Sunak struggles to contain Tory anxiety over UK mortgage costs

BLOOMBERG

Prime Minister Rishi Sunak faces mounting pressure from members of his Conservative Party to help Britons struggling with surging mortgage costs, amid fears that the UK’s sticky inflation and skyrocketing interest rates will cost them their seats in the next general election.
Data showed the government is struggling to deliver on its promise to halve inflation this year, with a core measure actually rising in May from a month earlier. That spurred a flurry of market bets that the Bank of England will be forced to raise interest rates to near 6%, driving up the cost of mortgage repayments and exacerbating the cost-of-living crisis.
The bleak numbers illustrate how all is not going to plan for both Sunak and his Chancellor of the Exchequer Jeremy Hunt, whose authority in the governing party hinges on getting the Tories into position to campaign on their economic record as they try to hold onto power in a vote expected in 2024.
That looks increasingly unlikely, and with the opposition Labour Party again building a formidable lead in opinion polls, there are signs Conservative MPs are starting to fear an electoral whitewash without drastic action. People familiar with the matter said ministers are being lobbied to introduce a range of measures, from government guarantees for mortgage holders to reintroducing a long-defunct tax relief on interest payments.
“We are going to have to do something as a government to help people out,” Tory MP and former party chairman Jake Berry told Times Radio. “We cannot see mass evictions and people unable to feed their kids.”
The comment from Berry, one of a Conservative faction of MPs in northern England who are especially vulnerable to Labour’s resurgence, illustrates how voters’ expectations have changed since the pandemic. As chancellor at the time, Sunak played a major part in that.
Several Conservatives said privately that Sunak’s furlough programme, as well as subsequent support with energy bills, have changed the relationship between the government and citizens, and voters expect the government to intervene.
Berry suggested reintroducing the MIRAS program, a tax relief on mortgage interest payments that ended in 2000. He said people on higher salaries, second-home owners and buy-to-let mortgage holders should be excluded. Sunak’s spokesman, Max Blain, ruled out the proposal on Wednesday.
Another Conservative MP said privately that a call from Labour’s former finance spokesman, John McDonnell, for a windfall tax on banks to fund targeted support for mortgage-holders is gaining political traction.
The major challenge for Sunak is that such proposals run counter to his pledge to halve inflation. Despite the data, the prime minister told parliament that target is “on track.”
“Inflation is what’s driving interest rates up, inflation is what erodes people’s savings, pushes up prices and ultimately makes them poorer,” Sunak said in the House of Commons. Hunt rebuffed calls to offer financial support to mortgage holders, saying that would involve injecting “large amounts of cash into the economy” and would therefore be inflationary.
With some economists predicting it will require a recession to finally tame UK inflation, the electoral outlook looks increasingly bleak for the Tories.