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11 March 2020

Rishi Sunak is learning that a chancellor is at the mercy of forces beyond his control

The Chancellor’s first Budget was stolen by a global health crisis that makes the Treasury’s economic projections even more uncertain.  

By Stephen Bush

Rishi Sunak is the most powerless powerful politician at Westminster. I don’t mean that in the commonly understood sense: that he is a cipher of Boris Johnson and his advisers. Johnson’s appointment of Sunak is reminiscent of Margaret Thatcher’s promotion of Nigel Lawson in 1983. Like Lawson, Sunak is bright and well qualified for the role. Like Lawson, he has no separate base of support within the parliamentary party and is not an immediate threat to Johnson’s leadership.

And like Thatcher’s chancellor, Sunak is the first of his parliamentary intake to make it to the cabinet, about which the rest of the class of 2015 is sour. Resentment is particularly high among male MPs. A Downing Street briefing about the aims of the recent reshuffle – to promote women and young prospects – has left those first elected in 2015 and yet to climb the ministerial ladder worried that they have little hope of advancement under this government.

The coalition of MPs opposed to Johnson’s decision to allow Huawei’s technology to be used in the UK’s 5G mobile network extends to the left-right and Remain-Leave tribes of the party, who inflicted a 38-strong rebellion on the government on 10 March. But more importantly, it unites two tendencies: old warriors such as Iain Duncan Smith, who have no desire to return to the front bench, and those elected in 2015 who believe they have no chance of becoming a minister under Johnson. These frustrated MPs have particular ire for those who have made it to the top. Oliver Dowden, the Culture Secretary, is the main victim, but it has implications for Sunak too.

But the party-political limits on Sunak’s power will erode with time. When Thatcher first promoted Lawson, she told him that he needed to get a haircut to pass muster as chancellor. He obliged but as he continued in post, the Labour MP Edmund Dell quipped, “his hair grew back, as did his confidence”. Lawson disagreed with his prime minister more and more, and in 1986 effectively overruled Thatcher on the top rate of tax, slashing it from 60p to 40p – not 50p as she desired – and directing monetary policy to prepare the UK for entry into the single European currency.

Bruised feelings among the 2015 intake are more of a problem for Johnson than for his new chancellor. Unlike Lawson, a former economics journalist who arrived in No 11 having already disgruntled colleagues because of his outspoken opinions on economic policy, Sunak has all the personal qualities needed to cultivate a parliamentary following. He is warm and everyone who works with him speaks of his kindness, attention to small courtesies and impressive ability. Over time, he will develop close allies and a reputation separate from his PM.

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Sunak’s powerlessness comes from forces that are beyond his or any chancellor’s control. Treasury ministers under Sajid Javid would often talk about how fiendishly tight the government’s spending limits were. Their biggest headache, though, wasn’t caused by Javid – it came from the various giveaways handed out by Boris Johnson.

The reality is that the overall spending framework, with its generous provisions for infrastructure and its slower pace of debt reduction, was loose under Javid and even without changes would remain so under Sunak: the difficulty is that most of the money has been allocated. Compounding that problem is sluggish wage growth. Usually, rising wages mean the chancellor can enjoy the benefits of rising revenues without having to make difficult decisions on tax. (This is why in 2017 Labour opted to prioritise policies that it believed would boost wages.)

Sunak may get a helping hand from another force outside his control: the global pattern of low interest rates. George Osborne’s aides used to worry about what would happen when interest rates returned to “normal”, that is, to their pre-2008 crisis level. Now Sunak, like most economists, believes that the era of low to non-existent interest is the new normal. That gives him more freedom than Osborne or Philip Hammond to borrow. The only real constraint of low interest rates is that, in the event of a downturn, government spending would be the main tool to fight recessions, which is why Sunak is reluctant to abandon the aim of reducing debt.

Now, with the Covid-19 epidemic, the downturn may have arrived anyway. Gordon Brown once raged that Tony Blair had “stolen his fucking budget” by promising extra NHS spending. Sunak is not a shouter but his Budget was stolen by a global health crisis that makes the Treasury’s economic projections even more uncertain than usual. Most of his announcements have been rendered provisional, whether they presuppose an end to the epidemic or a worsening crisis. That’s the real secret of Sunak’s powerlessness: a chancellor’s power comes from the health of the economy they preside over, and the prime minister they serve under. (A powerful PM deters would-be parliamentary rebels, making it easier to respond to a struggling economy.) Neither is wholly within a chancellor’s control.

The exact medical impact of Covid-19 on the UK is uncertain. What is certain is that it will cause either economic damage, a large increase in government borrowing, or both. This year’s Budget and spending review, which Sunak hoped to use to set out plans for the next five years, have become fire-fighting measures. They will limit his freedom of manoeuvre in the future.

There is one upside for Rishi Sunak: the tight rules that he inherited would cease to apply in a downturn, removing him from the fiscal straitjacket that Javid’s conservativism and Johnson’s free-spending have placed him in. In that case he might reflect on the wisdom of another of his predecessors, David Lloyd George: that a change of nuisances is as good as any holiday.

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This article appears in the 11 Mar 2020 issue of the New Statesman, How the world is closing down