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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?US House Speaker Nancy Pelosi (D-CA) wields the gavel as she presides over the first impeachment of President Donald Trump.
What We’re Watching: Pelosi’s farewell, #RIPTwitter, Malaysian vote, Iranian rage, UK austerity
Pelosi takes a final bow
Nancy Pelosi is standing down as leader of the Democratic Party in the US House, but she’ll remain in Congress as a representative of San Francisco. She was both the first woman to serve in the ultra-powerful role of House Speaker and a hate figure for many on the right. Pelosi’s personal toughness, Herculean fundraising prowess, and ability to hold together the typically fractious Democratic Party in the House will remain her legacy for Democrats. For Republicans, seeing her pass the gavel to one of their own in January will mark a moment of triumph in an otherwise disappointing midterm performance. In announcing her plans, Pelosi noted that “the hour has come for a new generation to lead the Democratic caucus.” At a moment when both parties are led by politicians of advancing age, that’s a big step – and a trend we’ll be watching closely as a new Congress takes shape and the next race for the White House begins. Eurasia Group US Managing Director Jon Lieber says his bet is on 52-year-old Hakeem Jeffries taking the Democratic reins. If Jeffries gets the job, he'll make history as the first Black politician to lead a party in Congress.
The fate of an endangered bluebird
Are these possibly the final hours for Twitter? Will the social media company, recently purchased and immediately upended by Elon Musk, survive longer than the proverbial head of lettuce? No one really knows now, after the company announced late Thursday that its offices would be closed until Monday as it deals with mass resignations. The wave of departures was triggered by Musk’s hardass demand earlier this week that employees agree to a “hardcore” work environment or take three months of severance and be gone. Hundreds, if not thousands, evidently took option two. Taken alongside an earlier wave of Musk’s planned layoffs, some estimates say as many as three-quarters of the company’s workers could be gone now. Will Musk take the L and backtrack on his “hardcore” demand, or will he double down and try to run the company with a skeleton crew? Regardless, just weeks into the era of Musk, Twitter is looking less like the free speech “town square” that he envisioned and more like the town circus.
Malaysia’s election head-scratcher
Malaysians go to the polls Sunday to vote in their first national election since 2018, when the opposition Patakan Harapan Party ended the Barisan Nasional coalition's 60-year stranglehold on power after then-PM Najib Razak got busted in the billion-dollar 1MDB corruption scandal. Since then, though, Patakan has lost its mojo due to infighting and defections to Najib's own UMNO party, which — we kid you not — is now part of the coalition government. Further complicating things is that Patakan's new leader is Najib's old mentor, former PM Mahathir Mohamad, who's running for a seat in parliament — and perhaps the premiership for the third time — at the ripe young age of ... 97. Meanwhile, Najib is behind bars. Malaysian politics take complicated to a whole new level, but the gist of it is this: It's unlikely any party will get an outright majority, so the most likely outcome is a hung parliament that'll result in another shaky coalition or a fresh election.
Rage fuels Iran protests
“We’ll fight! We’ll die! We’ll take back Iran!” protesters are chanting in Tehran these days. And indeed, many have fought and died. At least 15 were reportedly killed on Wednesday night, including a 9-year-old boy, amid widespread demonstrations against Iran’s repressive regime and Supreme Leader Ayatollah Ali Khamenei. The country has been rocked by protests since mid-September, when 22-year-old Mahsa Amini was beaten to death by cops for wearing her hijab “improperly.” The last couple of days have seen commemorative demonstrations to mark the deadly Nov. 2019 protests that erupted over fuel prices. The Islamic Republic is reportedly growing concerned by the increasing violence involved in demonstrations, with government rhetoric referring to “armed” protesters as “separatists” and even “terrorists.” Thousands have been arrested, and at least four protesters have been sentenced to death. We’ll be watching this weekend with concern for how heated and deadly things get.
Britain braces for economic hardship
2022 has been tough for Brits — and the next 18 months will be even worse. On Thursday, Chancellor of the Exchequer Jeremy Hunt finally unveiled his much-awaited fiscal plan, the first under PM Rishi Sunak, warning families that their living standards could fall by as much as 7% until at least mid-2024. Nixing almost all of the tax-cutting yet free-spending "mini-budget" that cost Liz Truss her premiership a month ago, Hunt confirmed big tax hikes and spending cuts that Downing St. cannot avoid in order to keep the UK's finances in check amid a deep economic crisis and energy crunch. The chancellor's message was dark: Brits will need to tighten their belts to get through this rough patch. Still, how the people cope with austerity could determine Sunak’s political fate. The newly minted PM is not required to call a new election until the end of 2024, but he might not have a choice if voters blame him for their dire straits. And that's just what the opposition Labour Party — now leading the polls by more than 40 points, its biggest margin ever — is waiting for.This was featured in Signal, the daily politics newsletter of GZERO Media. For smart coverage of global affairs that normal people can understand, subscribe here.
