Cummings vs Javid: there can be only one victor

The Chancellor has had a disappointing start, but on policy he may be on the right side of the argument

Friction between No10 and the Treasury has long been a feature of the British political scene. But normally it takes at least a while with each incoming government for the tensions to emerge. Not so this time. Just months into the new Government, they are already at war, or rather, the Prime Minister’s chief adviser, Dominic Cummings, appears so minded.

The most obvious parallel here is with Margaret Thatcher’s economic adviser Sir Alan Walters, whose various interventions in economic policy led to the resignation of the then chancellor, Nigel Lawson. More recently we saw a complete breakdown in relations between Theresa May’s joint chief of staff, Nick Timothy, and the last chancellor, Philip Hammond. Had it not been for a disastrous election, which resulted in his own execution first, Timothy would likely have had Hammond fired.

A not dissimilar power and personality clash is colouring relations between Cummings and the current Chancellor, Sajid Javid. It is already obvious where this is heading: eventually, possibly sooner rather than later, one of them will get chopped.

No doubt about it, Mr Javid has so far been a bit of a disappointment. Chancellors are normally big political hitters, more powerful in some cases than the prime minister. There were high hopes for Javid, a self-made man of humble origins who was expected to inject some big ideas and Tory radicalism into the job. But beyond a promised “infrastructure revolution”, which is basically just motherhood and apple pie, there has been little sign of them. Critics claim he is already subject to Treasury capture, more a continuity Chancellor than the revolutionary force the moment perhaps requires.

He’s also found himself repeatedly trampled on by No10, not least according to insiders in his preference for an overt Remainer, Minouche Shafik, to become the next governor of the Bank of England. As a woman and a naturalised Briton, she ticked a lot of boxes, but the decision was overruled by Boris Johnson in favour of a Bank of England lifer, Andrew Bailey. Critics complain of a certain clumsiness in Javid, and a lack of political nous as No 10 seeks to mould next month’s Budget to its own political purpose.

As is generally the case with these things, the now almost open sniping is not just about power rivalry, it is also a manifestation of a deep policy schism that dates back to Javid’s insistence on committing to relatively tough fiscal rules in the Tory election manifesto. Both main political parties were at the time throwing spending commitments around like confetti, so it made some sense as a way of distinguishing the Government from a fiscally irresponsible Labour party. It was also reckoned that markets needed reassuring in view of the challenges of Brexit.

Unfortunately, the rules now look like a giant constraint on what Cummings and others want to do with the Government’s “stonking” majority. Javid is seen to be standing in the way, with the Treasury playing its traditional role as a restraining, party-pooping voice at the table. It’s proving virtually impossible within the fiscal straitjacket the Treasury has imposed to find the money to do everything the Government wants.

It would be seen as particularly unfortunate if Javid ends up having to raise taxes in his first Budget to pay for it all. Brexit demands that the country becomes more tax-competitive, not less so.

Downing Street looks across the Atlantic at Donald Trump’s no-holdsbarred programme of tax cuts and spending increases, and asks: why not here? Well, here’s the reason.

Trump’s “roaring Twenties” should be sufficient to float him back into the White House this November, but they have been recklessly bought at considerable cost. When his taxcutting programme was announced, it was sold on the basis that it would pay for itself by generating extra economic growth. Predictably, it has failed to do so.

The American economy is strong, but not strong enough to fund those tax cuts. The Congressional Budget Office last week forecast that the deficit this year would surge through the $1 trillion mark for the first time – equal to 4.6 per cent of gross domestic product – and then carry on rising to 5.4 per cent by 2030. It is unprecedented for the US to be running shortfalls of such magnitude at a time when the economy is strong. Other than a six-year period during and immediately after the Second World War, the deficit over the past century has never before exceeded 4 per cent for more than five consecutive years.

Even the mighty US, with the “exorbitant privilege” of dollar supremacy, will struggle to sustain such a borrowing binge. In any case, the UK enjoys no such favour. Brexit demands that the Government takes risks with economic policy, yet the Treasury says the reverse – that now more than ever the country needs to reassure. It cannot afford to go for broke. Both are right. Which side ends up triumphing is a rather more difficult question to answer. It’s Johnson’s call.

follow Jeremy Warner on Twitter @Jeremywarneruk; read more at telegraph.co.uk/opinion