Domination at the Treasury

The Chancellor, Sajid Javid, resigns and the pound soars to its highest levels since December against the dollar and the euro. The King is dead, Long Live the King comes to mind.

This was not a great epitaph for Javid, who now becomes the Chancellor with the shortest stint at No 11 in 50 years with barely seven months under his belt and a Budget yet to deliver.

But the financial markets and its traders are brutal creatures. They could smell the fight that has been going on between the Prime Minister’s consigliere, Dominic Cummings, and the Chancellor, ever since the election.

Those in the markets could also sniff out that Cummings has been victorious in winning the battle to bring together special advisers from No 11 with those at No 10, which suggests the Prime Minister’s own special advisers, and press team, are now firmly in charge.

The markets got wind of that too. They could also smell that Javid’s promise of fiscal restraint may be over-turned under the new Chancellor, the young rising star, Rishi Sunak, and that there will be more spending to come.

The Cummings-Chancellor fight has been brewing for months, coming to its head over the last 10 days with several stories being leaked to the press that Javid was planning tax raids on the wealthy, ranging from abolishing pension relief to Entrepreneur’s Relief, the introduction of a new “mansion” tax and ignoring requests to stop the IR 35 tax reforms which will have a severe impact on freelancers.

Whether these stories were leaked by Cummings and his crew to embarrass Javid, or whether they were part of the usual Treasury attempts to float policy ideas to gauge the response is not known. Either way, they were not clever. But the news of the planned tax reforms served their purpose, infuriating the business community as well as more free-market driven Conservatives, whipping up anger against Javid and the Treasury.

In another fascinating leak, the Evening Standard reported last week that Cummings had wanted to appoint Andy Haldane, the Bank of England’s chief economist, as the new Governor. But this was one battle he lost as Javid persuaded Boris to go ahead with Javid’s preferred choice, Andrew Bailey, who takes up the role next month.

Javid’s departure is being described as an accident, one triggered by the unforeseen so-called row over Spads. Yet if you look at the background to relations between Cummings and Javid, it rather looks as though this row was confected as a way of seeing the back of Javid.

To Westminster outsiders, the spat over Spads may seem trivial and they may well ask why bringing together the teams – particularly now when the PM has such an ambitious agenda – would prompt Javid to jump. The most rational answer is that Cummings, and the No 10 press team under Lee Cain, and Sir Eddie Lister, Boris Johnson’s chief strategic adviser, are furious about the various press briefings being delivered by the Spads as they protect their ministers in the various turf wars going on ahead of the Budget.

Who knows. But the appointment of the relatively unknown, Sunak, is being greeted with some optimism – and a fair bit of hope – in the City and beyond. The optimism comes from the belief that Sunak comes from the lower tax school of Toryism and the hope is that he will have the nerve to be a bold reformer. It’s also a fair bet that he may prove more malleable towards the PM’s spending and tax plans, which we have yet to see spelled out in any detail.

What is sure is that Boris Johnson has for a long time held a similar view towards the Treasury that Baronness Thatcher had towards the Foreign Office when she came to power in 1979.

Just as Thatcher took the view that the Foreign Office had held back the UK’s place in the world, so Johnson believes that the Treasury was hi-jacked by the Remain argument that the UK cannot go it alone and that a list of Chancellors – from Osborne to Javid – have bought into that view as exemplified by Project Fear and the craven negotiating stance taken towards negotiations over the City’s financial services with the EU. One source says: “Boris was always determined to put a bomb under the Treasury. That explosive has gone off.”

So who is Sunak, and what do we know of his political philosophy? He’s a relative newcomer to politics, having won the William Hague’s old Conservative seat of Richmond in Yorkshire in 2015.

There was no messing around on Brexit as Sunak campaigned for Leave, and his constituency had one of the highest votes for Brexit.

Much has been written snidely about his supposed status as a billionaire, but that’s because he’s married to Akshata Murthy, who is the daughter of Narayana Murthy, the Indian billionaire and co-founder of IT services giant, Infosys.

His own background is that of the middle-class professional. His parents emigrated from India to the UK with his grandparents. His father became a GP, and his mother was a pharmacist.

Sunak, who was brought up in Southampton in Hampshire, went to Winchester, studied PPE at Oxford University and then an MBA at Stanford University, where he met his wife. From this well-trodden path for bright young things, he made it to Goldman Sachs where he worked as an analyst before moving in 2006 to the Children’s Investment Fund, the hedge fund run by Sir Chris Hohn in 2006.

In an interview last year he said: “I’m a first generation immigrant. My parents emigrated here, so you’ve got this generation of people who are born here, their parents were not born here, and they’ve come to this country to make a life.”

“In terms of cultural upbringing, I’d be at the temple at the weekend – I’m a Hindu – but I’d also be at the Saints game as well on a Saturday – you do everything, you do both.”

Sunak certainly does, and he keeps a Bloomberg terminal on his desk. He was picked out early on by Boris Johnson, appearing in some of the leaders’ debates instead of him. Hardly surprisingly, he came across as wooden but well-meaning, enthusiastic and keen. Not a bad combo.

How he gets on with Cummings remains to be seen. But the markets took to him, with the pound up against the euro. By the close today, the pound was up at 1.20 against the euro and at 1.3033 against the dollar.

There is a downside. Johnson’s brutality may come back to bite him. In one swoop, he may well have created the opposition on the backbenches that Labour is unable to provide.