We take a look at the man who is now the UK Prime Minister, and the issues he must confront.

After Boris Johnson was removed in early July as leader of the Conservative Party and Prime Minister, and with successor Liz Truss lasting a humiliating 44 days, former Chancellor Rishi Sunak – who resigned from the Johnson administration in anger over Johnson’s conduct – has been acclaimed as Conservative leader. 

So many MPs backed him that his path into power has been rapid. His rivals for the job pulled out of the race.

Sunak is an example of the success that many of Indian descent have achieved in UK business and public life. Given the UK’s important trade links with India and the rest of the Commonwealth, the significance of his own position is considerable. 

Some background: Sunak was born in 1980 in Southampton to parents NHS GP Yashvir Sunak and pharmacist Usha Sunak. His grandparents were born in India before moving to East Africa and then the UK in the 1960s. An academic high-flier, he attended Winchester College, Oxford and Stanford (in the latter case, on a Fulbright Scholarship.) He worked at Goldman Sachs, and built his own investment firm, Theleme Partners. His wife, Akshata Murty, is the daughter of an Indian billionaire, N R Narayana Murthy, who founded the software company, Infosys. She is a non-domiciled resident in the UK and an Indian national. (Her tax status has been attacked and the arguments used have been dissected by this publication. We take the view that those attacks lacked merit.)

Sunak’s time as Chancellor of the Exchequer saw him have to handle the financial impact of the Covid-19 crisis. He put into practice expensive policies such as furlough payments for millions of people, as well as having to find more money for the National Health Service. Controversially, he put up corporate taxation and  National Insurance Contributions. It is at least arguable that the NICs increase did, along with the Net Zero energy policies and other matters, add to anger at the direction of the Johnson government. And of course tales of "parties" in Whitehall during lockdowns were devastating for Johnson's political career. Sunak resigned as final examples of Johnson's alleged cavalier attitude broke into the news in the middle of summer, and a stream of other ministers quit the government.

During the summer/early autumn leadership debates with Liz Truss, Sunak played the “sensible” card of arguing that tax cuts, if they come, must be fully funded, whereas Truss was more expansive, even “Reaganite,” in that regard. Truss won the leadership poll. But as we know, she spent barely a month in office.

A lot on his plate
So now it is Sunak’s turn to hold power. There is unlikely to be any "honeymoon." He faces a mass of problems. With a new Chancellor, Jeremy Hunt, replacing Kwasi Kwarteng, austerity is in, expansionary policy is out. That might not work out. It seems that Sunak is going to dispense unpleasant medicine along the Hunt lines, at least for a while. Already, tax rates aren’t going up in line with inflation, so the “fiscal drag” effect means that millions of voters will pay more tax without necessarily seeing it. 

Sunak must hope that the energy market cools off somewhat next year, giving him room to possibly cut taxes if not next year, then in 2024 – assuming he stays in power that long. Because Sunak will be conscious that taxes in the UK are at their highest level for more than 70 years. Whatever flavour of Conservative certain MPs might be, that’s not a good place to be. 

Zombies and low growth
And while some of the frictions of recent weeks will not have gone away, Sunak knows that Truss’s focus on growth was broadly correct, even courageous. There is a problem with an economy grown hooked on a decade of ultra-cheap interest rates, and where investment is not high. Perhaps appropriately, as Halloween looms into view, we hear a lot of talk about how low rates have created corporate “zombies” – businesses shielded from the “creative destruction” of capitalism thanks to very cheap borrowing costs. Far too many firms are staggering along on single-digit margins, when in more normal conditions, they’d have gone bust, or have been taken over and restructured. Capital is being used to prop up underperformers, not released to support new ideas and growth. That’s why, so the argument goes, we have had a decade or more of sluggish growth. Look at the parallels with Japan after its real estate market tanked in the early 90s.

Talk of Japan (the yen has been sliding versus the dollar) is a reminder of long-term issues that few governments appear to be willing to talk about yet. The workforce is ageing. People are having fewer children, and we are living for longer. The post-1945 Welfare State, long regarded as the summit of British political achievement, is under strain. The maths no longer add up. But the politician willing to state this is never going to be popular.

And then there is foreign policy. Sunak hasn’t had much to say – yet – about Ukraine, or China, or how the UK intends to capture the supposed regulatory freedoms post-Brexit. (He supported Brexit in the 2016 Referendum.) But he is going to have to start talking about these matters. With US mid-term elections due in November, there is a risk that US support for Ukraine could hit a buffer – could the UK and other European nations pick up the slack? 

The Ukraine situation also highlights the Net Zero agenda. Liz Truss endorsed the resumption of fracking as energy costs skyrocketed. Will Sunak want to challenge the gods of the ESG movement by taking a more sceptical stance? Will a Sunak government be keener on nuclear power? And what of areas such as house building, or infrastructure such as a third runway at Heathrow? Can billions of pounds more be poured into HS2 high-speed rail link when more urgent demands exist for public investment?

Sunak has hit the heights of academic and business success and, at the tender age of 42, has already become one of the youngest occupants of 10 Downing Street. A teetotaller, he does not have many grey hairs on his head. But one suspects that whatever happens, he will have a few more over the next two years before a General Election has to be called.