The elections in the UK are down to the final two: so-called favourite Rishi Sunak, ex-chancellor, and Liz Truss, foreign secretary. With the final call due on 5 September 2022, what follows up till then is a long road of campaigning, debates and polling.
But campaigning in the current economic environment seems more than just a challenge, with the Conservative party leading the UK through periods of poor GDP and issues with labour market activity due to Brexit. This mainly involved falling productivity, all of which combined will cause major economic slowdown, if the new elected leaders do not respond decisively.
So what exactly are the differences between what Sunak and Truss are proposing? Now we will only hear their full campaigns once debates start, however we have had tasters of what is to come.
Policy Choices
The main targets at the moment will be on stabilising and controlling inflation. It is what is on the British citizens mind the most and is what needs to be addressed at the forefront of the campaign.
To address this monetary policy objective, demand destruction seems to be the most popular choice globally, especially in the context of curbing surging gas and energy prices. This could be in the form of rationing, a prospect increasingly becoming likely as Russian gas curtailments still questionable (although maintained levels for now).
In terms of fiscal policy, the main headline has been tax cuts. While tax cuts are an attractive prospect to citizens, especially in the face of inflation, it can be a dangerous weapon when we analyse the economic consequences. A tax cut could lead to a boost in short-term spending, which is likely to actually further accelerate inflation. In the current economic climate, this is the last thing the economy needs, as it will come with further hikes from the BoE, which will boost the country towards a recession earlier.
This is where Sunak and Truss differ in their policies. Truss is a big advocate of tax cuts (particularly national insurance and corporate taxes) and in doing so has advanced her position in the polls, gaining support from many voters.
Sunak on the other hand has spoken about the dangers of utilising lower tax rates now, citing that once inflation has been curbed should they be implemented. Truss has said her proposed fiscal policy is aimed at supply-side expansion, without any inflationary pressure, however the extent to which this will be true is debatable.
Now is Truss proposing these tax cuts just for votes, or does she believe it is best for the economy? That is a question yet to be answered, and it could well be the case that once in power Truss imposes higher taxes a few years down the line. But the short-term benefits which the public sees is what allures them to this policy choice.
Sunak has said his policy is a more 'traditional conservative' approach. Whether this means re-introduction of austerity measures is unclear.
But what is known, is that a policy to support the long-term interests of the UK is what is needed at this time, so whether either can deliver that, time will tell.