Advisers advise, ministers decide

The resignation of Sajid Javid as Chancellor of the Exchequer following the reshuffling of Boris Johnson’s government came as a major surprise since Javid had, by all accounts, been promised that he could continue in the job despite changes in ministerial responsibility elsewhere. It has emerged that Javid was offered the chance to stay in post, but only on condition he fired all his special advisers and replaced them with those appointed by the prime minister’s office (i.e. by Boris Johnson’s de facto chief of staff, Dominic Cummings). Javid had rather unkindly been labelled as CHINO (Chancellor In Name Only), and it is clear that he was not prepared to compromise any further in order to retain his position at the heart of government.

All this comes less than a month before Javid was due to present his first post-election budget to parliament which was (is?) expected to include tax breaks for low income earners and a boost to social spending, coupled with measures to claw back some revenue from higher earners. His replacement is the little-known MP Rishi Sunak who has 27 days to prepare himself for the budget presentation. Clearly this will not be his budget – it will be the one imposed upon him by Downing Street and will have the fingerprints of Dominic Cummings all over it. It does appear that the current government is a highly centralised administration, offering little scope for individual minsters to set the direction of policy. But particularly in the area of fiscal policy, there is a sense of conflict between what the Johnson government wants to deliver and the caution which the Treasury reserves towards big policy initiatives which involve spending money.

The first issue is whether the resignation will have any implications for the direction of policy. It almost certainly will not derail the government’s plan to take more low-paid earners out of the tax net. The Conservative election manifesto promised to raise the threshold for National Insurance Contributions to £9,500 (currently £8,632). Using HMRC data as a baseline, which suggests that an increase of £2 per week will cost £300m of revenue, this implies an annual revenue loss of around £5 billion (0.2% of GDP). I would be surprised if that was not one of the measures to be presented by the new Chancellor on 11 March. The Conservatives also expressed an “ultimate ambition … to ensure that the first £12,500 … is completely free of tax” which on current calculations would put a £22bn annual hole in public revenues (1% of GDP). Such largesse will have to be paid for and various trial balloons have been floated, including restrictions on pension tax relief where cutting the relief rate from 40% to 20% for workers earning more than £50,000 per year could claw back £10bn. Another option which has been mooted is the levying of a tax on properties above a certain (high) value threshold. The problem is that although such policies might play well with non-traditional Tory voters who lent their votes to Johnson in December, they will not go down well with voters in the Conservative heartlands in southern England.

The alternative to a big clawback is that the government simply runs a looser fiscal stance. Prior to the election campaign, Javid announced a set of fiscal rules in which the government would seek only to balance the current budget by the middle of the decade and borrowing to fund investment would be permitted to rise to 3% of GDP – around half as high again as the previous set of fiscal rules – whilst debt servicing costs would be limited to 6% of tax revenues. These are estimated to allow for fiscal expansion equivalent to 1% of GDP. However, it would be easy enough to tweak the limits to allow for a slightly larger expansion and to blur the distinction between current and capital spending by setting even more nebulous targets for balancing the budget.

But there is a bigger issue at stake than the nature of the fiscal stance and it goes to the heart of who runs government. The prime minister is primus inter pares – first amongst equals – but he (or she) cannot control everything. And it will raise further questions about the role of Cummings, for it is known that he and Javid did not see eye-to-eye on many issues. Margaret Thatcher once famously said that “advisers advise and ministers decide” but press reports over recent months suggest that the advisers are doing a little more advising than is good for government. Ironically Thatcher made this comment in the wake of the 1989 dispute between her economic adviser, Alan Walters, and the then-Chancellor Nigel Lawson. Lawson was an advocate of the UK joining the ERM but Walters was not, and what should have been an internal government matter got out of hand when Walters published an article outlining his position. Lawson subsequently resigned (as did Walters) but the damage to Thatcher’s position ran deep and she was forced out a year later.

The lesson from that episode was that when it comes to a showdown in which a prime minister has to choose between the advice of a minister and listening to an adviser, it is usually a mistake to choose the latter over the former. It smacks of authoritarianism and does nothing to foster good relations between the prime minister and other MPs on whom he ultimately depends. We should not over-dramatise today’s events. The budget will still be delivered and many of the ideas currently on the stocks will be put forward. But it should act as a warning to Boris Johnson that he will not always get his way and although he is currently flavour of the month he must beware alienating those who may have a different point of view. As a classics scholar, Johnson will be all too aware of the fate which befell Caligula – although in fairness Johnson has not yet appointed a horse as an adviser.