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Britain's Chancellor of the Exchequer Jeremy Hunt poses with the budget box at Downing Street in London, Britain March 15, 2023.
A new attitude and a new budget: Can the Tories make a comeback?
Weeks after the International Monetary Fund forecast that the UK will be the worst-performing advanced economy this year, British Chancellor Jeremy Hunt on Wednesday handed down a fresh national budget. (Though the independent Office for Budget Responsibility now says that the economy will only contract by 0.2% this year, an improvement on previous forecasts of 1.4%.)
Budgets can have a massive impact on politics. You’ll likely remember that ephemeral PM Liz Truss’ “mini” budget last fall caused the markets to nosedive, leading to her swift resignation.
As the UK grapples with a dire cost-of-living crisis and a sky-high annual inflation rate of 10.1%, Hunt tried to convey that the government will address falling living standards without overspending while also stimulating growth after years of sluggish economic performance. For context, real household disposable income, a key standard-of-living metric, is expected to drop 5.7% between 2022 and 2024.
Indeed, the budget laid out public spending measures opposed by some Tory hardliners, including a £4 billion additional investment in free childcare and an extension until the end of June of a £2,500 annual energy price cap to offset rising energy costs as a result of Russia’s war in Ukraine.
What's more, the Tories will stick to an earlier plan to raise the corporate tax rate by 6 percentage points to 25%, a move unpopular with fiscally conservative Tories. A significant budgetary development is the abolition of limits on the amount workers can build up in their pension funds before paying tax, which is aimed at keeping some professionals in the workforce for longer. There are also some tax breaks offered to businesses to boost investment.
Much of Hunt’s budget focuses on the need to plug a hole in the labor market and boost productivity after years of sluggish growth. Crucially, while the economies of other advanced countries including the US, Canada, Japan, and the EU now exceed their pre-pandemic levels, Britain’s GDP remains stagnant. This trend started after the 2007-2008 financial crisis, and was further exacerbated by the Brexit fallout, which raised trade barriers and created a climate of uncertainty and chaos.
The challenge is now on Labour leader Keir Starmer to recast his party’s opposing message. Love him or hate him, Prime Minister Rishi Sunak, a mild-mannered technocrat who is on a mission to mend relationships around the globe, can hardly be accused of the gross incompetence that plagued his predecessors.
With general elections slated for next year, can Starmer maintain the 20-point advantage Labour currently enjoys after the implosion of the Conservative Party under Boris Johnson – or is this the beginning of the Tories’ comeback?Foreign Secretary Liz Truss leaves Downing Street in London
Liz Truss’ unenviable new gig
The UK will have a new prime minister on Sept. 6. Foreign Secretary Liz Truss, who is all but assured to move into Downing Street next week, beat a crowded Tory field vying to replace outgoing party boy Boris Johnson.
Truss takes over at one of the most perilous times in recent British history. What will be the major challenges at home and abroad — and which of these problems are of Truss’ own making?
Challenges at home. The UK is currently mired in its worst cost-of-living crisis in decades, in large part because of soaring energy and rent prices. The Bank of England recently warned that the UK will likely face its longest recession since the global financial crisis in 2007, and inflation is slated to hit a staggering 18.6% early next year. Indeed, sky-high energy costs and post-Brexit shortages have fueled inflation rates that top the EU and the US.
Truss, for her part, fashions herself as unabashedly pro-business and has rejected any new taxes to raise government revenue, including a windfall tax on oil and gas companies that have made a mint in recent months.
Indeed, as Europe braces for an energy crunch this winter due to Russian gas cuts – with EU member states agreeing to slash gas use by 15% until at least April 2023 – the UK is emerging as one of the biggest crisis hotspots. Why?
While the UK is less reliant on Russian gas than many countries – importing more than 75% of its natural gas supply from Norway – it is facing an even more brutal winter than many of its European counterparts.
There are several technical reasons for this. Minimal storage capacity after the Tory government closed in 2018 a massive energy storage facility to save upkeep costs has meant that the UK has limited ability to stockpile ahead of the cold winter months. The UK’s facilities hold enough gas to meet demand of four to five winter days. Germany’s capacity is 16 times that.
What’s more, gas accounts for 40% of UK energy consumption. This leaves Brits even more vulnerable to energy shortages, with two-thirds of households at risk of experiencing fuel poverty by 2023.
Challenges abroad. The UK and EU are on a collision course. Two and half years since Brexit, relations between the UK and the EU are still extremely strained. In her bid to win the Conservative Party's top job, Truss sought to appeal to the populist-right flank of the Conservative Party, rallying hard against the post-Brexit deal negotiated – and agreed to – with Brussels.
The largest remaining sticking point is the Northern Ireland Protocol, which sought to avoid creating a hard border between Northern Ireland, which is part of the UK, and the Republic of Ireland, an EU member state. The Tories have since reversed course and seek to change some terms, a move that some observers say breaches international law.
