For months, the United Kingdom has endured a leadership vacuum while the country has skidded toward a recession and a humanitarian crisis triggered by soaring energy bills.
“It’s just one blow after the other,” said Martin McTague, who heads up the UK’s Federation of Small Businesses. “I’m afraid I can’t find any good news.”
The contenders to succeed Johnson — current foreign secretary Liz Truss and former finance minister Rishi Sunak — face calls to announce a dramatic intervention as soon as one of them becomes the fourth Conservative leader of the country in a decade.
“Everybody is assuming that there will be a swift and decisive announcement that puts this issue to bed, or at least provides people with reassurance,” said Jonathan Neame, who runs Shepherd Neame, Britain’s oldest brewer. “If there’s not, that person will come under very considerable pressure.”
An energy ‘catastrophe’
Energy bills for households will rise 80% to an average of £3,549 ($4,106) a year from October. Analysts say the household price cap could rise to more than £5,000 ($5,785) in January and jump above £6,000 in April ($6,942).
As people are forced to reevaluate their budgets, the boom in consumption that followed the Covid-19 lockdowns is dissipating fast. The Bank of England has warned the UK economy will fall into a recession in the coming months.
“The key challenge that the energy price surge poses is that households that use lots of energy — and in particular poorer households — are going to really struggle to make ends meet,” said Ben Zaranko, senior research economist at the Institute for Fiscal Studies. “It’s going to mean really big cutbacks in other areas of spending.”
“It’s really daunting for a lot of businesses, especially the ones who came through Covid in a weakened state,” McTague said. “They’re now struggling to deal with another once-in-a-lifetime catastrophe.”
The crumbling British pound could exacerbate problems, making it more expensive to import energy and other goods, pushing inflation even higher.
“Brexit’s happened. It is what it is, we’ve all got our own opinions on it,” Turner said. “But we’ve got to work with it to make it better for us, and I just struggle to see if there’s any momentum to do that.”
No easy solutions
“The benefits of cutting [taxes] would largely flow to the people who pay more tax, which are generally people with more money,” said Jonathan Marshall, senior economist at the Resolution Foundation.
“Energy is expensive, gas is expensive,” Marshall said. “To avoid people freezing in their houses, that needs to be paid for. But the state doesn’t need to pay for it for people who can afford it.”
There are also questions about how the incoming government will afford a large-scale economic intervention, especially if slashing taxes — and therefore government revenue — is the priority.
But that’s no longer the case. The Bank of England has been aggressively hiking rates as it tries to put a lid on inflation. That will make it increasingly expensive for the government to service its debt. The United Kingdom also has issued a large number of inflation-linked bonds, adding to its vulnerability.
“It’s almost a perfect cocktail of challenges that make public finances look at risk in a way they haven’t in recent times,” Zaranko of the IFS said.