Shapeshifting Sunak’s tax-cutting conversion risks overpromising | Larry Elliott

Shapeshifting Sunak’s tax-cutting conversion risks overpromising

Larry Elliott

Former chancellor takes leaf out of rival Liz Truss’s book but his plans may be too good to be true

Rishi Sunak

Harold Wilson’s quip that a week is a long time in politics has rarely been more true than in the case of Rishi Sunak.

Seven days ago the former chancellor was marketing himself as the candidate of financial rectitude as he pitched to be Britain’s next prime minister. Tax cuts, Sunak said, would have to wait until they could be afforded and inflation had been tamed.

But it appears trying to come across as the modern reincarnation of William Gladstone has not gone down well with the Conservative party members who will choose who succeeds Boris Johnson. The bookies have Liz Truss – who wants immediate tax cuts – as the odds-on favourite to be the next occupant of 10 Downing Street.

In an attempt to win over Tory members, Sunak last week ditched his opposition to cutting VAT on energy bills and said he would support a one-year reduction to help consumers cope with the cost of living crisis that will worsen this winter. Now he has gone further by announcing plans to cut the basic rate of income tax to 16% by the end of the next parliament.

Sunak insists this is not a screeching U-turn prompted by the threat of imminent defeat – but that’s certainly what it looks like. It says something about the former chancellor’s political nous (or lack of it) that last week he was deriding tax cuts as a “sugar rush”, while this week he is pledging the biggest reduction in income tax since the late 1980s.

Naturally, Team Sunak say there is a difference between Truss’s tax cuts (irresponsible and inflationary) and their own, which are prudent and affordable because they will be delivered in the fullness of time, when the economy is growing strongly and tax revenues are booming.

There are three problems with this. First, there is no guarantee the economy will boom during the next parliament. Nothing Sunak has said during his time as chancellor or in the leadership contest has suggested he has found the elixir for strong, sustainable growth. The same applies to Truss, incidentally.

Second, even if the economy does perform better than expected, there will be upward pressures on spending that will limit the scope for tax cuts. There will be a cost to tackling the NHS waiting list backlog, meeting the challenge of an ageing population and delivering on the government’s commitment to levelling up. Tory members may want tax cuts but the wider electorate may have different priorities.

Finally, the former chancellor risks overpromising. Voters liked the sound of the free broadband Labour promised at the 2019 general election but thought the pledge was born of desperation and too good to be true. The same could well be said of Sunak’s tax cuts.

Calls to break up HSBC likely to get louder

In one sense, the battle over the future of HSBC is a classic demerger scrap. An investor with a sizeable stake in the business says the bank would be more profitable were it broken up; the management insists the opposite is the case.

In HSBC’s case, it is about much more than that. It is about geopolitics and the difficulties that can befall global companies in an era of deglobalisation.

HSBC, which is based in the UK but makes two-thirds of its profits in Asia, is getting it from both sides. Investor pressure is coming from the Chinese insurance group Ping An, which owns 9% of the bank’s shares. It says its concerns are purely commercial but there is suspicion that Ping An is acting as a proxy for Beijing in its attempt to exert influence over the bank.

Meanwhile, the days when the Conservative party under David Cameron cosied up to China are over. Both Liz Truss and Rishi Sunak have adopted a hawkish stance to Beijing, not least over the political crackdown in Hong Kong, where HSBC was founded in the 1860s.

These geopolitical tensions will persist no matter what happens to the bank’s profits, flat at £4.1bn in the latest quarter. HSBC’s management has sought to placate Ping An by pledging to restore the dividend to pre-pandemic levels as soon as possible, but calls for a breakup will become louder.

Could England win boost the economy?

Will England’s victory in the Women’s Euro 2022 final prompt a feelgood factor that will give the economy a much-needed boost? Hope springs eternal, but the historical portents are not good. When the men’s team won the World Cup in July 1966, the government had just announced emergency measures to shore up the pound. It was devalued the following year.