UK’s Rishi Sunak to Scrap Truss Growth Plan and Focus on More Taxes Instead

Truss, who spent all of 50 days in office, pulled the pin after her mini-budget was met with serious market turmoil and criticism for not having a sound explanation for how it would be funded. The situation was so severe that the Bank of England was forced to intervene to stabilize bond markets and save a number of pension funds from going bust.

“We set out a vision for a low-tax, high-growth economy that would take advantage of the freedoms of Brexit,” she said in her resignation speech outside number 10 Downing st, “I recognise, though, given the situation, I cannot deliver the mandate on which I was elected by the Conservative party.”

With the shortest-serving Prime Minister’s term having quickly gone up in flames, so too, for the moment, have Britain’s plans for pursuing growth.

Introducing Rishi Sunak

Let’s begin with the basics. Rishi Sunak is a 42-year-old Conservative MP. He entered the House of Commons as a member of the Tories’ 2015 parliamentary intake, representing the Richmond seat in North Yorkshire.

Sunak will be the first British-Asian prime minister of the United Kingdom, and is a proud Hindu.

He was raised by his parents, Yashvir and Usha Sunak, in Southampton, a small port city on the south coast of England. He attended Winchester College, a highly prestigious, fee-paying school, where he served as head boy. Before entering politics, he worked for a few hedge firms, most notably Goldman Sachs.

Sunak is married to Akshata Murty, who he met while studying for his MBA in the US. She is co-founder of the tech company, Infosys, and the daughter of Indian billionaire N. R. Narayana Murty.

Murty receives a portion of her income from shares in Infosys, and earlier this year, considerable controversy was sparked by her U.K. tax situation. According to reports, Murty possessed non-domiciled status, which allowed her to pay a charge of £30,000 a year and avoid paying tax on income earned outside of the U.K. Some estimate she would have saved around £20M in tax for around the last 7 ½ years.

After a ferocious outcry from the media, the opposition party and the general public, Murty eventually discontinued the arrangement. All of this was entirely legal, but definitely raised some eyebrows, considering that her husband was the Chancellor of the Exchequer at the time, and was overseeing the UK tax system.

Sunak and Murty are thought to be worth a combined £730M, which is around double that of the fortune of King Charles III and Camilla. They have four homes around the world apparently worth more than £15M that they share with their two daughters, but will reportedly move back into the flat above number 10 Downing st during Sunak’s term.

Market Whisperer?

In his maiden speech as new PM, Sunak acknowledged the good intentions of Truss for wanting to kick start the country toward growth, saying it was a “noble aim.”

“But some mistakes were made,” he continued, “and I have been elected as leader of my party, and your Prime Minister, in part, to fix them.”

It was a welcome statement, and so far Sunak’s appointment has managed to calm markets through his promotion of financial stability. The insurmountable task that remains ahead for him is to prove to the public and investors that even though he faces strong headwinds in the form of rising interest rates, energy prices, and inflation, the Ukrainian conflict, and the fallout from the pandemic, he may still be able to successfully steer the UK through a likely recession if not stagflation.

A fund manager speaking to the Wall Street Journal spoke of Sunak as having a CV that gave markets a feeling that there would be a more conservative and less aggressive influence at the helm. With a broad understanding of finances, he felt that monetary policy would be stable as a result of his appointment.

10- year government bond yields (Gilt) returned to their pre-Truss-budget levels last week below 4%, and the FTSE Index has been up for a couple of weeks now according to ActivTrades data.

Sharp U-turn in policy

Sunak and his government are now likely to turn their attention toward filling the deep dark hole that has grown in the public finances. To fix the £35B shortfall, Sunak and his Chancellor of the Exchequer, Jeremy Hunt, are expected to publish their economic plans on the revised date of the 17th of November. While it’s obviously not known exactly what’s in the plan, there’s been reports that they’ve compiled a list of 104 potential ways to cut government spending already.

There’s also a fairly good chance that windfall taxes will be brought back as a possibility for energy firms and banks, a concept Truss was staunchly opposed to, as she wanted to encourage investment in the UK.

It’s a pretty fair call when taking into consideration the latest Q3 earnings report from companies such as Shell, which showed that they had raked in almost $10B in extra profits for the quarter. The oil giant’s shares have risen by 40% in 2022 so far on the back of the global tightening of supplies of oil and gas, and they’ve just announced they’ll be increasing dividends by 15%.

Britons will wait patiently for the new budget to be revealed in mid-November, which unlike that of his predecessor, will be fully audited by Britain’s fiscal watchdog. In the meantime, the Bank of England meets on Thursday the 3rd of November for its Monetary Policy Meeting where it is widely expected the Committee will add another 75 basis points to the Bank Rate, bringing it to 3.00%.

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