Tories must choose between a Thatcher or a Reagan approach

Can “Thatcherite” Rishi Sunak win the contest for Tory leadership? Or will his party plump for a rival who follows in the footsteps of the Iron Lady’s great ally, Ronald Reagan? This is not just a question of style or positioning: herein lies the wider economic choice facing the UK in the years to come.

In their hearts, many Conservatives, especially on the Right, want a prime minister who copies Reagan’s optimistic, free-spending ways, not an austere Margaret Thatcher-style leader. 

Yet Sunak, who was UK chancellor of the exchequer until his resignation precipitated Prime Minister Boris Johnson’s downfall last week, has led the field in the first three ballots of Conservative MPs and is now the “establishment candidate”. Nigel Lawson, for many years Thatcher’s ideological soul mate and chancellor, has given him his blessing.

But his chances are dwindling. While most of his rivals promise to cut tax cuts by the tens of billions, Sunak, a chip off the old Thatcher block, has spurned tax giveaways and warned of the dangers of an inflationary wage-price spiral. Today, many Tory MPs hope that immediate tax cuts will stave off recession and ease their path to victory in the next general election, even if the price is a yawning deficit.

On paper, Sunak has most of the Right stuff to win. His ferocious intelligence and huge work ethic shone at Winchester College, the second-most famous private school in the country, and at Oxford University where he read politics, philosophy and economics (PPE), the degree of choice for future chancellors. As we might expect of a former Goldman Sachs investment banker and hedge fund manager, he put in punishing hours at the Treasury and led a disciplined life that put his Falstaffian prime minister to shame. 

In a leadership contest where six of 11 of the original contestants were not White, Sunak is also an advertisement for his party’s surprisingly diverse credentials. His Indian parents made their fortune as immigrants arriving from British colonial East Africa. And he won the affections of his all-White local party and the voters of Richmond, a traditionalist seat, by embodying Tory values.

Sunak was also a convinced Brexiteer long before the referendum on Europe — another mark of a Thatcherite true believer. Yet the leaders of the Remain camp respected his sincere internationalism and free-trade credentials. 

After three years of bombast and chaos at No 10, the country should welcome a modest, competent technocrat to steer the ship through rough economic seas. By Thursday, however, the bookmakers were writing down the early favourite’s chances of taking the crown. The party membership gets to deliver its verdict on the two candidates that MPs will whittle down from the field, and it doesn’t look good for Sunak.

A YouGov poll of Tory members suggested that Penny Mordaunt, a former minister with little name recognition among voters, would beat Sunak 67% to 28%. In fact, the same poll said that almost every other candidate would beat him too.

Ironically, Sunak, the Thatcherite Brexiteer, is in danger of being branded “the Left-wing” candidate by his party. The former chancellor’s ratings have yo-yoed among voters and Tory members alike this past year. 

It seems like only yesterday when his comprehensive furlough package during the pandemic made him the most popular politician in the country and aroused the jealousy of Johnson. But his ratings plunged when he tried to claw back the debt that paid for bailing out lockdown Britain — the official cost of government spending during the pandemic ranges from about £310bn to £410bn, the equivalent of £4,600 to £6,100 per person in the UK. 

The former chancellor also resisted his former boss’s unfunded spending commitments and insisted on matching tax rises to pay for improvements to social services. 

Austerity

His party and the country resent the punch bowl being taken away. After more than a decade of austerity, low growth, lockdown, and, now, a cost-of-living crisis, the public’s tolerance for pain may have been tested to destruction. Party members loathe the tax burden being at its highest since 1949 when the UK was governed by a socialist Labour government.

A BBC interview on Thursday morning showed Sunak at his wooden worst. He was defensive about his rich wife’s former nondomiciled tax status and unable to project the confidence of a natural winner. The sharks smelled blood in the water. Now he has to show that he can fight to survive.

For there is a genuine economic debate over whether the Thatcher or the Reagan recipe is the Right one for sustained recovery. Is inflation and unsustainable debt the real threat to the UK? Or is it recession followed by years of anaemic growth? Are Sunak’s sharp hikes in taxes on employment and corporate profits overkill? 

The candidate in third place, foreign secretary Liz Truss, perhaps alone among his other rivals, has the clout to engage with Sunak — she read PPE at Oxford too and is a former chief secretary to the Treasury. In Friday’s television debate, Sunak accused her of being irresponsible and believing in fairy tales over tax cuts. This should be only the start.

If the case for fiscal orthodoxy holds true, then Sunak now needs to make it with real fire. He must persuade voters that the UK can’t afford to take on the scale of debt shouldered by the US. Sooner or later, he must take some risks too. That is the mark of a true conviction politician, like Thatcher, in fact. 

Bloomberg News. For more articles like this please visit Bloomberg.com.