FTI Consulting Public Affairs Snapshot – The Loneliness of the Long-Distance Chancellor
With a Prime Minister keen to flash the cash, ambitious Cabinet Colleagues snapping at his heels, and profound structural changes taking place in the economy, the Chancellor’s job has become more difficult than ever. Adrian Pascu-Tulbure examines the challenges Rishi Sunak faces over the coming months.
Barring a major political upset, Chancellor Rishi Sunak is in it for the long haul. Popular within the party and beyond it, confident and assured in his day job, Sunak is undoubtedly an asset to the Conservatives. It surprised nobody that he survived the reshuffle. But, with an 80-seat majority and a Prime Minister keen to secure his legacy beyond Covid, the only realistic move within Government Sunak can make – to the top job – is likely to be denied him for a long time. In the meantime, the probability is that he will remain Chancellor for at least until the next election – a period that will see political and economic pressure pulling the Treasury in all directions and forcing it to face some extremely uncomfortable facts. As he travels up to Conservative Conference this week, Sunak knows that it will fall on him to balance the economics and the politics in making those decisions – not least as there is realistically nobody else in Government with the qualifications to do so – and, as he does, he will find, if he has not already, that No 11 can be a very lonely place.
Challenge 1: Many mouths to feed
None of the plans to get the country back on its feet after the pandemic come cheap. From various wings of the Conservative Party come calls for: tax cuts to stimulate investment; spending on infrastructure; spending on tackling climate change; spending on the North; spending on reducing inequality; spending on public health… Most of these are legitimate, and many were in the 2019 manifesto. The obvious response is that all of this costs money, and, with the prospect of higher interest rates on the horizon, too high a level of borrowing risks resulting in some nasty surprises. The counter-response is that money was found for Covid, and [insert issue here] presents as large and as urgent a challenge. Chancellors and their teams tend to be reasonably well-equipped to have these conversations, but two things will make it harder for Sunak. The first is that his neighbour on Downing Street is quite the fan of large-scale public spending; and the second is that the public mood – unlike after the 2008-9 financial crisis, or indeed the post-WW2 era – increasingly finds “austerity” a dirty word. It will be difficult to apply traditional Conservative fiscal policies in an era where a plurality of people quite simply expect much more from the State.
The Spending Review, announced for 27 October, will crystallise many of these arguments. And in the recent announcement of a £500m fund for councils to support poorer families through the winter, we see a classic Sunak fix: a way to quieten critics that, crucially, costs far less than the £6bn estimated to keep the Universal Credit uplift. The timing of this suggests that the Conservative Party Conference, beginning this Saturday, will see further announcements seeking to demonstrate an affordable way of being generous. The extent to which they will satisfy colleagues remains to be seen.
Challenge 2: Uneasy lies the head that seeks the crown
The Chancellor’s rise to heir apparent has been remarkably swift and clean. So far, he has managed not to ruffle feathers: the best that his Parliamentary colleagues have got against him is that he is a bit too polished, a bit too social-media friendly, a bit too good to be true. Policy complaints coming from the right (about tax rises) and from the left (about Universal Credit) have been neatly deflected on to Number 10. His status as a post-Brexit politician – having kept his campaigning largely under the radar, only real political aficionados remember which way he voted – has allowed him to build bridges with both sides. But that will not last forever. Aside from the Boris loyalists, there are, in Parliament, Friends of Liz, emboldened by her recent promotion, Friends of Michael, Friends of Priti, Friends of Dominic, and, rumbling behind the scenes and biding their time, Friends of Jeremy. Some will jump on bandwagons for reasons of loyalty, others for advancement. More generally, Conservative folklore is that, Boris aside, it is never the likeliest candidate that gets the top job: there is broad unease about too smooth a coronation, even if the crown prince seems eminently suitable.
