Britain’s chancellor Sajid Javid dramatically quit the government on Thursday, with Rishi Sunak promoted to the top finance post in a cabinet reshuffle.
Analysts called it a “blatant power grab,” saying the choice of a more loyal Johnson ally in Sunak paved the way for a “populist” spending boost in next month’s budget.
The pound rose on expectations the new chancellor could turn up the spending taps, with cash for infrastructure and even tax hikes potentially on the cards. Rifts had been reported between Boris Johnson’s aide Dominic Cummings and Javid over loosening the purse strings.
Sterling (GBPUSD=X) was up 0.6% against the dollar on the announcement.
Javid quit his job after being offered an ultimatum, according to media reports. He is said to have been told he could only stay on only if he sacked all his advisers, allowing Cummings to choose their replacements.
The decision comes just a few weeks before the previous chancellor was set to unveil the UK budget on 11 March, setting out the government’s tax and spending plans.
The Treasury is also heavily involved in the government’s preparations for trade talks with Brussels starting next month, which could shape Britain’s economic relationship with the EU for years to come.
Javid was only appointed in July last year, making him one of Britain’s shortest-serving chancellors. Downing Street confirmed Rishi Sunak, Javid’s junior, had been appointed to the role in a significant promotion to one of the top cabinet jobs. The 39-year-old, who backed Leave in 2016, only became a minister in 2018.
“There has been an ongoing rift for a while between Cummings and the chancellor. One of the reasons for the fallout has been reportedly that Javid was much more conservative on fiscal policy,” said Jane Foley, an analyst at Rabobank.
“This is a blatant power grab by Boris and Cummings over the Treasury,” said Neil Wilson, chief market analyst at Markets.com. “Spending will be dictated by political needs and necessity, rather than the Treasury acting as a brake on political giveaways.”
Tom McPhail, head of policy at Hargreaves Lansdown, said the announcement was “definitely not in the script.”
He said it could increase the chance of “populist spending announcements,” as well as the chances of tax hikes to pay for them. He noted the government was reported to have been considering a mansion tax or cuts to pension tax relief for high earners over the weekend.
Carolyn Fairbairn, director-general of the Confederation British Industry (CBI), congratulated Sunak on Twitter and thanked Javid for “backing British enterprise.”
Government relations with business have been strained in recent years over Brexit, with the CBI reportedly out of favour with Downing Street. But Fair said Britain could enjoy a “decade of renewal” if the government and business worked together at “vital time” for the economy.