Kristy Dorsey: Economy cannot afford the luxury of time in Conservative leadership race

Mr Johnson has made clear his desire to remain in post as a “caretaker” prime minister until a new Conservative party leader is elected, a process that will take until September. With him are a raft of new frontbenchers hastily appointed on Thursday morning to replace the mass whose resignations finally forced Mr Johnson’s departure.

There is simply no credible scenario in which this could objectively be described as a functioning government. There are too many new cabinet ministers not yet familiar with their brief, and who at any rate may only be in post temporarily and therefore have little incentive to get stuck into the difficult and long-term task of fixing the UK’s many social and economic difficulties.

Similarly, it’s now more difficult than ever to imagine what – if anything – might motivate Mr Johnson during the coming weeks to put self-interest and politicking aside in favour of the greater good.

Asda chairman Stuart Rose has warned that the political crisis is hamstringing efforts to deal with serious economic issues

With very few exceptions, there has never been a more pressing need than now for altruism, sheer graft and swift action to tackle the dangerous confluence of pressures bearing down on the UK.

Business leaders ranging from Conservative peer Stuart Rose, the chairman of Asda and former boss of Marks & Spencer, to Brexit backer Rocco Forte and Carphone Warehouse co-founder David Ross have warned that the political crisis is hamstringing efforts to deal with serious issues that have put the Bank of England (BoE) in the dilemma of attempting to rein in inflation without completely killing off weakening economic activity. Decisions on tax and spending which are now the remit of newly-appointed Chancellor Nadhim Zahawi will be crucial, as will future discussions with the European Union on the Northern Ireland Protocol, a point of contention that threatens to trigger a trade war with the UK’s largest trading partner.

According to reports in the days immediately prior to the Prime Minister’s resignation, Mr Johnson and his new Chancellor were due this week to put forward a fresh economic strategy that would “definitely” include tax cuts. Should this go ahead it is expected to include a roll-back on a planned hike in corporation taxes – with the main rate set to jump from 19 to 25 per cent next year – that would definitely be welcomed by the business community.

But as Bestinvest managing director Jason Hollands has pointed out, such a move would put the Government’s fiscal policy at odds with that of the BoE’s Monetary Policy Committee (MPC).

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“The Bank of England are firmly committed to tightening monetary policy to slay the dragon of inflation – even though this will impact economic growth in the process – while the potential direction of Government fiscal policy, if cuts are on the radar, is expansionary and could mean inflation lingers longer,” he wrote at the end of last week.

“If the Government dials up fiscal stimulus before inflation has clearly peaked, this may ultimately prompt the Bank of England to accelerate the pace of rate rises.”

Faster and steeper increases in the cost of borrowing money would of course bring headaches for firms relying on loans and consumers using credit cards and other forms of debt to weather the surge in inflation, which at the latest count hit 9.1% during the 12 months to May. That is expected to rise even further, possibly to as much as 11%, in October when another round of energy price increases take effect.

With a bigger chunk of money needed to pay for essentials like heating and food, this deterioration in individuals’ disposable incomes will weigh heavily on UK economic activity, nearly two-thirds of which relies on consumer spending. Speaking last week at a conference hosted by King’s College London, BoE chief economist Hew Pill admitted that the economy will most likely slide into a slow crawl during the next 12 months.

Nearly every Tory leadership contender is pledging lower taxes, among them Mr Zahawi, Transport Secretary Grant Shapps, and former ministers Jeremy Hunt and Sajid Javid. This sets them in direct opposition to erstwhile Chancellor Rishi Sunak, the bookies’ current favourite for the top job.

Jeremy Hunt lost to Boris Johnson in the final round of the 2019 Tory leadership race

Mr Sunak, whose Budget last year put the UK on course for its biggest tax burden since the 1950s, reportedly quit after a “major row” with Mr Johnson over how and when to cut taxes. The former finance minister is said to have refused "point blank" to cut corporation tax despite demands to do so from his former boss.

Meanwhile, Foreign Secretary Liz Truss entered the race yesterday with promises to slash taxes by reversing the recent rise in National Insurance contributions and easing corporate levies.

What distinguishes her from her fellow tax-cutting advocates has been her role in the impasse over the Northern Ireland Protocol, in which Mr Johnson took an aggressive approach by tabling legislation to override large parts of the agreement. As the minister responsible for that legislation, Ms Truss would likely persist in a confrontational manner.

The policy vacuum left by Mr Johnson’s resignation must be filled sooner rather than later if there is to be any hope of curbing the worst effects of a stagnating economy and intensifying cost-of-living crisis. The eventual winner of this acrimonious leadership contest faces even more daunting and wide-ranging challenges once victory is declared.