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UK economic crisis: Make it or break it moment for Rishi Sunak

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Multi-millionaire Rishi Sunak will be the third British PM in two months since the ouster of the 'Face of Brexit' Boris Johnson

On October 25, 2022, Indian-origin Conservative Party MP Rishi Sunak became the youngest Prime Minister of the United Kingdom. The 42-year-old takes over the country’s reign at a time when it is engulfed with crises such as increasing living costs, rising household energy bills and property prices, and last but not the least, a phase of recession.

Rishi Sunak, who emerged victorious after a three-way leadership race between him, former PM Boris Johnson and Penny Mordaunt, will take over the Prime Ministerial responsibilities from Liz Truss, who relinquished her post after a tumultuous 45-day stay at ’10 Downing Street’.

Multi-millionaire Rishi Sunak will be the third British PM in two months since the ouster of the “Face of Brexit” Boris Johnson.

Born on 12 May, 1980 in Hampshire’s Southampton, Rishi Sunak’s parents, Yashvir and Usha are Indian Punjabis. While his grandfathers were born in British India, his father and mother were born in Kenya and Tanzania respectively. The families migrated to the United Kingdom during the 1960s.

Rishi Sunak did his schooling at Romsey-based Stroud School and Winchester College. He even served as a restaurant waiter during his summer holidays. He graduated from Lincoln College, with a topper rank in 2001. His association with the conservative party started during his stay at Oxford University where completed an internship at the Conservative Campaign Headquarters. In 2006, he completed his MBA from Stanford University.

Rishi Sunak’s White Collar journey and his marriage
Rishi Sunak was a financial analyst for Goldman Sachs from 2001 to 2004, followed by a stint at the hedge fund management firm “The Children’s Investment Fund Management”. He became a partner there in 2006. In 2009, he joined another similar company called “Theleme Partners”. Rishi Sunak also worked as a director in “Catamaran Ventures”, owned by his father-in-law and Infosys founder NR Narayana Murthy. Rishi Sunak married the Indian businessman’s daughter Akshata Murthy in 2009. Akshata has a 0.91% stake (valued at USD 900 million) in Infosys.

The couple has two daughters. Akshata is also a director at “Catamaran Ventures”. They own properties such as Kirby Sigston Manor in North Yorkshire, a mews house in central London, a flat on Old Brompton Road, London, and a penthouse apartment in California’s Santa Monica.

Rishi Sunak, a Coca-Cola fan, is also a cricket and horse-racing enthusiast. As per the 2022 Sunday Times Rich List of 2022, the couple is the United Kingdom’s 222nd wealthiest, with a combined fortune of £730 million. Before Rishi Sunak, no other British politician made the list.

Rishi Sunak’s political journey
Rishi Sunak’s tryst with United Kingdom electoral politics started in 2014, when he became the Conservative MP from Richmond in Yorkshire. He won the same seat in 2015 as well and became a member of the Environment, Food and Rural Affairs Select Committee of the British Parliament.

While Rishi Sunak supported Brexit in 2016, He even advocated the establishment of free ports and a retrial bond market for small and medium businesses. After winning the 2017 polls, he became the parliamentary under-secretary of state for local government from January 2018 to July 2019. He openly campaigned for Boris Johnson as Theresa May’s successor during the 2019 Conservative Party Leadership polls.

After Boris Johnson became the UK PM, Sunak became the Chief Secretary to the Treasury. In 2019, he got re-elected again as the Conservative MP, thus maintaining his clean sheet in polls.

Rishi Sunak’s real test came in 2020, when he had to handle the COVID-19 fallouts just after becoming the Finance Secretary.

Succeeding Sajid Javid in February 2020, he presented his first budget on March 11, in the middle of the pandemic. He introduced measures such as £30 billion of additional spending, £330 billion as emergency support for businesses and an employee furlough scheme.

The measures, however, didn’t sit well with the Brits, as many workers were reported couldn’t qualify for the United Kingdom Treasury’s income support mechanism.

Even the Institute of Employment Studies said that an estimated 100,000 people could not be eligible for the stimuli. The British Hospitality Association too claimed that some 500,000 professionals from this sector were deprived of this assistance.

Rishi Sunak also was a part of the ministerial panel which monitored the pandemic situation in the United Kingdom and was vested with decision-making power. However, in 2022, during a probe on an alleged party in 10 Downing Street, in the middle of the lockdown, a penalty notice was served to Sunak as well, as he allegedly attended the gathering.

Rishi Sunak’s employee retention scheme was aimed at providing funds to business leaders to pay 80% of their staff wages and employment costs (The total amount sums up to a total of £2,500 per person monthly). The scheme ran till December 2021. However, there were allegations too against this scheme.

In 2020, the United Kingdom Fraud Advisory Panel, in a letter to Rishi Sunak and National Audit Office, warned about the potential fraud against such stimulus schemes. The organisation even asked for the publication of the company details receiving Bounce Back Loans, for the purpose of data matching and detecting frauds.