Why does this matter so much? “The way the EU structured the negotiating process,” explains Mujtaba Rahman, managing director of the Europe desk at Eurasia Group, was that “the trade deal between the two rests on the UK respecting and implementing the core elements of the withdrawal agreements,” primarily the Irish border.
If the UK continues on its current course and does not respect the protocol, Rahman says the “Europeans are going to say in response … we’re not going to respect the future trade agreement. The two things are linked.” This would be catastrophic for the UK, which is desperately seeking to maintain robust trade ties with EU economies.
A bill amending parts of the protocol has already passed the House of Commons and is now headed to the upper chamber, where things could get ugly.
If the bill continues to pass through parliament, Rahman says, the EU won't feel it can continue to engage in serious discussion with the UK. “How do you negotiate in good faith while you’ve got what you believe to be a very hostile piece of legislation working its way through parliament?”
Looking ahead. So is it possible that Truss, who won the Conservative Party’s leadership with only a slim mandate, is simply engaging in anti-European bluster to rally her base? That’s not necessarily relevant now, explains Rahman.
“Truss is constrained by the fact that she made a deal with the right to gain the keys to No. 10, and the cabinet she's putting together is going to be made up of many right-wing eurosceptics. The space she has to make a political deal [with the EU] is very constrained.”
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British PM Boris Johnson looking perplexed.
Boris Johnson narrowly escapes defeat
A few days ago I returned from London, where the pomp and circumstance surrounding the Queen’s Platinum Jubilee was infectious. Even hipster establishments in East London were toasting the monarch and mixing Queen Elizabeth II’s favorite cocktails (it’s a classy gin and Dubonnet aperitif).
But the air of celebration has since given way to a political onslaught with Conservative lawmakers holding a no-confidence vote on Monday to determine the political fate of their embattled prime minister and party leader, Boris Johnson.
Johnson came out on top, but only just. Some 148 Tories – 32 shy of the 180 needed to remove him – voted in favor of ditching the PM, while 211 backed him. Boris is safe with a majority of 63, but he emerges with diminished political strength as a result.
What went so wrong? During the darkest days of the pandemic in May 2020 – when heads of state around the globe were hemorrhaging domestic support – Johnson maintained a respectable approval rating of 66%.
Arguably, the PM’s biggest downfall since has been the drip drip of the Partygate scandal, stemming from revelations that Johnson attended social gatherings at Downing Street in violation of his own lockdown restrictions. Johnson became the only sitting PM in British history to be fined for breaking the law. What went down at these shindigs was revealed in excruciating detail in the recently released Gray report, which detailed drunken antics one might encounter at a frat party.
Moreover, public disdain for the PM has been exacerbated by the growing cost-of-living crisis. For many Tories – who just returned from a week-long parliamentary recess spent mingling with their local constituents – it was clear that their boss had become an electoral liability.
One thing that helped Johnson keep his job, however, is the lack of a clear successor. Matthias M. Matthijs, an associate professor of International Political Economy at John Hopkins University, says that “even if there are better people in the Conservative Party to do the job, there is no consensus among the different party factions. So, while there is opposition to Johnson from multiple factions of the party, it is also his biggest strength.”
Johnson is safe – for now – but he’s still in the wilderness. The PM now leads an unwieldy caucus that chose to take its chances with a woefully unpopular leader rather than give Labor Party leader Keir Starmer the opportunity to win votes by casting the Conservatives as being distracted by internal politicking.
Importantly, current rules dictate that the Tories can’t challenge Johnson’s leadership with another no-confidence motion for 12 months. But some lawmakers are reportedly itching to change that rule to keep their options open.
That might depend on how Johnson’s party performs in two crucial by-elections in Wakefield and Tiverton and Honiton on June 23. The race to replace two Tory incumbents – both forced to step down after sex-related scandals – could be a bellwether of the Conservatives’ electoral prospects. And those prospects are looking bleak: a recent poll found that the party would lose nearly all battleground constituencies if the general election – due to take place by January 2025 – were held today. It notably showed that Johnson would also likely lose his parliamentary seat.
Britons fed up with political drama aren’t the only ones pointing Johnson to the exit. The European Union has long accused Johnson of duplicitous negotiating tactics over Brexit. It may have a point: to distract from revolving scandals at home, the prime minister has made a habit of picking fights with his favorite foil, Brussels. Johnson has infuriated the EU by trying to scrap the Northern Ireland Protocol that his government agreed to with the bloc.
Matthjis says that after Monday’s close call, Johnson will “want to draw a line on the internal battles and move on.” The bruised PM will therefore likely up the ante, Matthjis says, by taking “a much more confrontational line with the EU over the Northern Ireland Protocol.”
Johnson’s narrow win on Monday reflects the waning confidence of his own party. When faced with comparable political predicaments in the past, former Prime Ministers Margaret Thatcher and Theresa May resigned from office. But calls have been made for months for Johnson’s resignation, and he has refused to leave. So don’t hold your breath on him vacating No. 10 anytime soon.
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