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24 June 2021updated 30 Aug 2021 11:35am

Boris Johnson and Rishi Sunak are heading for a dangerous showdown

The outbreak of hostilities between the Prime Minister and his Chancellor reflects the difficulty of reconciling bold promises with economic reality.

By David Gauke

In the run-up to one of Philip Hammond’s budgets, the prime minister’s office asked for information about the planned announcements.  “What’s it got to do with them?” a senior Treasury official riposted, only half in jest.

The Treasury has a long-held scepticism about other parts of government having any involvement in fiscal policy. Spending departments are usually seen as being in thrall to producer interests, enthusiastically throwing money at most problems in order to keep their stakeholders happy. Unlike most areas of government policy, the cabinet is merely informed about budget announcements on the morning of the chancellor’s speech, rather than consulted. On occasion (such as George Osborne’s announcement of the National Living Wage in 2015), some measures are held back so that the first secretaries of state hear of a policy is when parliament is told.

The Prime Minister is not quite kept in the dark (although Gordon Brown tried his best with Tony Blair). In my time in the Treasury from 2010-17, Osborne and David Cameron worked very closely together on the budget; Hammond and Theresa May had a difficult relationship but No 10 (which was powerful during that period) could not be kept out of the process.

When it came to spending control, both Cameron and May were often allies of the Treasury. Restoring the sustainability of the public finances was the central mission of the Cameron premiership and even May, in other respects quite hostile to the Treasury as an institution, was usually a cautious spender of taxpayers’ money.  As chief secretary to the Treasury, it was my occasional task in cabinet meetings to remind my ministerial colleagues of the importance of spending restraint and obtaining value for money for the taxpayer.  The prime minister never failed to reinforce my message.

There were, of course, still significant tensions. The success of a prime minister is usually measured on the basis of winning elections and spending money can be a means of obtaining popularity; chancellors tend to be assessed on the basis of the strength of the economy and sustainability of the public finances they bequeath. As a consequence of these conflicting incentives, the relationship between prime minister and chancellor is rarely harmonious.

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This brings us to the present day and a sudden outbreak of minor hostilities between those in 10 and 11 Downing Street. Last week the Sunday Times’ front page reported that that “Downing Street and the Treasury are at loggerheads over tax and public spending amid growing consternation that Boris Johnson keeps announcing plans costing billions of pounds when there is no means to pay for them”. I can see how the Treasury might find that an irritating habit. 

At a time when there are many and considerable pressures on the public spending – Covid school catch-up funding, social care, levelling up and net zero to name but a few – plus a refusal to increase the main taxes and a risk of higher interest rates increasing the cost of government borrowing, an unserious approach to the public finances from the Prime Minister could make a bad situation worse. Credibility with the markets might start to matter once again.

Emblematic of the lack of fiscal discipline is the proposal for a new £200m royal yacht (not that the royals have anything to do with it) which has predictably turned into a Whitehall row. It is a small amount of money but, as former Tory cabinet minister Ken Clarke has stated, “it shows there are people in Number 10 who think there is free money”. I think I have a fair idea of which people – or person – he has in mind.

The Sunday Times story looks very much like a concerted effort by the Treasury to clip the wings of the Prime Minister. The timing is noteworthy, just few days after the Conservatives lost the Chesham and Amersham by-election and with concern growing that it will be the traditional Tory heartlands that will have to foot the bill for Johnson’s free spending. 

The defeated Conservative candidate, Peter Fleet, tweeted that “stay-at-home Tories” are “now looking for clear evidence that their Conservative government will restore fiscal discipline at the earliest possible opportunity” before adding that “they very much like and respect Rishi Sunak” (sadly, he did not tell us their view of the Prime Minister).

It all feels like a return to normal politics in which decisions on tax and spend are at the forefront. Come the autumn, the government will have to reconcile high-flown rhetoric and bold promises with fiscal reality. This will be in the context of a Conservative Party that is starting to recognise that the demands of its new voters and the interests of its traditional voters are not necessarily compatible.

Boris Johnson has been Prime Minister for 23 months. For the first five months, everything was dominated by Brexit and the general election with fiscal policy a secondary consideration; for the last 16 months it has all been about Covid when high spending has been widely accepted as necessary and the consequences put off for another day; for the two months in between at the start of 2020 (the only period in his premiership which could be considered to be relatively normal), he lost a chancellor of the exchequer. It is not an encouraging precedent that all will go smoothly for either the Prime Minister or Chancellor in the months ahead.

[See also: How Brexit changed us: The Tory party is almost unrecognisable now]

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