The struggle over the government’s fiscal rules boils over

With his very public intervention, coming just 14 days before the Budget on 11 March, Sajid Javid has heaped pressure on No 10 not to ditch his framework of fiscal discipline, writes economics editor Ben Chu

Is there more pressure on the prime minister or his new chancellor? (Getty)

We already knew why he went.

Sajid Javid resigned as chancellor two weeks ago because he refused to accept the demand of Boris Johnson and Dominic Cummings that his own advisors should be answerable to Number 10 Downing Street, not to him.

And in his first speech in the House of Commons since his resignation, Javid made that clear before MPs on Wednesday.

Yet the more consequential aspect of Javid’s Commons speech was to do with action than advisers; it concerned policy not personalities.

“The fiscal rules that we are elected on are critical,” Javid told the Commons, specifically eyeballing the prime minister.

“To govern is to choose, and these rules crystallise the choices that are required to keep spending under control.”

So what are these fiscal rules? It’s worth reminding ourselves.

In November last year, as chancellor, Mr Javid unveiled a new set of rules for keeping public borrowing in check (the sixteenth set of rules in only 10 years).

Among other things, these rules stated that the government had to commit to balance outgoing day-to-day government spending with incoming tax revenues over three years, so by 2022-23.

But in the intervening months the UK economy slowed (something that tends to crimp tax receipts) and it became clear these rules were set to constrict the amount of money available to the government to spend on patching up Britain’s public services after a decade of austerity.

This seems to have frustrated the prime minister and his turbulent advisor, Mr Cummings, who are keen to pump up spending to show their new voters in the north of England and Midlands that their lives will improve under a majority Conservative government.

So should public spending ambitions be downgraded? Or should the fiscal rules be tweaked, or even scrapped, to allow more government borrowing and spending?

It would seem that Javid advocated the former. But No 10 preferred the latter.

Javid referenced this tension when he said in his Commons speech: “It is fair to say that not everyone at the centre of government always feels the pressure to balance the books.”

After his Commons speech the prime minister’s spokesperson refused to confirm that Mr Javid’s fiscal rules will survive.

But the ex-chancellor, with his very public intervention, coming just 14 days before the Budget on 11 March, has certainly added to the pressure on No 10 not to ditch his framework of fiscal discipline.

Respected think tanks, the Institute for Fiscal Responsibility and the Resolution Foundation, have added to that pressure. Like Javid, they argue that ditching the borrowing rules so rapidly would be unwise. They say if Downing Street wants to spend more it should raise taxes to fund it.

Yet the greatest pressure might, ironically, be felt not by Johnson and Cummings but by Javid’s successor in 11 Downing Street, Rishi Sunak.

If Sunak acquiesces in the scrapping of the rules and their replacement with something much weaker he is likely to cement the impression of him as a yes-man politician, installed purely to do No 10’s bidding.

His own pride – not to mention his fiscally conservative instincts – must surely be telling him to hold the line.

Plus Mr Sunak must know he has some political leverage, as Mr Johnson could ill afford to lose yet another chancellor so soon.

But will the new man in No 11 use it? Could he threaten to resign to keep his predecessor’s rules in place?

We will likely get our answer on, if not before, 11 March.