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6 July 2022

Nadhim Zahawi has become Chancellor at a desperate moment for the UK economy

Britain is beset by a cost-of-living crisis over which the government has little control – yet Zahawi reportedly threatened to resign unless he was offered the job.

By Will Dunn

In November 2011, Nadhim Zahawi – then a back-bench MP for Stratford-on-Avon and, as of 10pm last night, Britain’s new Chancellor of the Exchequer – spoke in a House of Commons debate on the economy in which he questioned Labour’s proposal to build an economy that was “less vulnerable to global shocks” by borrowing an extra £25bn a year over four years.

In those days of “fiscal discipline”, an extra £25bn a year was to be frowned at, but in the teeth of a real global shock it seems a rather quaint sum of money. It’s a lot less than we spent on Test and Trace (£37bn for “no clear impact”) and not that much less than what was handed out to businesses that were either fraudulent or expected to default (having done almost nothing to check whether either was likely) through Covid loans.

[See also: The last days of Boris Johnson]

Does Zahawi still believe, as he told the House in 2010, that addressing sovereign debt is essential “to keep the UK out of the financial danger zone”? If he does, he must be seriously worried: during 12 years of Conservative government, the UK’s sovereign debt has more than doubled to £2.4trn.

His more recent actions suggest Zahawi has become more pragmatic: last week, while still the education secretary, he approached the Treasury to request a 5 per cent pay rise (up from a previous offer of 3 per cent) for teachers, rising to 9 per cent for those in their first five years (the offer was rejected by teachers’ unions).

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In this he differs from Liz Truss, who reportedly came a close second in the running for chancellor after Rishi Sunak resigned yesterday evening. Truss, whose Thatcherism extends to impersonation, would have brought a radical aversion to public spending and a love of deregulated free trade to the office during a once-in-a-generation crisis in public services and affordability, not to mention the death of globalisation.

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Zahawi also brings a reassuring reputation for competence; as minister for Covid vaccine deployment, he ran an organisation that delivered one of the few unqualified success stories in Britain’s handling of the pandemic.

However, like Sunak, his personal finances have already been found newsworthy. His family companies own a property portfolio worth an estimated £100m, and while working as an MP he is reported to have earned £1.3m as a consultant to an oil company. Most seriously, he was thanked by Sanjeev Gupta for being “personally instrumental”, and by David Cameron as being “very helpful” in getting the British Business Bank to approve Greensill Capital as a provider of more than £300m in Covid business loans – loans that, when Greensill collapsed, became liabilities of the British taxpayer.

But perhaps the most disturbing thing about Zahawi is that he appears genuinely to want the job, having reportedly threatened to join the ranks of resigning ministers unless he was offered No 11.

As the Chancellor, Zahawi will be taking over an economy in which inflation is forecast to rise to 11 per cent, driven by hikes in energy prices that will take place just as the weather turns cold and an embargo on the world’s second-largest oil exporter arrives next winter. Before that, strikes in both the private and public sector are likely to become widespread. The Bank of England is a beleaguered scapegoat and monetary policy has, like a labrador at a ten-year-old’s birthday party, been rendered frazzled and incapable by all the attention – and may yet cause significant disruption. The factors causing these problems are mostly exogenic, meaning they’re dictated by global events (war, supply chain disruption), over which a chancellor has little or no control.

[See also: Is this the end for Boris Johnson?]

Why would anyone want such a task? One answer (beyond the idea that he thinks he’s the best person for the job) is that Zahawi is thinking of John Major, who was Thatcher’s last chancellor, spending a year in No 11 before taking over next door. A competent run in the Treasury, accompanied perhaps by a few more generous cost-of-living measures, would give Zahawi a better chance in a leadership election.

But if Johnson goes, there’s a good chance this will happen before the summer recess (why spend the summer holiday waiting to be deposed?), which won’t give Zahawi much time. He may be out again before he has a chance to make his mark.

This piece was first published in the Crash, the New Statesman’s regular update on the global economy and the challenges it now faces. Click here to sign up.

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