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Who will Boris Johnson appoint to the two most powerful jobs in the land – after his of course – when he becomes Prime Minister? Whoever Johnson appoints to be the new Chancellor, and the next Governor of the Bank of England, will be critical. These two men or women will set both the direction of travel for the economy and the future of the Brexit negotiations.
What do we know about Johnson – and his legacy at City Hall as Mayor – which might give clues to whom he might choose for these two top positions? As a classical liberal, Johnson is most likely to want to appoint a Chancellor who will be open to supply-side reform.
The front-runner for Conservative leader has already said that he would cut stamp duty to shake-up the housing market, and more recently promised to raise the higher rate of tax from £50,000 to £80,000.
He has also talked about lowering corporation tax, helping to re-balance the economy and correct imbalances with regional tax cuts. His City Hall days – where the emphasis was on housing and transport – have also taught him the benefits of devolution, so expect more backing for devolution by giving Mayors powers to raise taxes locally.
As a champion for small business, expect that Johnson would also want to encourage more enterprise and investment, suggesting more supply-side reforms. Remember that one of Johnson’s biggest supporters – and donors – is Sir Anthony Bamford, boss of JCB, who has been hugely critical of the government’s business strategy. He’s argued that government policy ignores SMEs which create most of the country’s jobs and wealth.
More pertinently, Johnson wants to shake-up the Treasury from its Eyeorish slumber, one that has become more melancholic ever since Philip Hammond has been in charge.
As one Johnson adviser tells me: “When Margaret Thatcher took power in 1979, her first task was to take on the Foreign Office which she believed had been managing Britain’s decline for 40 years. Boris and his advisers say today its the Treasury which is managing Britain’s decline.”
“The Treasury needs shaking up. They have been totally captured by the Remain argument that Britain cannot go it alone. That attitude – from Philip Hammond at the top – has tentacles which reach down to every part of the Treasury.”
“That attitude has got to change. Boris knows that and is determined to put a bomb under Treasury cant’ do thinking. He knows that economic growth is essential and that a liberated UK can be one of the strongest economies in Europe within a few years.”
As another said: “The Treasury team was responsible for one of the most sub-standard bits of economic work in the last few decades with its Project Fear forecasts. Every single forecast has been shown to be wrong. They need reminding of that.”
Who has the muscle to do throw such grenades? I hear there are three names floating in the Johnson camp. Liz Truss, the current secretary to the Treasury, and an MP who has been outspoken on the need for pro-growth policies, and who has been the most articulate on pushing through a massive housing programme. Here are some clues as to her thinking. She recently said: “This is a seismic year in British politics. But I also think it’s a seismic year for British economics …. it’s 40 years since the supply side reform we saw in the 1980s which transformed Britain from being one of the lowest performing countries in the EU to being a successful, competitive nation.”
This year we have a huge choice. We could, on the one hand, embrace Brexit. We can be bold and liberate people to live their best lives.”
Or we could try to defend the status quo that we have in Britain at the moment – and I think that would lead to a socialist government causing untold damage for our economy.”
Bold words. Another runner is Kwasi Kwarteng, who was private sectary to the Chancellor so knows his way around the Treasury, and who is now a junior minister at the Department for Exiting the European Union. But, he’s inexperienced.
Kwarteng is an old Etonian and a Cambridge classicist who, unusually for a politician, has a PhD in economic history. He’s in the radical Thatcher spirit, having written Britannia Unchained: Global Lessons for Growth and Prosperity, with Truss and other Tory MPs, calling for freer markets rather than less.
Chatter that Jacob Rees-Mogg might be up for the job has fizzled out while another name in the frame is Michael Fallon, the former Defence Secretary who resigned over sexual harassment claims. He sounds less of a likely candidate than the other two.
Now over to Threadneedle Street. Who would be the most likely contender to slip into the Old Lady’s chair? This is a tricky role for Johnson to fill as the short-list is being drawn up by headhunters, Sapphire Partners, as we speak. Mark Carney’s successor is due to be chosen by Hammond by the autumn.
All the usual suspects are in the ring: Andrew Bailey, head of the Financial Conduct Authority, Nemat Shafik, Egyptian the former deputy governor and now LSE director, deputy governors, Sir Dave Ramsden (ex-Treasury economic adviser) Ben Broadbent, Sir Jon Cunliffe, and Indian economist, Raghuram Rajan have all been touted.
Scrap them all. Johnson is most likely to tear-up the short list and start again. Not only will he want a BofE outsider but he is bound to want a pro-Brexiteer in the role who will see the benefits of a British departure from the EU, and a loosening of monetary policy.
That means none of the above.
One contender who fits these criteria is Dr Gerard Lyons, the former economics adviser to Johnson while he was Mayor and who has been described as ‘one of the most influential pundits on the global econmy. Lyons is also a Brexieteer, having co-authored the book “Clean Brexit” with journalist Liam Halligan, arguing that there is no such thing as a “hard” Brexit, only Brexit.
What’s more, Lyons claims the EU has held Britain back ever since it joined, comparing our membership to being in prison. “ And this is our opportunity to escape”.
Lyons has deep knowledge of the global financial markets – and specifically Japan’s problems – having been head of research at Standard Chartered Bank and advising the board on strategy. He compares being in the EU to being on the Titanic “because it is huge, some in the UK feel we would be safer and economically stronger in the EU. This is wrong. We now have the opportunity to jump ship to safety. An opportunity we are never likely to have again. Not a leap into the dark, but for those able to look ahead, a move to safety.”
His optimism – and belief in supply-side reform – would chime with Johnson’s sunny outlook. And if Lyons does not make it to the Old Lady? Expect to find him around the table somewhere at No 10.