Liz Truss resignation ends most shambolic premiership in UK history
Ian Bremmer's Quick Take: Hi everybody. Ian Bremmer here. Breaking news waits for nobody as I'm in a car on the way to a very early morning flight on the West Coast in the US. But no, Liz Truss has resigned.
We all knew it was coming, but of course, she gets to pick the actual moment of 44 days. Shortest-lived, most shambolic premiership in British history. And I mean, truly coming at a horrible time for the country. The economy is in free fall. Inflation, much worse than in the United States. An energy crunch coming this winter. You thought that the Boris Johnson premiership was bad, and it was certainly clownish. There were lots of scandals. But in terms of policy at least they were much more coherent, if not always correct than Truss' month and a bit.
The big issue, of course, is that she decided to triple down on Brexit. No, we haven't done Brexit well enough. It hasn't really been tried. We haven't focused enough on growth, and so we're going to massively expand every failed policy in the midst of an enormous crisis. We don't have the population or even the Conservative Party behind us. Pretty much every part of her historic effort at an economic and a fiscal policy was defenestrated. That's right, thrown out of a window.
First, the tax cuts on the wealthy and then when her chancellor was forced out, forced to quit, Kwarteng, in also humiliation, but not as much as the prime minister. Let's be clear. It was her plan he was implementing. Jeremy Hunt comes in much more capable and basically undoes every single piece of what she promised she wouldn't U-turn. So a U-turn on a U-turn on a U-turn. They call that a roundabout in the UK. They drive on the wrong side of the road, but nobody gets it done the way Prime Minister Truss had.
We are delighted to see the back of her, of course. No one could possibly be less fit for this job, including the well-feted head of lettuce The Daily Star had been rooting on to outlast the prime minister for over a week now. It was of course a joke at the beginning, but now it's her premiership that gets the last laughs as it were. Likely to be either Rishi Sunak or Penny Mordaunt as the next PM, both Conservative Party challengers for her race that she ended up winning but vastly more competent and capable, more stabilizing in this environment.
The Conservative Party is in its death throes right now. I mean, some 20% approval, and it's just fallen off a cliff since Truss became the premier and it wasn't doing that well before that. But because there's no need for an election anytime soon, the Tories can soldier on. I mean, all of these home secretaries, all of these chancellors, all of these premiers, and then of course, on top of that, the news that we thought was going to be the big news in the UK is the fact that Queen Elizabeth passed away, and there's a new King. Well, it turns out that's old news in UK politics. My thanks to our special relationship that we never refer to it as such anymore across the pond for even for a small period of time making Americans think that is another advanced industrial democracy that can be even more poorly run than the United States.
That's it for me. I hope everyone's well and I'll talk to you all real soon with the next premier.
For more of Ian Bremmer's weekly analyses, subscribe to his GZERO World newsletter at ianbremmer.bulletin.comBritish Prime Minister Liz Truss
Dead on arrival: The Truss and Trussonomics experiment is almost over
Things have been turbulent in the UK since the 2016 “Brexit” vote to leave the European Union – but the upheaval of the last six weeks may be among the most volatile episodes in modern British politics.
A recap. Newly installed Conservative PM Liz Truss introduced a tax cut plan last month – aka Trussonomics – to try to stimulate Britain’s inflation-ridden economy through a trickle-down effect by pushing for £45 billion ($50 billion) of tax cuts. But she failed to convince voters, markets, and even her own party that it could be paid for or succeed in addressing the cost-of-living crisis. Market turmoil and widespread criticism ensued.
In response, Truss backtracked on the corporate tax cuts and then, on Friday, sacrificed longtime ally and political soulmate, UK Chancellor Kwasi Kwarteng. She replaced him with Jeremy Hunt, a Conservative centrist who is the fourth person to take on this role since July. Importantly, on Monday, Hunt scrapped nearly all of Truss's mini-budget that sparked the recent chaos, causing the pound to rise slightly against the US dollar.
