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Published on: July 26, 2022, 10:12 a.m.
Trussonomics vs Thatcher 2.0
  • Sunak and Truss: both are aware that the central issue in the next UK elections will be the economy

By Business India Editorial

Conservative Party MPs in the UK have narrowed the options for Boris Johnson’s successor as party leader and prime minister to a choice of two candidates – Rishi Sunak and Liz Truss. The two leaders have lost no time in setting out their economic policies. What is interesting is the range of policy measures that the two are promising. Perhaps both are aware that the central issue in the next UK elections will be the economy.

Truss feels that the Conservative government has been going in the wrong direction on tax. In an implied criticism of her rival as former Chancellor of the Exchequer, she says: “The central battleground will be about whether we go for growth and cut taxes, or carry on with business as usual and tax rises”.

Sunak, on the other hand, has sneeringly said that “this something-for-nothing economics is not conservative, it’s socialism." He has promised a Thatcherite model of reforms, arguing that the best way to achieve economic growth is cutting taxes and bureaucracy and boosting private sector investment and innovation.

As 2024 draws near, there is a lesson in this for Indian politicians too.  Will our politicians rise above caste, religion and jingoism and also make the economy the ‘central battleground’ of the next general election? While the economic situation did figure in the 2014 election, it was totally swept under the carpet by the wave of nationalism that suffused the electoral atmosphere in 2019. Now, as political parties brace themselves for the next election, can we expect our leaders in the coming months to engage in the same kind of meaningful discourse that the Tory candidates are currently engaged in?

Truss has projected herself as the ‘tax-cutting candidate’, who will help squeezed families by reversing April's national insurance rise and suspending the green levy on energy bills. She has promised to reverse the recent rise in National Insurance, which came into effect in April. As Chancellor, Sunak had raised National Insurance by 1.25p in the pound to pay for health and social care, but also raised the earnings level at which it starts to be paid to £12,570.

On other tax cuts, Truss has pledged to scrap a planned rise in corporation tax from 19 per cent to 25 per cent in 2023 and  suspend what is known as the ‘green levy’ (part of the energy bill that pays for social and green projects,  pay for the cuts by spreading the UK's ‘Covid debt’ over a longer period).

She has promised to change taxes to make it easier for people to stay at home to care for children or elderly relatives and wants to create new ‘low-tax and low-regulation zones’ across the country, to create hubs for innovation and enterprise. The Sunak lobby calls this Trussonomics – support for ‘unfunded’ tax cuts – with all the risks that can follow the line.

As for public spending, Truss won’t cut it unless there is a way to do so that won’t lead to future problems. She will also bring the targeted spending of 2.5 per cent of GDP on defence forward to 2026 and introduce a new target of 3 per cent by 2030.

Sunak can rightly claim credit for steering the economy through the Covid crash. His furlough scheme, which paid 80 per cent of employees' wages for the hours they cannot work in the pandemic, helped millions through the challenging months of the pandemic. There were even suggestions that it should be implemented in India. The problem is that he is being seen in certain quarters as being too rich and too willing to raise taxes. T

he former Chancellor of the Exchequer, however, has promised to reduce taxes ‘once we’ve gripped inflation’. He has pledged to cut income tax before the end of the next Parliament. He hasn't set out details of any other tax cuts, but says he wants ‘radical reforms’ in the way businesses are taxed. He says public sector pay deals should be decided by independent pay review bodies and has announced plan to increase the corporation tax in April 2023. On defence, he has promised to maintain the current level of spending and says we should view current minimum level of spending 2 per cent of GDP ‘as a floor, not a ceiling’. 

Will that convince the grassroots Tory members whose votes will decide the winner on 5 September? Currently, Sunak is only assured of the support of a majority of party MPs.

Neither Johnson nor the Tories covered themselves with glory, as scandals kept tumbling out of the PMO’s cupboard in the recent past. However, the current debate over the economy for selection of the new PM is bringing out the best of the Conservative mindset, worthy of emulation by our netas.

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