The PM was right to get rid of his chancellor

Sajid Javid became the figurehead of an imperial Treasury that could only stand in the way of reform

The late Sir Jeremy Heywood, then cabinet secretary, once recounted to me how he had worked with every prime minister and chancellor since John Major and Ken Clarke. Almost every relationship, he said, was dysfunctional. Blair and Brown were in a state of perpetual warfare. Cameron and Osborne were so tight that No 10 never challenged No 11. Relations between Theresa May and Philip Hammond deteriorated faster than any Heywood had known.

The partnership between Boris Johnson and Sajid Javid broke down even more rapidly than their predecessors’. The reasons lie partly in their personalities, and in the behaviour of their advisers. But Javid’s resignation – which was transparently engineered by No 10 – was also down to fundamental disagreements about policy and the purpose of the Treasury.

The Treasury is like no other Whitehall department. In fact, referring to it as merely “a department” riles its officials, who have known the Treasury only in its modern, imperial form. Since it ceded almost total control of monetary policy to the Bank of England, and since its orthodoxy became steadfastly hands-off on economic issues like regional regeneration, its formal role has, to some degree, been reduced to fiscal policy. Yet as its responsibilities waned, it used its fiscal role to micromanage other government departments, mayors and councils in every conceivable area of policy.

Its “green book”, which sets out how public funds must be used, is supposed to ensure that there is rigorous economic analysis behind spending decisions. But in practice it means that the regions that need government investment most get less than the prosperous South East. Its responsibility for oversight not only of “revenue raisers” – mandarin-speak for tax rises – but public spending means Treasury officials block decisions taken by ministers in other departments and dictate to them what they can and cannot do.

Johnson became Prime Minister with clearly stated objectives. He wanted to get Brexit done, and proposed a great push to “level-up” the country. Partly to achieve that goal, he also promised – after 10 hard years – to end austerity.

This is the origin of the clash between Downing Street’s powerful neighbours. Javid was happy to increase infrastructure investment, and to borrow to finance it. He accepted Johnson’s commitments to increase resource spending on schools, hospitals and the police. But with Treasury orthodoxy ringing in his ears, this was where he drew the line. With reasonably tough fiscal rules still in place, and various spending promises already made, the reality of his policy meant continued austerity for a range of important state functions, from the immigration system to prisons and probation.

Among these functions are programmes that will be vital if the Government wants to rebalance the country. Increased infrastructure spending is part of the solution, but to take just one other neglected example, what about skills and training schemes? If we want to give young people the skills they need, no longer neglect the 50 per cent of teenagers who do not go to university, and reskill adult workers whose jobs are threatened by automation, the solutions will be expensive.

And the friction did not end there. In December, Javid succeeded in getting his preferred candidate – Andrew Bailey – installed as Governor of the Bank of England. Bailey’s appointment was supported by the voices of Treasury orthodoxy, but inside No 10, Dominic Cummings, the PM’S powerful adviser, was critical. Cummings preferred Andy Haldane, the Bank’s chief economist and a free-thinking advocate of regional rebalancing.

The PM’S decision to force Javid’s resignation and replace him with Rishi Sunak will be among the most important of his premiership. He has discarded his chancellor early and just a month before the Budget. In deciding to end a civil war with the Treasury, he has been assertive and bold. Now, with Sunak – a gifted talent from a northern constituency, with a background in finance and global innovation – he has to heed the purpose of Heywood’s sermon. A Prime Minister and Chancellor must challenge one another robustly, but they must work as a team, towards clear and shared objectives.