Rishi Sunak’s frustration with Kwasi Kwarteng may not have come to light until Sunday due to a cranky outburst from a Treasury insider, but the row over support for companies hit by the energy crisis has exposed deeper tensions at the top of government.
Sunak has spent much of the pandemic playing his role as the People’s Chancellor, as the state stepped in to pay the salaries of millions of people through the successful but hugely expensive leave program.
With the economy rebounding faster than expected after the Covid crisis, however, Sunak wants to return to the Treasury orthodoxy of fixing public finances and letting the private sector move.
He would also love to be able to cut taxes in the run-up to the next general election – both to get voters to stick with the Conservatives; but also to play conservative deputies who are considering the best candidate to succeed Boris Johnson as Prime Minister.
Sunak was coached by Johnson and Sajid Javid to announce the increase in national insurance to fund the NHS and social care at a time when allies have said he would prefer not to raise taxes at all, but appears to have drew a line in the sand when it comes to other expenses.
The Treasury has steamrolled the reduction in universal credit by £ 20 a week amid widespread warnings it will drive families into poverty, and has insisted on cutting the aid budget despite opposition from many senior Tories who warned it would cost lives.
Whitehall insiders suggest that Sunak is also keen to adhere to Treasury orthodoxy when it comes to intervening in the private sector. He signed the CF Fertilizers bailout last month, justifying it as a short-term solution to an obvious market failure. But the Treasury has long been skeptical of being dragged into pouring taxpayer money in potentially unlimited bailouts for struggling businesses.
With skyrocketing energy prices set to last for months, Sunak will likely be very reluctant to put public money on the table. It’s no surprise, then, that he is increasingly annoyed by Kwarteng, who seems to have signaled to desperate business groups that he would like to help them but is crippled by the parsimonious treasury.
Kwarteng is also unhappy to claim credit for the government’s latest narrative to explain the shortages in supermarkets and gas stations. The PM repeatedly insisted at his party’s conference in Manchester last month that these were caused by a long overdue adjustment to a high-wage post-Brexit economy.
Kwarteng told his colleagues he believed he was responsible for the idea, which he dramatized by telling the story of his meeting with a builder in his constituency during the 2016 referendum campaign, who felt his business had been undermined by cheap migrant labor.
Sunak’s emphasis in his conference speech was somewhat different, focusing on the importance of investing in technology to increase productivity rather than the suggestion that employers should immediately raise wages.
Generations of Treasury officials viewed their colleagues in the business department as tending to become indigenous, in effect becoming industry lobbyists. Which side wins in this particular battle – Sunak or Kwarteng – depends on which side the Prime Minister decides to support.
Johnson has had his own run-ins with his assertive Chancellor in recent months, with the couple clashing over the summer over Covid’s travel rules, which Sunak urged Johnson to relax in in a handy leaked letter. The prime minister then reportedly reflected on friends whether it was time for Sunak to be removed from his post.
Johnson tends to be much more relaxed than his Chancellor when it comes to government spending. He is also very keen on keeping the “red wall seats” he won in 2019, some of which host energy-intensive industries such as steel mills.
With his mind focused – even in sunny Marbella – by a series of negative front pages about the risks of the energy crisis, Whitehall officials believe he’s increasingly likely to side with Kwarteng .