After two and a half tumultuous years in British politics, Boris Johnson finally decided to leave the Prime Minister’s office at the beginning of July. Although Johnson delivered the largest Conservative majority since the 1980s, the scandal-hit prime minister eventually lost the support of his own party and the wider public, which culminated in the devastating by-election results in Wakefield and Tiverton-Honiton. The prime minister’s exit initiated what is a still ongoing leadership contest within the Conservative Party. During the race for the post of prime minister, the candidates have articulated radically opposing ideas regarding the desired direction of the United Kingdom and the party itself. With the competition between the two remaining contenders, former Chancellor of the Exchequer Rishi Sunak and Foreign Secretary Liz Truss, a fundamental ideological debate about what British conservatism is (or should be) about surfaced. The outcome of the race will most likely determine the political and ideological orientation of the British right, as the race in fact is a battle for the soul of the Conservative Party.
Rishi Sunak: the Man of Compromise
Boris Johnson was not hesitant to point out during his last Prime Minister’s Questions that the astonishing Conservative victory in the 2019 general election resulted in nothing short of a dramatic realignment in British politics. The Conservative Party achieved almost unimaginable electoral success in the Northern English constituencies of the historically Labour voting “red wall”. Although Johnson’s pro-Brexit stance was undoubtedly the most important factor in the Conservatives’ success, it is important to highlight that Johnson consciously broke with the “politics of austerity” often associated with the Conservative Party. Instead of the financial rigour of the previous Cameron governments, Johnson promoted levelling up the Northern constituencies and providing the necessary funding for the apparently neglected public services. In short, the Johnsonian recipe of electoral success was a combination of a solid conservative stance on cultural issues and the promise of a slightly left-leaning economic policy.
Sunak’s critics often point out that the British tax-to-GDP ratio has not been this high since the 1950s
The man who became strongly associated with the latter was the Chancellor of the Exchequer, Rishi Sunak. Sunak has been quite popular with the general public, mostly due to the rather generous giveaways and the introduction of the furlough scheme during the Coronavirus pandemic. British public spending reached previously unseen levels under the pandemic, both in relative and absolute terms. The extra spending was financed through a combination of borrowing and tax increases. Sunak’s critics often point out that the British tax-to-GDP ratio has not been this high since the 1950s. It is indeed the case that taxation relative to GDP increased as much during the past two and a half years as during the ten years of Tony Blair’s premiership. Therefore, It is quite unsurprising that the right of the Conservative Party shows lack of enthusiasm when it comes to Rishi Sunak and his “socialist policies”.
As a counterargument, Sunak often (and rightly) points out that the pandemic presented a strong case for government action and spending increases. However, Sunak’s opponents are quite sceptical about whether the former Chancellor will be committed to tax cuts at all in the future. During the television debates, Sunak opposes immediate tax cuts, citing inflationary pressure and government debt. He often references the fiscal conservatism of former prime minister Margaret Thatcher, saying she would be against tax cuts financed through borrowing and debt. While Sunak definitely has a point, it is quite baffling that at the same time he campaigns citing tax cuts (more precisely income threshold increases) he introduced in the spring. It is unclear up to this point what Rishi Sunak deems an appropriate target date for fiscal easing and exactly how his economic policies would play out. His critics say that high taxes drive investment away, disincentivise work and have a contractionary effect on an already struggling economy. In a most recent development, seen as a U-turn by his critics, Sunak announced that as prime minister, he would scrap VAT on energy bills if prices keep rising. One thing is for sure, Sunak’s current perception hardly helps him gain popularity within the party, especially as his resignation played a huge part in bringing down the membership’s beloved prime minister, Boris Johnson.
Liz Truss: the Woman with a Reaganite Zeal
Liz Truss is a veteran of British politics, which is quite surprising as she is only forty-seven years old. She served in various cabinet positions under David Cameron, Theresa May and Boris Johnson. As Secretary of State for International Trade, she was responsible for making trade deals for a post-Brexit United Kingdom. Currently, she serves as Foreign Secretary in Boris Johnson’s cabinet. The selection of Truss as their candidate by the Tory right is quite unexpected, as previously she was a member of the Liberal Democrats and she supported Remain in the 2016 Brexit referendum (a past she is often apologetic about).
Truss is a well-known libertarian with regard to economic policy. She supports reversing the increase in corporate tax and the scrapping of a National Health Service levy enacted by Rishi Sunak when he was Chancellor. So she comes across as the “tax cutter” candidate, promoting special low-tax economic zones, deregulation and supply-side reforms. Although her agenda is close to that of the economically liberal members of the Conservative Party, her critics have raised concerns about the potential effects of instant tax cuts with regard to already high levels of inflation and fiscal sustainability. Albeit Truss dismisses these concerns, many point out that cutting taxes without reducing inflation first would be bad economic policy. There are also a lot of questions about her commitment to sound money and fiscal conservatism, two objectives of her often cited role model, Margaret Thatcher.
Liz Truss is much closer to U.S. president Ronald Reagan than she is to Thatcher
In fact, with regard to economic policy, Liz Truss is much closer to U.S. president Ronald Reagan than she is to Thatcher. Reaganomics emphasised the importance of tax cuts along with deregulation in order to increase supply, and thereby reduce inflation. Reagan’s supply side reforms accompanied by the unprecedentedly tight monetary policy of Fed Chairman Paul Volcker brought along a short recession followed by a decade of impressive economic growth. It is unclear, however, whether the Bank of England would be willing to engage in similar monetary tightening (something Truss has already mentioned and enthusiastically supports). Even in that case, an increase in the United Kingdom’s debt level is highly likely under Truss’ plan. According to her estimates, the UK would start paying off its extra debt in three years time. The Reagan-parallel also applies when it comes to foreign policy. Truss is known for her Atlanticism and her hawkish stance on China and Russia. The United Kingdom is the second-largest donor of military aid to Ukraine after the United States. Truss also contrasted her hawkish stance on China to the allegedly softer stance of her opponent, Rishi Sunak.
Despite being more popular within the party, concerns have been raised about the electability of a Truss-led Conservative Party and her appeal to the wider public. Truss is definitely more popular in Tory heartlands than Sunak, nevertheless, many fear that a turn to the right could destroy the electoral grand coalition created by Boris Johnson. Such an occurrence could easily lead to an electoral defeat for the Conservatives in the 2024 general election.
The stakes are very high in this year’s Conservative Leadership Election. The Tory membership is highly divided on the economic legacy of the Johnson era. Whilst Rishi Sunak represents a more left-wing, more fiscally conservative, centrist economic stance, Liz Truss wants to appeal to the more traditional, economically liberal, anti-state, Thatcherite wing of the Conservative Party. At the moment, the Foreign Secretary seems to have a higher chance of winning the leadership contest, but opinion might change swiftly, just as it has in the past few weeks. No matter who wins the race in September, the new Prime Minister will face enormous economic and foreign policy challenges. In addition, leading the Conservatives to victory in 2024, after fourteen years of being in power, will not be an easy task either. The Tory membership may very well be about to make their most important choice in a decade – the future of British politics depends on their decision.
Egon Zsiros is a financial economist. He obtained his BSc degree from Corvinus University of Budapest and is currently completing his Finance MSc programme. He is also studying international relations at the National University of Public Service. His main areas of interest are political economy and the politics of the Anglo-American sphere.