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UK Chancellor's Shock Resignation: Wealth Managers' Reactions

Tom Burroughes

14 February 2020

UK Prime Minister Boris Johnson may have hoped his cabinet reshuffle yesterday would not have been instant front-page news – at least not for the broader public. However, his Chancellor of the Exchequer, aka finance minister, Sajid Javid, has resigned. Javid quit after being in the post for seven months and only about a month before he was due to announce a package of budget proposals to lawmakers in parliament. 

Javid will be replaced by his 39-year-old deputy, Rishi Sunak. Sunak has worked at Goldman Sachs and hedge funds and is seen as a “rising star” in the Conservative Party. (That term can be a curse, however.)

Even by the standards of recent UK political drama, this was a shock. Sterling has risen on the news, driven – so reports say – by the argument that a UK government might favour more public spending, which will if anything push away the chance of lower interest rates. (The logic here is perhaps doubtful: countries that spend heavily without covering this with taxes can suffer currency weakness.)

Ostensibly, Javid walked because of clashes between different sets of personal advisors in Javid’s and Johnson’s office. This is strangely familiar: during Tony Blair’s period of office from 1997-2007, for example, there were all kinds of reported rows involving the PM and Chancellor. However, Gordon Brown, who was finance minister, lasted in that post for a decade. 

There were also rumours that the Treasury pondered taxing high-value homes, dubbed immediately by the media a “mansion tax”, and squeezing private pensions of high-income people. This has prompted fury in parts of the Right-leaning press and also worried some Conservative Party MPs and supporters. Wealth taxes are meant to come from the Left, not the Right. It is unclear whether such a notion comes from Javid or Johnson’s office. Another issue is the role of Johnson’s main advisor, Dominic Cummings. Cummings is a divisive figure; he has taken a chilly attitude to parts of the media, and is reported to be intolerant of any signs of disagreements reaching the limelight. 

Johnson has the advantage for now that he is early into his term of office and the opposition Labour Party is engaged in a leadership fight, with hard-Left followers of Jeremy Corbyn trying to retain power. If the government faced a more mainstream type of opposition, it would arguably not be so fortunate.

Anyway, here are some wealth managers’ reactions to the Javid resignation. 

Nimesh Shah, partner at accounting and tax advisory firm , an investment platform in the UK
The resignation of Sajid Javid today has sent shock waves throughout the financial services industry. He is the first Chancellor in modern history to not deliver a Budget. With only 27 days to go now until the Budget, it is unclear whether it will even go ahead with so little time for Javid’s replacement, Rishi Sunak, to prepare.  

Sajid Javid had alluded to reforms to pension tax relief, the pension’s dashboard, entrepreneurs’ relief, RPI and other policy changes. These are all now in doubt adding more uncertainty for savers and investors. The move appears to be a power play to centralise authority in 10 Downing Street and curtail the famously sharp-elbowed Treasury. Javid was ordered to fire his special advisors, but declined.