Challenge 3: Events, dear boy
Dealing with Covid and Brexit whilst trying to change the economy was always going to be a bumpy ride. But when this translates into issues that 1) affect the daily lives of households and 2) can – just about – be linked to deliberate decisions made by the Government, the damage is political and can be lasting, particularly when the benefit-of-the-doubt goodwill that helped at the height of the pandemic will have dissipated. Rightly or wrongly, the Chancellor will be in the middle of the fallout. A cost of living crisis? Sunak was wrong to have cut working benefits at this moment in time. Supply chain dysfunctions? The Chancellor should have made the case for visa freedoms for truckers at Cabinet. A winter NHS crisis? It’s all the fault of the money pinchers at the Treasury. These arguments may be inaccurate, and they will often be unfair: in the case of inflation, for example, it is as much to do with the Bank of England as it is with the Treasury’s macroeconomic policy. But, given Sunak’s reputation as a competent fixer and de facto number two in Government (Raab’s new DPM role notwithstanding) he will increasingly be expected to own anything that has gone wrong and is remotely linked to the economy. That’s a lot of issues.
Challenge 4: Helping the wealth creators create wealth
When it comes to financial services, the Chancellor has to walk a difficult tightrope. On the one hand, he understands the role of wealth creation, and having highly profitable sectors, in driving the economy and more specifically post-Covid economic recovery. On the other hand, the constant advice from CCHQ is to focus on issues that resonate more with less affluent, Red Wall voters, in terms of policy as well as messaging. This creates a challenge, most notably for the financial services industry – which found itself uncomfortably low down in the list of priorities during the Brexit negotiations. Though the politics had reasoning behind it – in a straight choice between bankers and fishermen, you look after the fishermen – it was not good for relations with the City. Since then, the financial services industry has been thrown some meat: John Glen, the City Minister, widely seen as doing a good job (and highly rated by Sunak), has kept his remit and been promoted; a raft of consultations have sought to examine how London can be more attractive for fintech, listings, and green growth; and positive noises have been made about lowering the 8% tax surcharge on banks. But there remain real areas of concern within the industry, about tax increases (corporation tax being the most obvious, but also capital gains) and the cohesiveness of regulatory changes. More pressingly, there is still not much clarity on fundamental issues such as the key areas of divergence with the EU, post-Brexit regulatory reform, and financial relations with China. Defenders of the Treasury will make the valid point that there have been a few other things going on over the last eighteen months. But that argument can’t be used indefinitely.
Challenge 5: Something borrowed, something blue
It has taken a while for the Treasury to warm up to levelling up. Jokes about the move to Darlington aside, the resistance has been largely around how, and why, to spend public money. The Treasury’s Green Book – which sets out the economic methodology for public investment – has been criticised as skewed towards the greater returns available in London and the South East. But the Green Book already emphasised the “social value” of projects, and some cynics, including within 1 Horse Guards, detected a whiff of the pork barrel in the Government’s exhortation that the Green Book be more “strategic”. There also remains the perennial issue of what levelling up actually means: one observer noted that “for many MPs it seems to mean a revamped train station, which will make it easier for clever graduates to get down to London”. However, there is now growing belief that, if properly thought through, Government initiatives could genuinely improve growth and productivity in hard-to-reach areas, which would be a moral and policy win for civil servants as well as a political win for ministers. And if anyone can get the implementation right, Michael Gove can. But these initiatives take time, and, with an election potentially as soon as 2023, the big fear is that their impact will simply not have been felt in the seats where so many voters are perceived to have lent their votes to the Conservatives. At the same time, those voters will have felt economic pain, in the form of tax rises, benefit cuts, and expensive new things they have to do to be green. Why trust the Tories again?
Challenges, therefore, certainly exist. But the Chancellor also has many factors in his favour. He has the trust and loyalty of his officials to a greater than usual degree, and a number of strong contenders and rising stars in his Ministerial team. Politically, he has the power of patronage: being well-regarded by Rishi Sunak will not do much damage to a rising parliamentarian’s career prospects. He has the ability to play the grown-up in the room, which might not always earn him the Prime Minister’s gratitude but reaps its own rewards. Finally, and perhaps most importantly, he knows that he provides much of this Government’s stability and credibility. There are no certainties in politics. But it would be brave to doubt Rishi’s ability, or determination, to reach the very top.
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