Touchbutton 89 – Ready for Rishi?

Rishi Sunak is now Prime Minister, but all the talk has been of Boris Johnson.

The Boris Johnson comeback floundered late on Sunday. Depending upon your point of view, this could have been a return like that of Cincinnatus (to whom Johnson compared himself in his resignation speech), the Roman dictator who in circa 458 BC, according to the historian Livy, was persuaded by the senators to leave his plough and return to save Rome. Or like Winston Churchill in May 1940, when Neville Chamberlain nominated him for Prime Minister instead of Lord Halifax, following the failure of the Norway campaign.

“…the return of Johnson to frontline politics has not happened – for now at least.”

Less favourable parallels have been drawn with Bobby Ewing, whose death in the 1982 series of ‘Dallas’ turned out not to have happened at all, it being a construct of his wife Pamela Ewing’s dreams. Whatever parallel you prefer, the return of Johnson to frontline politics has not happened – for now at least.

So, what can we expect from our new Prime Minister?

Fiscally, Sunak presents himself as a traditional low-tax Conservative; however, he has already stated that taxes cannot realistically be cut until 2029, which will be towards the end of the next Parliament. In that way, as Chancellor at least, he resembled Geoffrey Howe who was Conservative Chancellor under Margaret Thatcher from 1979 to 1983. Howe’s reforms, it has been argued, paved the way for him to start cutting taxes in the Budget immediately preceding the 1983 general election, a trend that continued under his successor Nigel Lawson.

“…we can expect much of Sunak’s tax changes announced in March to remain in place…”

The National Insurance cut by Kwasi Kwarteng remains in place for now – the last fragment of that ill-fated ‘mini-budget’. Nevertheless, we can expect much of Sunak’s tax changes announced in March to remain in place, under the tutelage of (we assume) Chancellor Jeremy Hunt, including the freezing of tax bands, viewed by many as a stealth tax.

On spending, we know from Sunak’s reported interactions with Johnson, when he was the latter’s Chancellor, that he refused some of Johnson’s more egregious attempts to open the taps, reflecting in his leadership campaign his wish to “return to Conservative economic values” of “honesty and responsibility, not fairy tales”. Although, at the time that comment was seen as a swipe at his then rival Liz Truss, the use of the word ’return’ showed that he also had Johnson’s spending excesses in mind.

“…the big unknown is whether Sunak… will be able to turn the tide for the Conservative party in time for the general election…”

Of course, the big unknown is whether Sunak as Prime Minister will be able to turn the tide for the Conservative party in time for the general election, which must be held by 23 January 2025. Remember that, by 1997, the then Tory administration had overseen an economic recovery from the dark days of the late 1980s, but it was New Labour’s Tony Blair who reaped the political benefits with an astonishing landslide majority of 197 seats.

The then outgoing administration under John Major had lost the trust of the electorate five years earlier following the ignominious exit from the European Exchange Rate Mechanism in 1992 and the electorate did not forget or forgive.

In the same way, will the Kwarteng ‘mini-budget’ still be in the minds of the electorate as a similar moment when the Conservatives lost their reputation for competence? Labour are very cleverly linking every increase in mortgage rates, every scare over pension funding, and every uptick in inflation to the Tories “trashing” the economy in the immediate aftermath of the Kwarteng ‘fiscal event’.

Or will team Sunak be able to prevent a repeat of that 1997 trouncing, by explaining how we got where we are (too much cheap money for far too long), and how growth across the whole economy can return?

This page is issued and approved by Bordier & Cie (UK) PLC (‘Bordier UK’), which is authorised and regulated by the Financial Conduct Authority (‘FCA’) Registered Number: 114324. Bordier UK is a specialist investment manager dedicated to providing portfolio management services. We offer Restricted advice as defined by the FCA, which means that if we make a personal recommendation of an investment solution to you, it will be from Bordier UK’s range of investment propositions and will reflect your needs and your approach to risk.

This page is not intended as an offer to acquire or dispose of any security or interest in any security. Potential investors should take their own independent advice to assess the suitability of investments. Whilst every effort has been made to ensure that the information contained in this page is correct, the directors of Bordier & Cie (UK) PLC can take no responsibility for any action taken (or not taken) as a result of the matters discussed within it.