While the opposition smells blood and Conservative support is plummeting, the chaos has also invited international criticism. US President Joe Biden openly called Truss’s plan a mistake on Sunday. The UK is also becoming the butt of jokes cracked publicly by world leaders.
Indeed, Truss’s go-it-alone policy-making – she failed to consult the independent watchdog that scrutinizes fiscal plans – and sloppy u-turns have triggered the beginnings of a mutiny in the Conservative benches. Less than two months into a tenure that started with the removal of former PM Boris Johnson, the days of Truss’s prime ministership appear to be numbered.
Goodwill Hunting. While Truss and the Conservative Party hemorrhage support, the new chancellor of the exchequer, Jeremy Hunt, said he supported Truss's premiership despite some policy differences. But his reversal of nearly all of her planned tax cuts (excluding those already put into place) and ditching of her scheme to cap energy prices for a full two years, is indeed a humiliating development for the new PM.
Hunt is in the hot seat. While some have praised the moderate, anti-Brexit “remainer” now running the exchequer from No. 11 Downing Street, critics point out that Hunt didn’t do well during the last Tory leadership contest. Also, while he eventually endorsed Rishi Sunak in that race, Hunt himself had supported higher corporate tax cuts than Truss. As the former health secretary, his performance in getting the UK pandemic-ready also fell short.
Money moves. Hunt seems to be quickly moving towards orthodoxy. Within 48 hours of assuming office, he warned that taxes could rise and that government spending would shrink. But he also referred to a “compassionate” Conservative government that wouldn’t implement the type of austerity measures seen back in 2010.
Though Goldman Sachs downgraded its economic growth outlook for the UK on Sunday, yields on long-dated gilts (UK government bonds) fell during Hunt's address Monday, while the pound rose 0.9% against the US dollar. Markets seemed to respond positively to his announcement that the universal cap on energy prices, set to cost £80bn ($90 bn), would be lifted in April and would only target poor Britons thereafter.
Can Truss hang on? Letters of no confidence are reportedly already being filed against Truss by MPs. But Mujtaba Rahman, Eurasia Group’s lead Europe analyst, says removing Truss will be difficult. “Although MPs are openly talking about finding a way of replacing Truss without again involving the 160,000-strong party membership [for intra-party elections], this will not be easy,” he says.
Like last summer, there is likely to be disagreement on who should take the helm. “Some Truss supporters, and allies of Boris Johnson, will try to block a return to power by Rishi Sunak,” Rahman explains.
Some MPs, Rahman says, think Truss will be forced out before the end of the month. The consensus is that her performance will now accelerate the talks among senior Tories for agreement on a “unity candidate.” But the party rules for choosing a PM would have to be rewritten to raise the threshold a candidate would need to reach to be in the running. Likely candidates, Rahman says, are Rishi Sunak, the former Chancellor, and Penny Mordaunt, the Commons leader.
While many fear that appointing yet another Tory leader will make the party look ridiculous, “the growing view at Westminster,” says Rahman, “is that that might be a better alternative to holding on to a Prime Minister who has palpably failed to achieve the ‘mission’ on which she set out.”
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Truss makes another U-turn, fires Kwarteng
On Friday, UK Prime Minister Liz Truss relieved Chancellor of the Exchequer Kwasi Kwarteng only 38 days into his tenure, replacing him with former Health and Foreign Secretary Jeremy Hunt. In a briefing after the decision, Truss said she would raise the corporate tax rate — reneging on a promise not to do so — by £18 billion ($20 billion) and admitted that her budget “went further and faster than markets were expecting.” Her announcement triggered a sell-off in the gilt market, as yields on long-term UK government bonds rose sharply, with more trouble expected on Monday. Analysts and traders assessed that the measures were not enough. The turmoil began three weeks ago, when now-sacked Chancellor Kwarteng led the new government’s charge to promise tax cuts without a plan to fund them, which sent the pound tumbling and the markets into a tizzy, leading to global criticism against Truss and her cabinet. Hunt, the new man in and an anti-Brexit “remainer,” has a tough gig ahead: he’s not just following the shortest chancellorship since 1970, or managing the reversal of the tax-cut plan to calm the markets – which had already anticipated the U-turn — but he’s also got to deal with a boss who's trying to keep her own job. Eurasia Group’s lead Europe analyst Mujtaba Rahman says that more than two dozen Tory MPs — including some of Truss’s original supporters — are planning to remove her from office before 2023. When asked today why she’s not resigning, Truss said: “My priority is making sure we deliver the economic stability that our country needs.”