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Sunak's difficult challenge

What a time to be chancellor of the exchequer. As chief medical officer to the economy, in those moments when the sick patient presents yet another complication, new condition, or relapse, Rishi Sunak must feel a pang of envy for predecessors who held the post in less complicated times.

Although many serving chancellors have faced difficult challenges during their time in office, it’s one thing being in charge when the problems develop – whether that’s the economy falling into recession, a run on a bank or even the biggest bank in the UK telling you they have enough money to last a few hours; quite another being the person who later picks up the pieces, and sorts out how the bill is to be paid. 

Sunak became chancellor about three weeks before the UK’s first lockdown began. Within days of the nation being ordered to stay at home, the furlough scheme was announced - the first time ever that a British government had stepped in to pay people’s wages, but the decision to do so was not difficult. In the same way, years earlier, when then-chancellor Alistair Darling was told by the chairman of RBS that the bank was on the brink of running out of money, and even with the benefit of hindsight, it was a no-brainer that the bank had to be saved. Bailing it out – which had already been done for Northern Rock some months before - was the only option. If the giant RBS had shut down that day and closed its doors, it would have caused a run on every bank in the UK and had unthinkable repercussions for the economy. 

Other chancellors who’ve been faced with a crisis include Norman Lamont in 1992 when sterling collapsed and he was forced to spend (or waste) billions trying to prop it up, and Denis Healey, whose 1970s' tenure was marked by asking the IMF for a loan, hyper-inflation and powerful, militant unions.  

Sunak is unusual in being a chancellor who has reigned over the beginning and the ending of a crisis. Now the task gets much tougher. As I said, there is no comparison between a crisis unfolding before your eyes, and taking over when the emergency treatment is done and the long-term recovery which requires the co-operation of the patient begins. 

Like Sunak, George Osborne in the aftermath of the financial crisis was faced with the thorny problem of getting the nation’s finances back in order. Osborne chose austerity (as did many other European nations) but that’s not an option now. Sunak’s chief challenge is to secure lasting and strong economic growth and shrink the national debt. But the problems are mounting. The Institute for Fiscal Studies thinks a sustained and complete recovery remains far from secure and is particularly concerned that pandemic-induced changes in household consumption patterns now appear persistent and that Brexit has triggered a period of acute structural change in UK trade flows. It expects further falls in UK exports of professional services to the bloc. Meanwhile, the IMF believes the pandemic will deliver lasting damage to the UK economy, leaving it 3 per cent smaller than before. 

There are murmurings of a trade battle with Brussels, the spectre of inflation, a rising Covid infection rate, a vaccine drive that appears to have lost momentum, supply chain problems, demands from businesses and households for help with soaring energy costs, a prime minister who wants tax cuts and also funding for a difficult but unavoidable green revolution, pleas for help to make the UK a scientific superpower, a need to invest in infrastructure (or persuade pension funds that they might like to do this) and a need to level up. Should he give business more support or less? His heart might want businesses to figure out the solutions, but he will be acutely aware of the risks of yanking away support too fast and too furiously, and the inescapable truth that the problems of the future are sown in the acts of today