In September of that year, the state-owned British Business Bank warned the Boris Johnson government of fraud risks against financial support schemes.

In January 2021, the United Kingdom National Crime Agency reported arrests regarding Bounce Back Loan scams worth £6 million. In 2022, a Freedom of Information request to the British Business Bank found that some 193,000 businesses had failed to meet their repayment terms to the United Kingdom government.

Even the government has estimated that £4.9 billion of bounce-back loans were lost to scams.

Rishi Sunak has also been known to come up with unconventional ways to deal with the UK economic slowdown since 2020.

One of them has been “Future Fund”, a £1.1 billion investment portfolio set up in 2020. This fund helped nearly 2000 start-ups during the COVID period. However, a fraud angle emerged here as well, with an official supervising the portfolio called most of these companies “Zombie Businesses”.

Another one was “Eat Out to Help Out”, under which the United Kingdom government subsidised food and soft drinks at eateries and pubs by 50% (up to £10 per person). From July to August 2020, the stimuli subsidized some £849 million worth of meals. However, a Warwick University study said that the scheme led to crowding in United Kingdom restaurants, cafes and pubs, resulting in a rise in COVID caseloads by 17%.

Rishi Sunak, during his 2021 budget, also raised the corporation tax from 19% to 25%. While the new rate will be applicable from 2023, this hike has been the first one since 1974.

In the same year, the G7 summit hosted by Rishi Sunak in London saw a tax reform pact being signed, under which a Global Minimum Tax Regime will be set up for multinational companies.

Rishi Sunak also lobbied for imposing a green levy which would increase conventional fuel Prices. The goal was simple, arranging monetary support for the plan to reduce greenhouse gas emissions to net zero by 2050. The proposal called Fossil Fuels Emissions Trading Scheme sought to levy pollution from road transportation, shipping, building heating and diesel trains. However, Boris Johnson rejected the scheme.

Rishi Sunak’s idea of making cryptocurrency stablecoins for daily payment activities was flagged by the Bank of England, following which, he ordered the Royal Mint to create a government-backed “non-fungible token” or NFT, to be issued as early as 2022 summer. The process, however, hasn’t been completed yet.

Rishi Sunak gets his dream job, but challenges galore
While Rishi Sunak resigned as Chancellor on July 5, after a series of controversies engulfing the Boris Johnson government, he was leading the Conservative Party and United Kingdom PM leadership race, before Liz Truss edged past him. With Liz Truss gone now and the country in ruins, the 42-year-old faces challenges and quite a few of them.

A Reuters report has claimed about a “40 billion pounds of black hole in public finances” which needs immediate attention. While Jeremy Hunt took charge as the new Finance Secretary after the firing of Kwasi Kwarteng, he also warned about “taking tough decisions” in order to rebuild the country’s fiscal health.

While Rishi Sunak and Jeremy Hunt will be introducing another mini budget on October 31, with the aim of launching spending cuts, they also need to honour the Conservative Party’s low taxation promise, which the former gave during the 2019 polls campaign.

The change of guard comes at a time when the global energy crisis and the subsequent ballooning electricity bills have resulted in more than 2 million households going into payment arrears, facing a possible energy supply disruption ahead of the winter.

Prices of pasta, meat and tea, along with other budget food items have soared by 17% within the United Kingdom, as the recession figure has crossed over the dreaded double-digit mark. Cooking oil value has gone up by 65%. All these price hikes are hitting the poorest of Brits hard.

While first-time home buyers are facing the heat due to the volatile property market, post the introduction of the Liz Truss government’s mini-budget, there are also reports of people compromising on their daily food habits to save costs. Even food banks and government schools providing free meals to their pupils are not spared from this cost of living crisis.

What Rishi Sunak said after becoming the PM
“I will place economic stability and confidence at the heart of this government’s agenda. This will mean difficult decisions to come.”

‘Mistakes were made. I want to pay tribute to my predecessor Liz Truss. She was not wrong to want to improve growth in this country. It is a noble aim. And I admired her restlessness to create change. But some mistakes were made — not born of ill will, or bad intentions. Quite the opposite, in fact. But mistakes, nonetheless. And I have been elected as leader of my party and your prime minister, in part to fix them.”

“I fully appreciate how hard things are. And I understand too that I have work to do to restore trust after all that has happened. All I can say is that I am not daunted. I know the high office I have accepted and I hope to live up to its demands.”

“The government I lead will not leave the next generation —your children and grandchildren — with a debt to settle that we were too weak to pay ourselves.”

“I will deliver on (our manifesto’s) promise. A stronger NHS, better schools, safer streets, control of our borders, protecting our environment, supporting our armed forces, levelling up, and building an economy that embraces the opportunities of Brexit where businesses invest, innovate and create jobs.”

There is no second doubt about Rishi Sunak’s assessment of the United Kingdom’s current economic scenario. The next few months will be all about maintaining a tightrope walk between the austerity measures and shielding the Brits from the recession fallouts. The former Goldman Sachs analyst’s administrative experiences in handling extraordinary situations like COVID will be key here.

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