‘Business as usual’ in the U.K. came to standstill on September 8, after the death of Queen Elizabeth II. The Queen’s passing has, by and large, rallied people of different political ideologies together and brought to the fore a degree of unity and patriotism. A 10-day mourning period ended on Monday as the country’s best known resident was laid to rest, but as the dust settles, the U.K. is going to have to be confronted, once again, with its many serious challenges.
The country’s new Prime Minister, Liz Truss, has a full ‘to-do’ list, particularly on the economy front. There is a cost of living crisis in the U.K. driven by high energy costs, which are contributing to high inflation. The pound has fallen to 37-year record low against the dollar, partly due to events outside the U.K.’s control, but partly because of internal forces. The U.K. has low worker productivity and business investment levels relative to other advanced economies. A new report released on Tuesday indicated that despite a cut in corporation tax by 11 percentage points, to 19% in2017, the U.K. had a private investment to GDP ratio of 9.8% in 2020 — the lowest in the G7 economies.
Also read | Britain cleans up and looks to future after Queen Elizabeth II’s funeral
All eyes are on a ‘mini-budget’ that will be released on Friday, and include a reversal of taxes, including the corporation tax, previous cuts to which have not spurred business investment. Ms. Truss has suggested that she is moving towards a version of ‘trickle-down economics’ with tax cuts benefiting wealthier individuals, who paid more into the system, benefiting more from the cuts than those less well-off. She is convinced of her plan and said, this week, that she was prepared to be unpopular to ensure that Britain weathers this “very, very difficult storm”.
Energy costs
Minutes before she received news of the Queen’s ill health in Parliament on September 8, the Prime Minister had announced a plan to tackle energy costs, estimated to cost £150 billion. Last month the Bank of England had said the U.K. could enter into a 15-month recession starting in the last quarter of this year. The impact of Ms Truss’s energy plan on this and inflation — which came in at just under 10% in August.
Although Ms. Truss herself voted for the U.K. to remain in the EU, whether she can deliver on the trade deals — one of the post-Brexit freedoms which were touted by the campaign to leave the EU — will be watched. The U.K. has had some measure of success with this — it has crafted deals with Australia and Japan for instance, but the majority of agreements have been extensions of the terms of deals that the EU had with third countries.
In New York this week for the UN General Assembly (UNGA) debate, Ms. Truss was forced to admit that a U.S.-U.K. trade deal, possibly the prize among trade deals, was not coming anytime soon. The U.S. accounts for nearly 17% of U.K. trade, according to British government data.
Explained | Will the future of the Commonwealth change?
Trade deal with India
A trade deal with India is also, apparently, in its final stages, with Commerce Minister Piyush Goyal saying this week that the U.K. was still looking to close a deal by Deepavali (end-October). Wrapping up a trade deal with India is likely to be showcased by the Truss government as a post-Brexit freedom and also an instance of greater engagement with the Indo Pacific. If Ms. Truss is to deliver on the vision of a ‘global Britain’, she will need to expand and deepen engagement with the region,to implement the “Indo Pacific tilt” articulated in the U.K.’s 2021 review of foreign defence, security and development policies.
Closer to home for Ms. Truss,is the knotty issue of protecting the Northern Ireland Protocol — trying to avoid border checks for goods moving between Northern Ireland and the rest of the U.K but at the same time not having a border between Northern Ireland and the Republic of Ireland (which is part of the E.U. and its singe market).
The U.K. and the EU are currently attempting to resolve the matter — which is of importance to the Americans as well. U.S. President Joe Biden and Ms. Truss emphasised the importance of resolving this issue in readouts of their Wednesday meeting in New York. Earlier this year, U.S. House Speaker Nancy Pelosi made it clear that Congress would not support a trade deal with the U.K. if the Northern Ireland peace deal was undermined.
Ms. Truss will also need to mend fences with European allies and tread more carefully than she did in her party leadership campaign — during which she had the “jury’s out” when asked whether French President Emmanuel Macron (who paid rich tributes to the Queen recently) was a friend or foe.
Also read | Queen Elizabeth’s reign: golden age, or last embers of a bygone era?
Calls for referendum
Finally, the Prime Minister will also have to confront calls for a second Scottish referendum on independence from the U.K. once the country returns to business as usual. In 2016, Scottish voters had voted 68% to 32% to remain in the E.U.
The domestic and international issues of the U.K. are intertwined, with the ongoing war in Ukraine adding layers of complexity to the situation.
