Has Rishi Sunak had to perform an embarrassing climbdown over an energy bailout? That’s the suggestion in the papers this morning as the Treasury considers formal proposals from the Business Secretary Kwasi Kwarteng to assist businesses struggling with the hike in fuel prices. It comes after a brutal briefing over the weekend in which a Treasury source suggested that Kwarteng was speaking out of turn when he suggested he was in conversation with the Chancellor over a financial package – adding that ‘this is not the first time the [business] secretary has made things up in interviews.’
Since then, Downing Street appear to have rowed in behind Kwarteng, with a No. 10 spokesperson suggesting the two departments were working very closely after all. While Treasury insiders are keen to play down talk of a rift – insisting that they were always happy to consider a financial response, but the request just needed to be conducted via official channels. But there is more at play. As Sunak officially considers Kwarteng’s proposals, Johnson is said to side with the Business Secretary on the need for financial assistance for companies at least in the short term.
In contrast, the Treasury is more reluctant to bail out companies – questioning how ‘short term’ the current energy crisis is. If it is to last for months and months – potentially a year or so – stepping in has big implications for the taxpayer. Instead, there is a desire to move away from the emergency spending of the acute period of the pandemic and see whether industry can find a solution of its own.
An example can be found in CF fertilisers, which produces CO2. The government gave the company a three-week bailout on the grounds that it supplies around 60 per cent of the UK’s commercial CO2 requirements, but now the company has agreed a deal with industry to up prices.
The whole episode is – sadly for the Chancellor – a taste of things to come as Sunak faces a difficult autumn. The Chancellor is fending off spending requests from all sides – with secretaries of states appointed in last month’s reshuffle also attempting to redo their predecessor’s bids for the spending review to show that they can bring money into the department. The briefing against Kwarteng over the weekend pointed not just to claims that the Business Secretary has a tendency to ‘freelance’ in interviews but to a wider frustration that there is a lack of discipline in the Cabinet more generally when it comes to fiscal matters. After over a year of emergency spending, there is a tendency among ministers to assume more money is coming. Adding to these pressures are the fact that several ministers don’t agree with Sunak’s approach to spending – which means the Chancellor is wary of more borrowing and very concerned about inflation.
The new Foreign Secretary Liz Truss is one of the only ministers to articulate such a view around the Cabinet table. When ministers discussed the National Insurance hike (which the Institute for Fiscal Studies now says won’t raise enough money for the NHS in the medium term), she suggested the government should borrow and rely on economic growth. Other ministers privately share this view – even if Sunak’s inflation warnings appear to be coming true. It means that as Sunak finds himself fighting fire on more than one front in the coming months, he will find himself increasingly isolated from his colleagues.