Why Should We Care About the Conservative Leadership Contest?

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While most Brits are still in a holiday mood the political classes are gripped by the machinations of an increasingly fractious Conservative leadership contest.

There are about 160,000 party members who will now choose between former Chancellor, Rishi Sunak, and Foreign Secretary, Liz Truss, as the new Conservative leader, and therefore the UK’s Prime Minister. The results will be announced on the 5th of September.

Repeated polls of Conservative members seem to suggest that Liz Truss is strongly ahead in the race and attention is now focusing on how she is expected to shape her cabinet and her plans for government.

Whoever wins the contest, we are likely to see some significant policy changes, and this will impact on the regulatory and economic climate in which all our clients operate.

Fundamentally, both candidates are offering a return to a more traditional Conservative economic policy believing in tighter controls of public spending and less government intervention into the economy.

However, there are fundamental disagreements on the approach to fiscal policy and the impact of Liz Truss’s promise of immediate cuts to business and personal taxation on inflation and the public finances.

As either set out to deliver on this, they will face strong political headwinds: spiraling inflation and the cost-of-living crisis, together with an ageing population, is increasing public demand for investment in public services and support with household bills.

With the Conservative Party divided and Sir Keir Starmer’s Labour Party leading in opinion polls, a change of Government at the next election is a distinct possibility. We are entering a period of political uncertainty.

Below is an overview of what both contenders are saying about their policy proposals for some key sectors.

What is each contender saying about their approach to key sectors ?

Both candidates believe in a smaller state, however neither of them has set out any specific plans to reduce spending, beyond promises to reduce waste in public spending.

They are also both believers in a less regulated economy. As a newly elected MP Truss co-authored a book calling for action to reduce the regulatory burdens on business. Sunak set out plans to deregulate the financial services sector as Chancellor.

On the economy

• The key area of disagreement between the two candidates is that Truss has promised to halt a planned increase in corporation tax and reverse a recent increase in National Insurance payroll taxes. Her camp is briefing that changes would be introduced by a ‘fiscal event’ , a limited version of the normal annual Budget#, early in September if she were to win.
• Sunak has warned that this could increase inflation and leader to higher interest rates, and tax cuts need to wait until inflation is falling. He has, however, promised a cut to VAT on domestic energy supplies. On business taxation reform in the longer term, he has focused on cutting taxes on business investment rather than the headline rate of corporation tax.
• Truss has signaled a departure from the status quo in the management of monetary policy. She has talked about reviewing the working of the Bank of England’s mandate as an independent central bank and challenging fiscally conservative ‘Treasury orthodoxy’ as holding back growth.
• While each candidate has talked about delivering a smaller state, the impact on inflation on public services and households will lead to political demands of for extra spending. This means that despite efforts to rein it in, overall public spending is likely to rise in the period before the next election.

On tech

• In the past Liz Truss has championed tech companies like Uber and Airbnb who were disrupting markets, but has recently ramped up her rhetoric about ‘cracking down’ on Chinese technology companies like TikTok. Sunak has promised to push for an international alliance to counter Chinese cyber threats
• Sunak has also been a champion of the tech sector; he is well connected with leaders of the tech sector in the US and spends time at a property he owns in California. However, both he and Truss have promised to bring forward the planned Digital Markets, Competition and Consumer Bill, which would seek to constrain the market dominance of large tech businesses.
• Both candidates have promised to review the online safety bill to address concerns about the legislation’s impact on freedom of speech. They have both signaled that protecting children and other vulnerable users from harm online would remain a key priority.

On energy and climate policy

• Sunak and Truss are both committed to delivering on the UK’s pledge to deliver Net Zero by 2050. Truss has announced plans to address the rising cost of energy by temporarily removing green levies from bills, and Sunak by cutting VAT and supporting more investment in insulation.
• UK energy security is a priority for both; Sunak has talked about accelerating current plans for the UK to be self-sufficient in energy by 2045; and Truss has talked about the importance of increasing the domestic supply of energy, including North Sea gas as well as renewables. Sunak has highlighted support for investment in renewables but opposed the construction of new onshore wind farms and the loss of rural agricultural land for the construction of solar farms.
• Sunak has said that he is prepared to find up to £10 billion of extra support for those facing rising bills in the autumn, with a vision to cover the total cost for up to 16 million vulnerable people. Truss has talked about the importance of cutting taxes rather than providing ‘handouts’ to support households facing huge increases in energy bills but has more recently signaled that she will provide some direct support to households.

On health

• Sunak has set out plans to reform the delivery of NHS services with new diagnostic and surgical hubs and better use of digital technology.
• Truss has echoed Sunak’s commitment to maintain NHS spending. She is a long-term supporter of public sector reform, looking at new ways, including a greater role for technology and the private sector to increase the efficiency of service provision.

On Foreign Policy

• The broad approach to foreign policy of the Johnson Government is likely to continue, including support for Ukraine
• Truss was the architect of the UK’s current approach to the Northern Ireland protocol. She is expected to continue with a combative approach to relations with the EU. Sunak while expressing concern about the working of the Northern Ireland protocol but has also been keen to avoid any further disruption to trade with the EU.
• Both candidates have positioned themselves as China hawks, but Truss has been more consistent with her criticism of the regime, and she has won the support of key China critical voices amongst Conservative MPs. If Truss does become Prime Minister, seeking international co-operation to counter China’s influence is likely to become a major foreign policy priority.
• Truss and Sunak have both pledged to increase defense spending. While Sunak has committed to a figure, Truss made an early pledge to increase defense spending to 2.5 percent of GDP by 2026 and 3 percent by 2030.

Who are Rishi Sunak and Liz Truss?

Rishi Sunak

42-year-old Rishi Sunak was the Chancellor of the Exchequer, until he made the decision to resign from the Cabinet. His resignation, which was followed by other ministers, led to Boris Johnson to announce his departure from office as Prime Minister.

Sunak is on the right of the Conservative Party and is a believer in lower taxes and smaller Government. His parents were migrants to the UK from Indian diaspora communities in Kenya and Tanzania. He was educated at the prestigious Winchester College, Oxford University, and Stanford University (where he met his wife who is the daughter of the Indian tech billionaire N.R. Narayana Murthy) and worked in finance before becoming an MP.

He was elected in 2015. He was a supporter of Brexit at the 2016 referendum.

Liz Truss

Liz Truss is the Foreign Secretary. She was one of the cabinet members to remain loyal to Johnson after over 30 ministers resigned to pressure Boris Johnson into stepping down as Prime Minister.

Truss comes from a left-wing family background, educated at a state school in Yorkshire. She was a member of the centre left Liberal Democrats as a student before moving to the right and joining the Conservative Party.

Before becoming an MP she was a management accountant working at Shell then Cable & Wireless. She moved to become a Director at the think tank Reform, which was focused on using market forces to improve the efficiency of public services

She was elected in 2010 and has served as a Minister since 2012. She was a supporter of remaining in the EU at the 2016 referendum but has subsequently become a strong supporter of Brexit.

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