FTI Consulting Public Affairs Snapshot – Britain’s Economic Malaise

Citing stability, growth and public services as his priorities, Hunt stressed the need for fiscal discipline, stating: “British families make sacrifices every day to live within their means and so too must their government, because the United Kingdom will always pay its way.”

To deliver on that pledge, the Chancellor confirmed two new fiscal rules. First, the country’s underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period. Second, public sector borrowing over the same period must be below 3% of GDP.

The Chancellor argued that these measures will tackle the cost-of-living crisis, rebuild the economy, and significantly reduce borrowing over the coming years, adding that analysis by the Office for Budget Responsibility (OBR) confirmed that they will also mean the recession will be shallower than it otherwise would have been.

Dubbed by critics as “Austerity 2.0”, today’s measures could not be further apart from those announced by the previous Chancellor, Kwasi Kwarteng, when he delivered The Growth Plan just 55 days ago. Kwarteng’s fiscal event was dominated by talk of tax cuts, deregulation, and economic growth. Today’s statement delivered tax rises, spending cuts, and the promise of hard times ahead.

To illustrate the contrast, the proposal to abolish the 45p rate of income tax was arguably the spark that lit the fuse during Kwarteng’s statement. Today, Hunt has not only retained the 45p rate, but he has announced plans to reduce the threshold at which it becomes payable, from £150,000 to £125,140, drawing many more people into its reach.

Listening to the Chancellor, it felt like an entirely different political party had just won a resounding election victory and was setting out its plans to clean up the mess of those who came before. In essence, that is precisely what has taken place with the recent election of Rishi Sunak as leader of the Conservative Party.

Some Conservative MPs, however, have suggested that Sunak and Hunt are going too far in their attempt to restore fiscal discipline, that they are overcorrecting for Truss’s mistakes, and that it was precisely his advocacy of tax rises that cost Sunak the leadership election over the summer.

The situation is, of course, entirely different now, and the Government will hope that by facing up to the reality of the challenges confronting the country, they can chart a course that will restore market confidence, bring inflation down, and rebuild the credibility of a party in perpetual crisis. Indeed, a party that is fully cognizant of the fact that it is working against all the odds in pursuit of a fifth consecutive election victory – a victory that seems to be under greater threat with each passing day.

Regardless of the views of those who subscribe to Trussonomics, there is no escaping the fact that Britain is in a dire economic situation. A myriad of statements has been issued over recent days confirming that the underlying health of the country’s public finances has severely deteriorated.

The Bank of England has given notice that Britain is facing its longest recession since records began, the Office for Budget Responsibility has estimated that government borrowing will rise close to £100 billion in 2026-27 – around £70 billion higher than the £31.6 billion estimate from March – and the Office for National Statistics has confirmed that inflation has rocketed to a high of 11.1 per cent, its highest level since 1981.

Given the bleak outlook, the opposition’s attack lines wrote themselves. Responding to the Chancellor’s statement, the Shadow Chancellor, Rachel Reeves, said: “The Conservatives have crashed our economy, given up on growth, and inflation is through the roof. And yet, as usual, it is ordinary working people who are paying the price.” She argued the country is “sick of being ripped off by the Tories”, adding that the Government had “picked the pockets” of the entire country by deploying a “raft of stealth taxes”. Reeves’ robust performance had an undeniably energising effect amongst the Labour ranks.

Over recent weeks, the Labour Party has stepped up efforts to lay the blame for Britain’s economic malaise at Sunak’s door and argue that after two years as Chancellor he, as well as Truss, is responsible for the worsening economic climate. However, whilst there may be a modicum of logic to such a charge, the political strategy may not be cutting through as well as Labour would have hoped.

In a recent Opinium poll, 33% of respondents said they would prefer a Conservative government led by Rishi Sunak to manage the economy, with 29% choosing a Labour government led by Sir Keir Starmer. Likewise, 88% of Conservative voters now choose a government led by Sunak as their preference to manage the economy, as opposed to only 41% under Truss.

Given there is now less of a divide between the Conservatives and Labour on fiscal policy than under the previous administration, it will also be that much harder for Labour to find new ways to attack the Government. Especially given the opposition’s policy platform is yet to be fully set out and, as things stand, does not look glaringly different from Sunak’s.

However, these similarities may also lead the electorate to consider a different set of questions: which party can I trust, which party is on my side, and which party has my best interests at heart? The political treasure on offer for Labour relies on the public concluding that the answer is not the party that has been in power for the past 12 years.

The Labour leader has also opened up a crucial lead over Sunak elsewhere. When asked by YouGov who would make the best Prime Minister, 34% chose Starmer over the 27% who chose Sunak. Given that the relationship between leader ratings and election outcome has been predictive of every election winner since 1979, maintaining and building on this lead will be mission-critical for Labour in the months ahead.

Weighing up today’s statement, the policy changes simply couldn’t be starker. Whilst the Truss administration delivered a sugar rush of tax cuts to almost everybody, the Sunak administration has delivered a bitter pill of tax rises and spending cuts to clean up the mess they inherited. Indeed, Hunt’s statement was in many ways more of a rebuke to factions within his own party than it was to the opposition.

What remains to be seen, however, is whether the measures will be sufficient enough to cure the malaise. The objectives set by the Government would be extraordinarily ambitious at the best of times, making the task for Sunak and Hunt all the more colossal in nature. And whilst recent polling leads for the opposition have been interpreted across the board as more indicative of disquiet at the Conservative Party than of firm support for Labour, that may well be all that Starmer needs to ride the tidal wave of public backlash all the way to No 10.

What swings in Sunak’s favour is that the public’s anger is aimed much more at Boris Johnson and Liz Truss than at him – although it’s certainly true that he won’t be able to hide behind his predecessors forever. He will now have to work hard to re-establish his own image and reputation, all the while imposing considerably unpopular policies on the country.

At the very least, the Prime Minister and Chancellor will hope that by demonstrating their commitment to fiscal discipline today, the electorate, the markets, and their own backbenchers will give them the benefit of the doubt and, more importantly, the time they need to see the job through and get Britain back into the black.