The minor tremor of Kwasi Kwarteng’s interview with this site last week is still reverberating. He told the story of a builder in his constituency who voted for Brexit because he “hadn’t had a wage increase in 15 years”.
“And so, having rejected the low-wage, high-immigration model, we were always going to try to transition to something else,” the Business Secretary told us. “What we’re seeing now is part of that transition. You’re quite right to say people are resisting that, particularly employers that were benefiting from an influx of labour that could keep wages low.”
He thus set the scene for the Conservative conference theme of lower migration being followed by higher wages – and of some people in some industries, not to mention Keir Starmer, seeking to panic Ministers into issuing tens of thousands of visas, at the least.
At the same time, Kwarteng presented himself as a keeper of the Thatcherite flame. “My job is to make us not lose sight of the fact that we are Conservatives,” he said – adding later that “I’ve never understood how we incentivise economic activity by increasing tax….We can talk about raising taxes in the short term to deal with a short-term crisis. But broadly, higher tax is basically a tax on economic activity.”
The Business Secretary was careful not to cross swords with Rishi Sunak, saying that he is “doing a fantastic job”, but the interview and its consequences, plus Kwarteng’s actions elsewhere, evidently needled the Treasury.
The Chancellor didn’t go down the same road as Kwarteng in his speech to the conference, instead stressing “good work better skills and higher wages”: there was no mention of migration. Sunak is evidently suspicious of the suggestion that lower immigration will automatically lead to higher wages. He has reason to be.
But what really seems to have got the Treasury’s goat was the Business Secretary flying the flag for lower taxes while pushing in private for higher spending.
Kwarteng told this site that people in the steel industry “think they are going to sell lots of product”, but it is evidently on the list, together with other energy-intensive industries, of businesses for which his department is seeking taxpayer-funded assistance. And so it was that the Treasury’s startling on-the-record rebuke came about.
“This is not the first time the [business] secretary has made things up in interviews,” a spokesman said. A Cabinet Minister told this site yesterday that the rebuke was “most peculiar”.
“I can’t remember a spokesman doing that before by means of a formal briefing,” they said. “If you’re a Cabinet Minister and Number 10 slaps you down, that’s one thing. But Number 11 doing so is another”. The Minister couldn’t recall Kwarteng challenging Sunak over tax rises in Cabinet (though they said otherwise about Liz Truss).
Part of the clash is about style. The Business Secretary “saunters in without having done his paperwork”, according to one Treasury source.
Whatever one’s view, Kwarteng is a very different animal from Sunak. Both men are self-confident (one is unlikely to get into the Cabinet if one isn’t), but the Business Secretary likes to shoot from the hip, while the Chancellor prefers to get across the detail. But the main reason for their differences, as we’ve seen, are about substance. Who’s right?
Kwarteng and steel is a bit like Michael Gove and housing. Gove is boxed in, as he begins his new job, by Conservative MPs who are reflexively opposed to the building of more homes in their constituencies.
Where they want the Levelling Up Secretary to do nothing much, at least in their patch, they want the Business Secretary to do something. “The Government must act to protect those industries and the thousands of steel workers and factory workers across the north and midlands who put their trust in this government for the first time back in 2019,” Andrew Percy writes in the Times today.
He sits for Brigg & Goole, one of a slew of seats in North Lincolnshire for which steel is a big employer. Hence the pressure on the Chancellor.
In the short-term, the politics and the economics are pointing in different directions: the first to baleouts, the second to restraint. That’s if you believe, as Sunak does, “in fiscal responsibility. Just borrowing more money and stacking up bills for future generations to pay is not just economically irresponsible it is immoral,” as he put it in that speech at Manchester.
In the longer term, of course, bad economics leads to broken politics. And so it is that Sunak is damned if he does and damned if he doesn’t.
If he digs his heels in, he meets the combined force of the Business Department plus Number Ten. For as we’ve put it before, Boris Johnson favours “boosterism” – his own word – by which he means tax cuts, grand projets and more borrowing. And that’s before the Prime Minister takes the immediate political pressures into account.
If, on the other hand, the Chancellor gives way, he is leaning away from his own beliefs and storing up trouble for the future. At any rate, the differences between Number Ten and Number Eleven show that Dominic Cummings’ attempt to join them at the hip has failed.
On Guido Fawkes’ SpAd list, Sunak’s advisers are listed as part of the Joint Economic Unit – in other words, as advisers both to the Prime Minister and the Chancellor. For part of the deal when Sajid Javid resigned as Chancellor was for his replacement’s SpAds to serve both men: the Treasury was to be brought to heel and made to serve, subject at last to Number Ten’s authority.
This spat shows very clearly that the Treasury, for which read Sunak, is maintaining its indepedence – and its traditional relationship with Number Ten, for which read Johnson.
Under different governments, this has been institutionally tense at best (David Cameron and George Osborne’s workings must count as the easiest between Prime Minister and Chancellor in modern times) and self-destructively dire at worst (Tony Blair and Gordon Brown take the prize, with Margaret Thatcher and Nigel Lawson, at least in his latter days in Number 11, in second place).
Harold Macmillan, the Keynesian, got through four Chancellors in six years. Johnson, the Boosterist, has lost one in under two. We believe that Sunak will survive this Parliament. But can’t help crossing our fingers as we do so.