UK economy: a Downing Street 'coup'

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Good morning, everybody. It's great to see you all here and congratulations...

So, in a huge battle for power, Dominic Cummings, Prime Minister Boris Johnson's principal and very dominant adviser, has seen off the chancellor of the exchequer and more fundamentally, the Treasury.

Are you responsible for Sajid Javid resigning yesterday? Are you now in charge?

And this really is unprecedented. There have been occasions in which chancellors have left in high dudgeon. And sometimes an adviser's been involved, most famously when Nigel Lawson left because of his objection to Margaret Thatcher's adviser, Alan Walters. But this is more fundamental because the adviser's going to be so powerful.

So what did they want to do? Well, they wanted to take over all the advisers that the chancellor had and replace them with their own. In other words, they wanted to make the Treasury completely part of the Number 10 operation. This is unprecedented.

So this is a coup, of a kind, a really profound transformation, at least for the moment, of British government. So what are they going to use this power for? Well, it's pretty obvious that the big issue here, the big policy issue is that Sajid Javid, the previous chancellor, wanted to preserve traditional Conservative Treasury policy.

He wanted to eliminate or keep to zero the current budget deficit on current spending. He wanted to control debt. He basically wanted to keep taxes down. He wanted prudent, sober policy, rather the way that Philip Hammond used to do it. And clearly this is no longer where we are.

Good afternoon.

Why did you resign?

It's been a huge honour to serve as chancellor of the exchequer. Whilst I was very pleased that the prime minister wanted to reappoint me, I was unable to accept the conditions that he had attached. So I felt I was left with no option.

So we can expect the deficit to widen. We can expect more public spending. We can expect probably some tax increases in support of it. They're talking about some quite radical ideas like a mansion tax, and there are other possibilities.

And what is it all going to be for? Well, obviously the government, this government, wants to vindicate its decision to get a whole new class of voters in former Labour constituencies, to level them up, as it were. And that means, first of all, lots more spending on high-priority public areas like the National Health Service, probably in education too. So this would be a more general end of austerity sort of policy and then much more investment and much more spending directed at the re-creating or creating dynamic economies.

The difficulty with this is it's just very, very hard to do. The forces that have generated the rising regional inequality in the UK are very, very long standing. They reflect the very powerful economies of agglomeration, the way in which skilled and educated people are brought together in our major cities, particularly London and the southeast. And reversing that is very, very difficult from everything we know.

But it is pretty clear that this government is determined to do these things, that we are a new fiscal territory. We're in new power territory as far as the relationship between Number 10 and the chancellor, Number 11, is concerned. And we are in a new effort to reach reform and make more dynamic parts of the British economy which have failed over a long time.

Where does it take us? Well, it's going to be the really interesting thing. Perhaps the most interesting thing is does it take us to a fiscal crisis? I think not. But it's certainly something challenging and new.