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5 October 2020updated 30 Aug 2021 10:47am

Why the cult of Rishi Sunak should now end

The Chancellor’s personal popularity is disguising his destructive economic policies.

By George Eaton

No British politician in recent history has enjoyed an ascent as heady as that of Rishi Sunak. In July 2019, the 40-year-old held the lowly office of under-secretary of state for local government. By February 2020, he had become the second youngest chancellor of the last century. He is now the country’s most popular politician and the favourite to succeed Boris Johnson as Conservative leader.

Sunak’s popularity is not hard to comprehend. In a cabinet selected for its loyalty, rather than its talent, he stands out for his eloquence, easy manner and air of competence. As Chancellor, he has discovered that giving people money is more popular than taking it away. 

Faced with a lethal pandemic, and the need to place the economy in cryogenic suspension, Sunak undertook to pay 80 per cent of furloughed workers’ wages (up to a maximum of £2,500 a month). The speed and clarity with which he announced the programme on 20 March contrasted with the late and haphazard lockdown presided over by Johnson. Len McCluskey, the general secretary of Unite, was among the Conservatives’ unlikely cheerleaders. “Rishi Sunak’s wage support measures are a historic first for this country, but are bold and very much necessary,” he said.

Sunak followed this success with the Eat Out to Help Out scheme, another policy for which he was careful to claim personal credit. Like Johnson before him, “Rishi” is now on first-name terms with the electorate.

But the hype machine around Sunak is preventing necessary scrutiny. When the Chancellor finally announced a replacement for the furlough scheme on 24 September, the media were briefed to expect a German-style wage subsidy programme. Yet the reality did not match the rhetoric. Under the Job Support Scheme, the government will pay just 22 per cent of workers’ net salaries, compared to 60 per cent to 87 per cent under the German model. If the aim is to prevent mass unemployment, the policy creates precisely the wrong incentive: it is now more expensive for companies to retain two part-time workers than to sack a full-time one (firms must pay employees 55 per cent of their net salaries for just a third of their hours). 

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Rather than preserving maximum support for the economy until Covid-19 restrictions have been lifted, Sunak has embraced “creative destruction” and paved the way for up to a million redundancies this winter. Entire industries, such as live music and theatre, have been deemed unviable (regardless of their future prospects). But this austere turn should come as no surprise. Though he enjoys a reputation as an interventionist Keynesian, Sunak is an unashamed fiscal conservative. Back in 2015 he argued that “in normal times public spending should not exceed 37 per cent of GDP” and today in his Conservative conference speech he vowed to “balance the books”. 

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In reality, though the UK’s borrowing has rarely been higher (the national debt has exceeded 100 per cent of GDP for the first time since 1963) it has also rarely been cheaper. Such is the demand for British debt from investors that the government has recently sold bonds at negative interest rates (in other words, investors are paying the government to take their money). 

To speak of “balancing the books” is absurd. The UK’s budget deficit is forecast to be around £400bn this year and the country will likely never again run a surplus. Rather than sacrificing living standards to meet an arbitrary target, the Chancellor should focus on stabilising the debt-to-GDP ratio through progressive tax rises and sustainable growth.

But Sunak is instead pursuing the path of his predecessor George Osborne. As the Resolution Foundation has charted, the Chancellor’s plan to cut Universal Credit payments (which were increased early in the crisis) would cost six million households £1,040 a year, with the bottom fifth losing seven per cent of their disposable incomes. Unemployment support would fall to its lowest real-terms level since 1990-91, and its lowest ever relative to average earnings.

The Covid-19 crisis has remade the case for the welfare state as a form of collective insurance against life’s hazards: ill-health, unemployment, disability and the death of a partner. But rather than constructing the European-style system the UK needs, Sunak has embraced sink-or-swim economics. 

Faced with an autumn of discontent, voters may nostalgically recall the cut-price meals they enjoyed at the Chancellor’s behest. But even Eat Out to Help Out no longer appears an unqualified success. On ConservativeHome, economist Ryan Bourne highlighted significant evidence that restaurants became vectors of Covid-19. As restrictions are reimposed, the economic cost of a second wave will far outweigh the stimulus provided by “Rishi’s dishes”. The British Chambers of Commerce concluded that the scheme had a “fairly marginal” impact on the hospitality and catering sector. 

Only now will Sunak’s popularity be truly tested. The public may revolt over higher unemployment and lower living standards; Tory MPs may revolt over tax rises. But for now, Sunak remains the acceptable face of Conservatism. The risk is that his standing helps disguise unacceptable policies.