The resignation of Boris Johnson and the vote for the next Prime minister
On the 6th of July, two important tory cabinet ministers -Rishi Sunak and Sajid Javid- resigned because Boris Johnson was being dishonest with the country. Meanwhile, he was trying to defend himself from being accused of knowing information about the former chief deputy whip Chris Pincher, having sexually harassed other men before Boris Johnson hired him. The former Prime Minister knew about this and initially refused claims suggesting that he had anything to do with it. However, it was leaked that Boris Johnson knew about this after all. MP after MP resigned. The next day Boris Johnson, after the British record of resignations, resigned himself.
Now this meant that the conservative party needed a new leader. The MPs of the conservative party must narrow the contest down to two candidates and conservative members -not MPs- would vote for the next Prime Minister. Lots of MPs signed up but either resigned or did not have enough votes to go through. The MPs were left with five candidates: Rishi Sunak, Penny Mordaunt, Liz Truss, Kemi Badenoch and Tom Tugendhat. After the first debate on the 15th of July, when the presenter asked the candidates whether or not Boris Johnson is honest or not, all said he wasn’t. On the 17th of July, there was another debate. Liz Truss and Rishi Sunak were having a heated discussion about tax. The next debate was cancelled as Liz Truss and Rishi Sunak had to pull out; the Conservative party did not want the public to see all the fighting within the party. Soon after this, Rishi Sunak and Liz Truss were the only candidates left. Liz Truss was getting more votes from Conservative members and MPs but was less popular among the public. After another discussion, it became clear what Sunak and Truss were offering. Truss was offering a cut in taxes to bring in more investment and cut prices on oil and gas. Sunak had a different approach and was offering the government to win back the money they lost over Covid. They would have to raise taxes even more, making inflation even worse in the UK, a big problem for many families and people. Liz Truss also promised to tackle and lower inflation within her first 24 hours of being Prime Minister.
Liz Truss and Rishi Sunak as top candidates to be next PM
https://www.ft.com/content/0c7e970b-8630-41d8-adae-73ff1b9c78e0
Inflation
But what is inflation actually? Inflation is the general increase in prices and decreasing value of money. A healthy level of inflation is 2 to 2.5%. In the UK inflation has been at roughly 7%. The country with the highest inflation in Europe is Greece with 11%. Inflation under 2% can be bad for the economy because this results in their being no or only minimal growth. The inflation in Japan is around –1%.
So, what causes inflation? Inflation this year is caused mainly by the war in Ukraine. Many countries have put sanctions on Russia, such as not buying oil and gas from them. However, this has negative impacts for these countries because the world price of oil and gas has gone up. Since the EU now have limited suppliers, countries like Qatar and Saudi Arabia are putting the oil prices very high to get as much money as possible. This means transport and energy costs have risen. It also means that other products and food prices have gone up due to the rise in transport cost.
So how do governments tackle these problems? There are many different approaches. One way is lowering taxes on energy and petrol. This makes energy and petrol more affordable but governments get less money and may fall into debt. Another way is to stop using as much energy. In Germany, public spaces will not be heated over 19 degrees and plans are made to ensure that places like schools use less energy. You can also influence your own energy consumption by, for instance, having a shower with colder water, wearing a pullover rather than turning up the heating and not turning on the light in either an empty or a well enough lit room. Another thing governments are doing is giving extra financial support. However, this results in another problem as there is then less money for state services such as hospitals, police and more.
There is another method to tackle inflation which Liz Truss and Kwasi Kwarteng have recently attempted. The Bank of England is controlled by the government and the Bank of England can change our interest rates. If the interest rates are high, people will want to put their money in a bank account to save for later. If the interest rates are low, people are less likely to keep their money in a bank account and will rather spend it before things get too expensive, for instance. That is why in Japan’s interest rates keep on getting lower, so people start spending more. In England, the interest rates have gone up by a few percent. But why so little? For banks to raise interest rates of the money you put in your account, they also need to raise interest rates of the money they are lending you. When people buy houses, people need to borrow money from a bank to buy this house. This is called a mortgage. Later in life, you must repay the bank all the money you lent plus interest rates. However, if the interest rates go up, this can become more difficult to repay and banks might end up making people in debt poorer and rich people richer.
Why the Pound has fallen
Some of these decisions by Liz Truss and Kwasi Kwarteng just happened too suddenly, the Pound dropped sharply to the Dollar which now stands over the Euro.
New PM Liz Truss’ plan to save economy results in disastrous fall in pound value