Analysis: What now for UK economic policy?
Chris Giles, the FT’s economics editor, writes:
While Rishi Sunak now has the title of chancellor, he will have to cede significant control over the UK economy and public finances to Boris Johnson and his key advisers.
An ally of Sajid Javid predicted this would not work, saying it was “unsustainable” to run the Treasury’s functions from Number 10 and that it would take some time before economic policy settled down.
“This is about control, not policy,” the aide said, adding that while tensions over big Budget choices had been rising in recent weeks, the relationship had not been unusually antagonistic in the run-up to the Budget. “Nothing in policy substance warrants this move.”
The prospects for the March 11 Budget and the government’s stance on fiscal policy now look uncertain.
Read Chris’s full analysis here.
Johnson’s cabinet reshuffle: The winners
Away from the Sajid Javid resignation drama, Boris Johnson has elevated a host of MPs in his cabinet reshuffle.
The biggest promotion – and story of the day – was the appointment of Rishi Sunak to Mr Javid’s previous role as chancellor of the exchequer.
Elsewhere, Suella Braverman, a prominent Eurosceptic and former chair of the pro-Brexit European Research Group, has been appointed attorney general, attending cabinet meetings.
Another outspoken Eurosceptic, Anne-Marie Trevelyan – previously minister of state for the armed forces – takes the reins as international development secretary.
Oliver Dowden has been elevated from being a minister in the cabinet office to culture secretary and faces the daunting task of looming licence fee negotiations with the BBC.
George Eustace has been promoted to environment secretary, having previously been a minister in the same department.
Sterling gains as traders look ahead to Sunak’s first Budget
Tommy Stubbington reports:
Sajid Javid’s resignation as UK chancellor jolted financial markets, as investors bet that his replacement Rishi Sunak would be more likely to unveil a big spending boost in next month’s Budget.
The pound pushed higher after news of Mr Javid’s departure broke, and by mid-afternoon was trading 0.7 per cent higher at $1.3045 against the dollar, its highest in a week. UK government bond prices slipped, pushing the 10-year yield 0.07 percentage points higher to 0.65 per cent.
Investors are calculating that Mr Sunak, a close ally of prime minister Boris Johnson, will be more inclined to deliver a big fiscal stimulus on March 11. Ahead of December’s election, Mr Javid had persuaded Mr Johnson to adopt a commitment to balance the day-to-day budget by 2022-23, limiting the scale of any spending spree.
Business lobby group warns of challenges ahead as it welcomes Sunak
Business lobby group TheCityUK has welcomed the appointment of Rishi Sunak as chancellor, and taken the opportunity to remind the government of the financial sector’s importance to the UK economy.
“Rishi Sunak knows the Treasury well and we look forward to working with him in his new role,” said Miles Celic, chief executive of TheCityUK.
Mr Sunak has worked at Goldman Sachs and hedge fund The Children’s Investment Fund, while Sajid Javid spent 18 years in investment banking and was head of global credit trading for Asia at Deutsche Bank before moving into politics in 2009.
Mr Celic said:
Our industry is a national success story and an engine for prosperity across the whole of the UK, as well as being our country’s most successful exporter and biggest tax payer. We’ve no doubt that Treasury and the industry will continue to work together closely as we seize the opportunities and navigate the challenges of the coming years.
The key challenge remains the UK’s future relationship with the EU. There are concerns among some financial services executives that the EU could revoke equivalence agreements, leaving them struggling to service their European clients.
The Financial Times reported this week that the British government is demanding the EU sign up to a “permanent equivalence” regime for financial services that will last for “decades to come” to ensure the City of London can maintain access to the European market.
Analysis: Javid opts to walk away from Johnson’s power grab
George Parker, Political Editor, writes:
Boris Johnson had intended to carry out a “moderate” cabinet reshuffle on Thursday, but when chancellor Sajid Javid stormed out of Downing Street after a brutal stand-off in the prime minister’s office, his shake-up descended into a full-scale crisis.
Mr Javid, pushed around by Downing Street ever since his appointment as chancellor in July, refused to carry on as the titular head of a Treasury that Mr Johnson — and his chief adviser Dominic Cummings — wanted to run from Number 10.
During an hour-long showdown, Mr Johnson said he wanted Mr Javid to carry on as chancellor, but only on dramatic new terms: a joint team of special advisers would be created to run both Number 10 and the Treasury.
It was a blatant power grab by the prime minister, in which he wanted Mr Javid to sack all his advisers.
