the Covid-19 pandemic, and that it was not possible to promise both “lots more spending and lower taxes”.

“We need a return to traditional conservative economic values, and that means honesty and responsibility, not fairy tales,” he said. He pledged to cut taxes only after inflation is brought under control.

Sunak, who has the backing of more MPs than his rivals, has the endorsements of Deputy Prime Minister Dominic Raab, Health Secretary Steve Barclay and Transport Secretary Grant Shapps.

The British media reported that Truss, whose team is attempting to portray her as the most viable candidate to “stop Rishi”, has secured the support of Brexit Minister Jacob Rees-Mogg and Culture Secretary Nadine Dorries.

Truss wrote in the Telegraph newspaper that she would start cutting taxes from her first day in office to take “immediate action” to help people deal with the cost of living. As for her views on the economy, she has previously said she wants to get the UK “back on track towards being a high-growth and high-productivity powerhouse”.

Mordaunt, who has also kickstarted her campaign, is seen as a serious contender. A new poll of almost 1,000 Tory members predicted that she would be the next prime minister.

She told her launch campaign that her key fiscal rule is that debt as a percentage of GDP will fall over time. “My monetary policy will be on controlling inflation and our supply side reforms will yield a Brexit dividend on investment, infrastructure, incentives and innovation,” she said.