Rishi Sunak has a daunting in-tray as UK prime minister

Rishi Sunak has barely been seen since he lost the Tory leadership to Liz Truss on September 5.

When the prime minister-elect finally broke his silence on Monday, his 84-second victory address gave few clues as to how he will address the daunting problems facing the UK.

“There’s no doubt we face a profound economic challenge,” Sunak said shortly after his election as Tory leader at the second time of asking. Over the coming days, the new prime minister will have to move quickly, but there are already some indications as to how he might govern.

Sunak’s first big decision is whether to keep Jeremy Hunt as his chancellor and stick with the scheduled publication on October 31 of what Hunt called an “eye wateringly difficult” medium-term plan to balance the government’s books and cut debt.

Most Tory MPs believe Hunt will keep his job, not least because of his success in calming financial markets after he junked most of Truss’s “mini” Budget that contained £45bn of unfunded tax cuts. Sunak and Hunt agree on the need for tight fiscal discipline.

Hunt on Monday gave his backing to Sunak, writing in the Daily Telegraph: “To restore stability and confidence, we need a leader who can be trusted to make difficult decisions.”

Robert Jenrick, health minister, said: “If Rishi appoints Jeremy you will have two of the most serious, principled people at the helm of the economy.” Jenrick said they would also command international respect.

Hunt briefed all the Tory leadership contenders on his medium-term fiscal plan and is hopeful Sunak will pick up most of the proposals he has identified to fill an estimated £40bn hole in the public finances.

The Treasury is still working on the assumption the plan will be published on Halloween. Sunak may have other ideas, but the fact he was “crowned” Conservative leader on Monday gives him a week to go through it.

Hunt wants to present his plan to the House of Commons three days before a meeting of the Bank of England’s Monetary Policy Committee on November 3, to help inform a key decision on interest rates amid surging inflation and an escalating cost of living crisis.

His plan is likely to appeal to Sunak because much of the fiscal pain will not be felt until after the next general election: it will set out a fiscal consolidation that will aim to have debt falling as a share of gross domestic product in the fifth year.

Among the proposals are sticking with a tight squeeze on public spending after the current Whitehall budget round ends in 2025, and extending a four-year freeze on personal income tax allowances and thresholds beyond 2025, according to government insiders. Together those two moves could save £18bn per annum.

People briefed on the fiscal plan also said Hunt wants to save £5bn a year from projected spending on overseas aid after 2024, and windfall taxes on the banking and energy sectors are being lined up. Linking increases in welfare benefits to earnings instead of inflation could save billions a year. Capital spending is due to be delayed.

Sunak told at a meeting of the 1922 committee of backbench Tory MPs on Monday he would focus on delivering the party’s 2019 election manifesto that conveyed Boris Johnson to power with an 80-seat Commons majority.

The focus on the manifesto was intended to answer questions about Sunak’s legitimacy — he will be the third Tory prime minister since that poll victory and Labour and other opposition parties are clamouring for an election.

The manifesto has some clues as to how Sunak might approach some big issues around tax and spending.

For example, it contains a commitment to the “triple lock” that guarantees the state pension rises in line with whichever is the highest of inflation, average earnings or 2.5 per cent. Hunt and Sunak agree the policy is “totemic” and crucial to the Conservatives retaining the support of older voters.

There are also some indications on Sunak’s likely policy approach from his time as chancellor. For example, he was always reluctant to pick a fight with the EU over the vexed issue of Northern Ireland, fearing the economic fallout.

But Sunak championed Brexit and has promised Eurosceptic Tories he will press ahead with UK legislation to override rules governing Northern Ireland’s trading regime — which were agreed by Johnson with the EU — unless Brussels makes major concessions.

Sunak also fell out with Ben Wallace, defence secretary, over his reluctance to fund big increases in military spending. Sunak has refused to commit to Truss’s target of spending 3 per cent of GDP on defence by 2030.

At a meeting with the pro-Brexit European Research Group of Tory MPs on Monday, he declined to stick to Truss’s goal although he said he would spend “whatever it takes to keep the country safe”.

Sunak is expected to continue with the tough line adopted by Johnson and Truss on Russia’s invasion of Ukraine.

Other clues on the way Sunak could govern can be found from his policy statements during the Tory leadership contest that Truss won.

He vowed over the summer to block housebuilding on protected greenbelt land and to keep development on “brownfield, brownfield, brownfield”.

As chancellor, Sunak sought closer UK economic links with China, but during the leadership race involving Truss he warned that the country was an “enormous threat for our national security” and pledged to build a new “Nato-style alliance” against Beijing’s ambitions.

He also promised Tory MPs he would take a robust stance on immigration, saying he would stick to the Johnson government’s contentious scheme to send some asylum seekers to Rwanda.

Meanwhile, Sunak unsettled renewable energy companies when he promised to scrap plans to relax a ban on onshore wind farms in England and instead focus on offshore developments. He has also promised to stop solar panels being put on prime agricultural land, and backed fracking for gas.