“No self-respecting person could allow that,” said one ally of Mr Javid. “Basically he said ‘No’. Johnson wanted to replace the Treasury special advisers with people from Number 10. It was about the idea that Number 10 can control the Treasury.”
Investors bank on more government borrowing
Rishi Sunak, the new chancellor, has less than a month to craft his first Budget, which he will deliver on March 11. Investors are betting that it will contain substantially bigger spending pledges than Sajid Javid would have tolerated.
UK government bond prices slipped as investors anticipated more government borrowing under the new chancellor. The yield on the 10-year UK gilt – which moves in the opposite direction to the price – rose four basis points to 0.655 per cent.
David Zahn, head of European fixed income at Franklin Templeton said Sajid Javid’s departure “makes us think that the Budget will look very different than expected.”
The new chancellor will want to put his own mark on the budget leading us to believe it will be much more expansionary in nature. A commitment to more spending from the Government is consistent with Boris Johnson’s plans to level up the UK and invest in the North. Overall, the direction of travel for the Government is clear and this reinforces our view that gilt yields should rise as more is revealed about the upcoming Budget.
Javid becomes shortest serving chancellor since 1970
Sajid Javid departs the Treasury with the unwelcome distinction of being one of the UK’s few chancellors to have never presented a Budget.
Mr Javid was appointed to the post in July last year by Boris Johnson, and has become the shortest serving chancellor since Iain Macleod, a Conservative who died in 1970 after barely a month in the post.
The Institute for Government has put together a timeline of Britain’s post-war Chancellors.
Appointment of BoE governor added to Javid-Cummings tensions
Differences over who should fill the Bank of England governor role heightened the spat between the recently departed chancellor and Boris Johnson’s chief strategist, Seb Payne, Whitehall correspondent has been hearing.
Comment: Johnson has backed Cummings over his chancellor
Robert Shrimsley, UK editor at large, writes
There was simply no need for Boris Johnson to lose his chancellor of the exchequer.
The fact that he has done so shows that the prime minister intends to brook no dissent and that Number 10 is determined to keep control of financial policy.
Sajid Javid quit rather than be told he had to sack his aides and submit to Dominic Cummings, Mr Johnson’s chief strategist, taking control of financial policy via a joint team of advisers.
At that point most prime ministers would have concluded that this was not a big enough issue over which to lose an already compliant chancellor. Mr Johnson decided otherwise.
It is an astonishing decision; a chaotic, unnecessary and damaging outcome for the government.
10 Downing Street takes control
The new chancellor Rishi Sunak has accepted next month’s Budget will be drafted by a joint group of advisers from both the prime minister’s team and the Treasury.
The events in Westminster today have thrown the role of government special advisers into the spotlight, after Sajid Javid quit rather than sack all his aides amid a power struggle over the government purse strings.
With the appointment of Boris Johnson loyalist Mr Sunak to the Treasury, that struggle is now over.
Rupert Harrison, a portfolio manager at BlackRock and former chief of staff to George Osborne, said that joint teams between numbers 10 and 11 Downing Street have worked successfully in the past, pointing to the coalition government in which he served.
Nick King, who was a policy adviser to Mr Javid in two government departments, said he was not surprised that his former boss quit rather than sack his staff.
Budget ramped up tensions between Javid and Cummings
Sajid Javid had been at loggerheads with Boris Johnson’s chief advisor Dominic Cummings for months, but these had increased in the run up to next month’s budget, George Parker and Sebastian Payne wrote last week.
Since Mr Cummings summarily sacked Mr Javid’s adviser Sonia Khan in August, without telling the chancellor first, the two men had been engaged in a power play and battle for the prime minister’s ear.
The Downing Street adviser used his early weeks in Number 10 to push through a number of big spending commitments in areas such as health and police, before Mr Javid secured a victory for the Treasury and applied the spending brakes.
Ahead of the election Mr Javid, backed by Tory election chief Isaac Levido, persuaded Mr Johnson to adopt tight fiscal rules to draw up a dividing line with the UK’s opposition Labour party on economic responsibility, rather than trying to outspend leader Jeremy Corbyn.
That promise to balance the day-to-day budget by 2022-23 imposed serious spending constraints on the government and on Mr Cummings’s plan to revive the north and Midlands, setting up a battle in the run-up to the budget.
Rishi Sunak ‘unsackable’ as chancellor
Rishi Sunak is “pretty much unsackable” as chancellor following Sajid Javid’s sudden departure, former Conservative cabinet minister David Gauke has said.
