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Britain’s New Chancellor Zahawi Inherits a UK Economy on the Ropes

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(Bloomberg) -- Britain’s new Chancellor of the Exchequer, Nadhim Zahawi, signaled he wants to cut taxes faster than his predecessor Rishi Sunak, as he set out plans to boost the UK’s struggling economy.

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Zahawi said he is “determined to do more” on cutting taxes in a Sky News interview Wednesday, just hours after accepting his new post following Sunak’s dramatic resignation. A 10 Downing Street official, speaking on condition of anonymity, said the government hopes they’ll be able to do more immediate tax-cutting with Zahawi in post compared to Sunak.

“Nothing is off the table,” Zahawi said, when asked if he intends to reverse an upcoming increase in corporation tax. “I want to make sure we are as competitive as we can be whilst maintaining fiscal discipline.”

Zahawi, 55, has taken on the top job at the Treasury with Britain facing its worst cost-of-living crisis in a generation and Prime Minister Boris Johnson fighting to stay in power after being hit by the high-profile resignations of Sunak and Health Secretary Sajid Javid on Tuesday evening. In his opening pitch, Zahawi said the UK must continue to be vigilant against inflation but he would look at “all the evidence” on how he could boost economic growth.

Zahawi previously served as Johnson’s education secretary and rose to prominence for his role in overseeing the nation’s successful vaccination roll-out during the Covid-19 pandemic. He is widely regarded within the ruling Conservative Party as a safe pair of hands with a record of delivery.

His elevation followed Sunak quitting after almost two and a half years running the Treasury, telling Johnson in his resignation letter that the government “cannot continue like this.” His and Javid’s resignations in quick succession threatened to push Johnson to the brink in the wake of a string of missteps that have damaged his standing in the party and with the electorate.

Zahawi was born in Baghdad to Kurdish parents and came to the UK as a boy, after his family fled Saddam Hussein’s Iraqi regime in the 1970s. Unable to speak English when he arrived, Zahawi has spoken about how he was bullied at school.

He trained as a chemical engineer at University College London, going on to work in the oil industry. A self-made millionaire who co-founded the polling firm YouGov, he entered Parliament in 2010, where he has represented Stratford-on-Avon ever since. He backed Brexit in 2016.

Zahawi has been a staunch defender of Johnson throughout the partygate scandal, regularly appearing on broadcast media in the months since the initial Downing Street party revelations. He and his wife also reportedly own five residences worth 17 million pounds -- three in London, one in Warwickshire and one in Dubai.

Stagnation

He takes the reins of an increasingly fragile economy, with the OECD already predicting growth will stagnate next year and lag behind every member of the Group of 20 aside from Russia. On Wednesday Zahawi told BBC radio that 2023 will be “really hard” for the UK economy and that his focus is to rebuild it and return to growth.

While unemployment is the lowest since the 1970s, inflation is at its highest in four decades, consumer confidence is the lowest in at least half a century and workers across the travel industry are striking in a push for more pay just as the summer holidays begin.

“My priority is to bear down on inflation,” Zahawi told the BBC.

Zahawi’s first order of business could be a long-awaited joint speech with Johnson setting out how the government plans to deliver on its pledge to fix low productivity and create a high wage-low tax economy six years after Brexit.

Sunak said in his resignation letter that the plan was due to be unveiled next week. But he revealed a split by telling Johnson “it has become clear to me that our approaches are fundamentally too different.”

Johnson and Zahawi also have big calls to make on tax policy. The government is due to increase corporation tax to 25% from 19% next spring, but Johnson and Sunak were reported to disagree over whether to go ahead with the hike.

Tax Decisions

Zahawi also has decisions to make about payroll taxes and whether to announce further support to help with Britain’s cost-of-living crisis. Critics contend the government directly contributed to households’ pain by this year raising payroll taxes to fund the National Health Service and care for the elderly.

In May, Sunak announced an additional £15 billion ($18 billion) of aid for families struggling to make ends meet, taking total support to £37 billion. He left government a day before workers get £6 billion of tax relief.

Plus there are important calls to make about public sector pay, with multiple sectors threatening strike action over wages. As education secretary, Zahawi recommended a 9% pay rise for new teachers taking a starting salary to £30,000 a year, which he said he would honor as chancellor.

“We will deliver on that pledge,” he told BBC News. “That is a promise I make teachers.” The promise may make his job difficult when other public sector workers demand higher wages in a new pay round due in the next couple of months.

(Updates with more details from second paragraph.)

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