Meanwhile, in the Treasury…

Meanwhile, in the Treasury…

Just a week or so ago, Jeremy Hunt was appointed Chancellor and immediately and successfully set about trying to restore the UK to some semblance of financial credibility after the car crash of Kwasi Kwarteng’s mini-budget and subsequent events.  The PM who appointed him, and whose government he seemed, for a few days, to be effectively running, is now past her sell-by date, and a whole new Tory psychodrama has erupted, centred around the ego of Boris Johnson.  Jeremy Hunt’s role has been displaced from the front pages.

The timing of this new turmoil is, to put it mildly, unfortunate. The aim is to have a new leader, and thus a new PM, in place by the 28th October.  It may be even sooner.  Irrespective of the outcome, though, there is a hard deadline for Jeremy Hunt; he is still expected to present his replacement budget, complete with detailed spending plans and OBR forecast attached, on Halloween day. Whilst in theory the new leader could change that, and perhaps install a new Chancellor, that would be to add instability to instability, and would immediately be dramatically punished by the already-nervous financial markets.  It seems unlikely that a new PM would risk disrupting Hunt’s 31st October financial statement.

But there’s a catch: to prepare spending plans, a Chancellor needs to evaluate departmental needs, and receive bids from the spending departments which are then scrutinised by the Treasury. This is difficult at the best of times, let alone at a period of major financial pressures like today.  In previous administrations, governments have set up ‘star chambers’, with close involvement by the PM, to weigh up the spending bids and make the difficult political decisions as to which parts of the departmental bids are struck out or amended by the Treasury.  Usually that is quite a long process, months or at least several weeks. At the same time, the political implications of any tax rises which the Chancellor proposes have to be carefully considered, usually by the PM and close advisers.

You can see where this is going: not only is the timetable Jeremy Hunt is having to work to incredibly short, and the financial circumstances especially dire, but also the Conservative Party has just blown up the already weak and fractious government which is supposed to be making those spending decisions.  Ministers are completely distracted and don’t know if they’ll be in office in a week’s time. One key department has already lost its minister, albeit to everyone’s relief in that case.  We currently have a zombie PM and zombie ministers.  The new PM might not want Jeremy Hunt to decide on all the spending priorities, even if he had the information from the departments which he needed.  There is no-one for the Chancellor to negotiate spending plans with.

When the entertainment of the leadership contest comes to a head next week, the real world won’t have gone away. Jeremy Hunt has been doing a fantastic job in the circumstances, but it’s hard to see how October 31st can stabilise the financial position, irrespective of who wins the leadership contest. And it might be very much destabilised, if the new PM is not seen as serious. Fasten your seatbelts.

Richard Nabavi

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