Despite Mr Johnson’s thumping victory in December’s general election, “to lose another chancellor would be difficult,” the former justice secretary told the BBC.
Mr Gauke lost the Conservative whip last year after disagreeing with Mr Johnson over Brexit.
Why a spending spree is good for sterling
Tommy Stubbington reports:
Markets appear to be assuming that swapping Sajid Javid for Rishi Sunak makes a big spending splurge more likely in next month’s budget. The pound was recently up 0.6 per cent against both the dollar and euro.
If the new chancellor opens up the fiscal taps, that could boost growth and therefore make a rate cut by the Bank of England less likely. Recently, the chance of lower rates has been one factor weighing down the pound. For now, that logic is outweighing any increased uncertainty caused by the change at 11 Downing Street.
Pound rises on prospect of greater spending
Sterling is on course for its best day of the month, and was recently 0.6 per cent higher against the US dollar.
Traders and analysts said Mr Javid’s resignation suggests 10 Downing Street will now be able to exert greater influence on the Treasury.
“My sense is the market is anticipating a chancellor happier with more expansionist fiscal policy,” said Neil Jones, head of currency sales for financial institutions at Mizuho Bank.
With monetary policy potentially reaching its limits and the possibly larger government spending ahead, the pound would certainly benefit.
Who is Rishi Sunak?
Rishi Sunak, who is succeeding Sajid Javid as chancellor, was already a rising star in the Conservative party.
After standing in for Boris Johnson in television debates during the general election campaign, he was tipped for a promotion to a full cabinet position in the reshuffle.
Mr Sunak has been described by senior Conservatives as Boris Johnson’s “favourite minister” — a safe pair of hands trusted to carry the Tory message, partly because he is a true Brexit believer.
Party insiders had suggested after doing a stint at a Whitehall spending department, Mr Sunak would have been heading for the chancellor’s job anyway, although today’s development mean this is happening sooner than anyone anticipated.
Labour: A government in chaos
John McDonnell, the shadow chancellor, said that the loss of Sajid Javid shows that the government is “in chaos within weeks of an election.”
Mr McDonnell said the resignation shows that Dominic Cummings, the prime minister’s powerful chief adviser, has won battle to take control of the Treasury.
The FT reported last week that Messrs Javid and Cummings had been at loggerheads for months, with tensions inflamed by the sacking of Treasury adviser Sonia Khan in August and questions over how to balance spending restraints with plans to ‘level up’ the economy.
Who else is out?
Sajid Javid’s resignation came after a morning of high profile cabinet departures. Here is a reminder of who has been sacked:
• Julian Smith, Northern Ireland secretary
• Andrea Leadsom, business secretary
• Theresa Villiers, environment secretary
• Geoffrey Cox, attorney general
• Esther McVey, housing minister
• Chris Skidmore, universities and science minister
• Nusrat Ghani and George Freeman, transport ministers
More details on a resignation at the heart of government
The FT’s political correspondent Sebasatian Payne and political editor George Parker report:
Sajid Javid met the prime minister for an hour on Thursday morning and declined the request to sack his advisers, according to Whitehall officials. The chancellor’s team has been engaged in a briefing war with Downing Street in recent weeks over who will be responsible for writing the upcoming Budget.
Boris Johnson had intended for his first reshuffle to be “moderate” according to Downing Street insiders but his decision to confront Mr Javid has backfired.
Read more on the day’s dramatic developments here.
Sterling rises following Javid’s departure
Markets reporter Tommy Stubbington reports:
Sterling pushed higher on the news of Sajid Javid’s departure, climbing 0.45 per cent to a one-week high of $1.3020 against the dollar. UK government bond prices fell, pushing the 10-year yield 0.05 percentage point higher to 0.63 per cent.
Adam Seagrave, head of global sales trading at Saxo Markets, said:
The initial reaction has been weaker sterling but we are now seeing a rally to a new high. This is presumably the market interpreting the announcement as Boris Johnson wanting advisors who are more willing to back aggressive fiscal stimulus.
Sajid Javid quits government
Sajid Javid has resigned as chancellor after Boris Johnson asked him to fire his closest aides in order to keep his position.
Rishi Sunak, the Treasury chief secretary who has long been seen as a rising star in government, will replace Mr Javid as chancellor.
The dramatic resignation has thrown significant uncertainty into the prime minister’s reshuffle, which had been intended to be a “moderate” reshaping of the cabinet, according to Downing Street insiders. That has now backfired, and we will have all the latest news and reaction as it comes in.