I have known a large number of business people and a fair few politicians over the years, and in my experience politicians are generally nicer people.
There are exceptions. There are plenty of decent people running large businesses, while I have met at least three politicians who, in my view, are absolutely vile. No names, though you can probably guess one of them.
This is because, in general, business people go into business to make money and politicians go into politics, whatever their views, to make the world a better place. The two career paths tend to attract different personality types.
Our last but one Prime Minister is an exception to this rule, showing no desire to make the world a better place but driven entirely by narcissism and a sense of entitlement. That narcissism may have been founded in an unhappy childhood during some of which he seems to have been largely ignored by his parents. (See Tom Bower’s recent and generally sympathetic biography, Boris Johnson: The Gambler for more detail.)
What motivates his successor but one, Rishi Sunak? He is worth a reported £730m, and probably more because the very rich tend to understate their assets. I know of no rumours whatsoever about his private life, and I know plenty about other politicians. He appears to have a happy marriage and a stable family background.
He protects his privacy, as was obvious from his anger earlier this year over the revelations about his wife’s tax affairs, now apparently regularised. That privacy will be called into question after his promotion to the top job in British politics.
Having achieved so much in material terms, being the first British Asian Prime Minister will undoubtedly motivate him to some extent. But mostly, he is presumably in the top job because he wants to make the world a better place.
The black hole
Alas, he is very badly placed to do so. He seems to accept this, in his first speech as Prime Minister. Most people, on any sensible analysis, will be worse off in two years’ time, when he faces his first election as PM.
The first task is to tackle the estimated £40bn “black hole” in the country’s finances by the 2026–2027 financial year. There are only two ways of doing this, tax rises or spending cuts. The former, though not impossible, would be politically difficult. The latter, equally so, with that looming election deadline.
The pension conundrum
The next big battle will be over the so-called “triple lock” on state pensions, a Tory manifesto commitment which means that in current circumstances those pensions have to rise by the rate of inflation, or by about 10%. The pension is currently just short of £10,000 a year, so a 10% rise, for the 12 million people receiving it, would cost about £12bn.
To put this into context, the tax cuts announced by the unlamented Kwasi Kwarteng on Frightful Friday were worth £45bn, and the increased borrowings to finance them, which put the financial markets into a tailspin, £72bn.
The omens on the triple lock are decidedly mixed. Sunak, during the leadership campaign, committed to maintain it. Jeremy Hunt, on Manic Monday, when the new Chancellor reversed Kwarteng’s financial package, refused to commit to it, which in political speak means it wasn’t going to happen.
Liz Truss, on Wonky Wednesday two days later, when the wheels abruptly came off her premiership, contradicted him and appeared to support it, a development which would otherwise have dominated the news agenda if so much else hadn’t happened that day.
Share out the pain?
One alternative is to raise the state pension by the rate of growth in wages, about 5%, so sharing the pain between the nation’s pensioners and those still in employment. This means those pensioners would, in real terms, be 5% worse off after a year. Trying to exist on less than £10,000 and then losing 5% of it? Not an attractive proposition.
Other pensioners divide into two categories, those reliant on money paid into their pensions while employed, which was subsequently invested on their behalf, and those on so-called final salary schemes, when an annual payment is guaranteed and generally linked to inflation.
The former will have seen the value of their investments collapse in recent weeks, many of those investments being in hitherto “safe” Government bonds, or gilts, which have lost a lot of their value since Kwarteng’s package was announced.
Those on final salary schemes should be OK – except that the market mayhem since Frightful Friday has shown that a number of these schemes are not quite as bullet-proof as had been assumed, requiring the Bank of England to promise to inject £65bn into the market to support them, though this figure has nowhere near been reached. Will those final salary pensions be as safe as we had assumed, if there is further market turbulence? We have no way of knowing.
The mortgage nightmare
That’s the nation’s pensioners suffering, then. A recent study from the US investment bank Morgan Stanley suggests that if the mortgage rate goes to 6%, as is largely assumed, 30-40% of UK households will struggle. That rate may not seem terribly high, by comparison with the 1980s and 1990s, but low interest rates over the past decade have encouraged building societies and other lenders to lend proportionately more, mortgages based on five or six times salaries and 95% of the purchase price not being uncommon.
Renters, meanwhile, will see upwards pressure on rents both from inflation and because many landlords will have bought properties with mortgages on a buy-to-let basis and are facing higher repayments.
That’s many people living in properties suffering, then. Meanwhile inflation at 10% and wage rises of, if you are lucky, 5% will mean a further erosion in living standards.
Can he balance the books?
That’s pretty well everyone working suffering, then. So what are Sunak’s options if he wants to move further towards balancing the nation’s books? One would be to fail to raise benefits in line with inflation, as has already been proposed, bringing the poorest in line with the nation’s pensioners and spreading the pain even more widely.
There is the possibility that Sunak will reverse on National Insurance and revert to his earlier pledge to raise it by 1.25 percentage points. That makes everyone poorer, disproportionately affecting the least well off. Probably not, we hear.
There is one hidden tax rise that you can expect to be implemented, and that is to fail to increase the rate at which you start to pay tax – about £12,500 at present – or pay a higher rate of tax – about £50,000 – in line with inflation. This makes anyone in work and earning above that low level less well off. It is indeed a tax rise, then, though it will not be sold as such by this Government’s client press.
This just leaves spending cuts to welfare, public services and the NHS. The latter, I do not have to tell you, is already creaking. A recent study suggests 90% of schools may run into financial difficulty over the next year because of higher energy bills and salary costs.
There may be trouble ahead
After two years of rule as Prime Minister, Sunak will be in charge of a country where almost everyone is poorer and feels poorer, and where basic services such as health and education will have been reduced further. It is a general rule in politics that people will not vote for governments that make them poorer.
To put it another way, if you think the polls are currently disastrous for the Tories, just wait until two years of all the above kick in. There is a situation in chess known as a Zugzwang. This is when a player is forced to make a move but any move would be disastrous. This is where Sunak finds himself. Will he one day, with all his riches, regret it?