Sajid Javid’s resignation as chancellor of the exchequer leaves his successor, Rishi Sunak, with little more than three weeks to pull together a budget that Boris Johnson has promised will bring a new dawn of spending.
The new chancellor, who had been chief secretary to the Treasury since July, will be tasked with putting the finishing touches to a range of ambitious policies, including those aimed at “levelling-up” the regions and nations of the UK.
The budget was also expected to fortify the economy before new trading arrangements with the EU next year.
Despite his short tenure in Whitehall’s most powerful ministry, Sunak will be familiar with the issues Javid was dealing with in his negotiations with the PM’s special adviser Dominic Cummings and No 10.
Main items at top of Sunak’s in-tray
How to cope with a takeover bid
Sunak’s time in the City as a hedge fund manager has made him familiar with the need for a strategy to cope with a change of ownership. Morale could also pose a problem. His staff will be demoralised by the loss of a popular chancellor, and the prospect of a team from No 10 driving the policy agenda with Cummings at the head will only add to their sense of demotion.
Last week, Downing Street said the prime minister’s top aide was working “pretty much full time” on what should be included in the budget and what should be targeted in the government spending review.
The budget – spending
Cummings wants large sums channeled towards the science budget and an array of infrastructure projects, not just HS2, which he was against.
He is also an enthusiastic supporter of raising the income level at which people start paying national insurance, towards the income tax threshold of £12,500, to put more money in the pockets of poor and middle-income families.
At the moment, earnings above £8,632 a year are subject to national insurance contributions. Aligning the NICs and income tax thresholds would cost a massive £11bn a year.
Then there are increases in social care spending, the housing budget and defence that Johnson wants to push through.
The budget – tax rises
Taxes on the “idle rich” – a particular target of Cummings – will need to be modelled by the Treasury to test their possible impact.
A mansion tax has been floated by No 10 alongside a more radical policy to limit tax relief on pensions saving, which previous chancellors have considered but resisted after it provoked a huge outcry, not least from better-off Conservative voters.
Sunak, fearful of the law of unintended consequences, will want to be sure that all the ramifications of No 10 policies have withstood rigorous testing.
Javid resisted moving quickly to increase spending and cut taxes after it became clear he would breach his self-imposed borrowing limits. Sunak may be forced to hold a second budget later this year to cope with the sheer scale of the Johnson tax and spending agenda.
Trade talks
The Treasury is at the heart of negotiations to secure a deal with the EU by the end of this year. Javid backed the PM’s stance that without big concessions by Brussels, the UK is prepared to adopt import tariffs. The former chancellor also sought to make protecting the City a priority, something Cummings may be less enthusiastic about, preferring to make fishing rights a red-line issue.
Sunak’s role as chief secretary to the Treasury means he has had little to do with Brussels or the issues surrounding the Brexit negotiations. He will need to get up to speed quickly.
Comprehensive spending review
Last year, Theresa May’s government failed to have a budget and Johnson’s attempt in November was scrapped at the last minute. May rolled over a Whitehall spending review to this year, leaving government departments to tread water with the same budget allocations given to them three years previously.
The chief secretary’s prime job is to spend time negotiating with government departments over their spending over the next three years. So Sunak will want a strong personality to replace him in the job, especially as Cummings has very strong views on reshaping Whitehall, which includes how much money they receive.
Digital services tax
Speaking in Davos at the World Economic Forum, Javid refused to bow to US pressure to delay the UK version of a digital tax, which is designed to tax the bigger providers of digital services – Amazon, Google, Apple and Facebook. Johnson has already upset his friend Donald Trump by allowing Huawei to build part of the UK’s 5G mobile network, and may want Sunak to backtrack on Javid’s pledge.
International Monetary Fund
In April the chancellor is booked to go to the International Monetary Fund and World Bank spring conference in Washington. Sunak will need to be fully briefed on issues covering a broader canvas, such as the growing global debt problem to the battle between the Trump administration and China over trade, which is likely to be reignited in the event of a Trump election victory in November.
