Boris Johnson is determined to break all the iron rules of politics

Boris Johnson has broken one of the three iron rules of politics and his defenestration of Sajid Javid shows he thinks he can break the other two as well.

Rule number one is that oppositions don’t win elections; governments lose them by failing to get the economy in fine fettle as election day approaches. Administrations that preside over periods of falling living standards lose seats, as was the case with Jim Callaghan in 1979 and Theresa May in 2017.

Yet the economy was in poor shape when Johnson won his 80-seat majority last December. According to the latest official figures, the UK registered zero growth in the final three months of 2019. There was a fall in per capita GDP due to an increase in population.

From a historical perspective, this was a rotten time to hold an election but Johnson carried the day by presenting himself as someone new, pledging to get Brexit done and exploiting the fact that plenty of voters didn’t fancy a Labour government.

Breaking rule number one appears to have convinced the prime minister he can also ignore rule number two. This stipulates governments get any pain for the electorate out of the way in the first budget after an election. The thinking is that raising taxes and cutting spending early in a parliament improves the state of public finances and allows the government to ease up as the next election approaches.

Governments that are tempted to reward voters with a post-election giveaway budget run the risk that the economy will peak too soon. In the most serious cases, cutting taxes or boosting public spending leads to higher inflation and a mid-term financial crisis that requires the government to stamp on the brakes towards the end of a parliament’s life.

This happened to Harold Wilson’s government after the February 1974 election. It also happened to Margaret Thatcher’s government after the 1987 election. In both cases painful measures were necessary to reduce inflation and the trade deficit: Labour lost the 1979 as a result and the Tories only clung to power in 1992 because they got rid of Thatcher.

Aligning the economic and political cycles, a strategy followed by Gordon Brown after Labour’s 1997 victory and George Osborne after the coalition Conservative-Liberal Democrat government came to power in 2010, does not appeal to the prime minister.

The third rule Johnson intends to challenge is that governments come a cropper when they put politics before economics. Britain’s ill-fated period inside the European exchange rate mechanism is the prime example of this, with the Major government making a political fetish out of staying in it even though it was economically untenable. When the pound was battered to death by speculators on Black Wednesday in September 1992, it was the beginning of the end for Major.

But Johnson’s starting point for next month’s budget is that he needs to begin delivering instantly for the not especially well-off voters in former Labour seats who delivered him his majority. The prime minister’s assumption is that these voters are not natural Tories, are cynical about politics and will be unimpressed if told there will be jam tomorrow but not today.

Javid was prepared to go along with the prime minister’s political project to “level up” the regions, but only up to a point. The former chancellor announced the biggest increase in public spending in more than 15 years last autumn and was planning a fresh stimulus for the economy next month.

As Javid envisaged it, the budget would have three big themes: a boost to infrastructure; an emphasis on skills and training and less stringent rules for public finances, under which the government would be allowed to borrow for investment but not day-to-day spending.

The prime minister, it appears, thought this wasn’t ambitious enough and wanted an even more expansionary package. Javid pushed back, floating the suggestion that any additional spending increases would have to be paid for by higher taxes. That certainly wasn’t part of the Johnson-Cummings blueprint and Javid was forced into a position where he had to go.

The upshot of all this is that the budget will be more expansionary than it otherwise would have been. Getting rid of a chancellor is high risk, and as Paul Dales of Capital Economics notes, there’s not much point in getting rid of Javid and replacing him with Rishi Sunak if you don’t want anything to change.

Dales said he was already expecting the impact of last autumn’s spending round and the forthcoming budget to boost the economy by 1% of GDP, which is about £20bn a year. “But now there is a chance that Sunak either announces some new, less restrictive fiscal rules or tweaks the current rules to allow fiscal policy to be loosened by more than 1.0% of GDP,” he said.

The stimulus provided by the budget, especially if it involves tax cuts as well as infrastructure spending, means higher growth this year. There is a chance the growth rate could hit 2%, perhaps even higher.

To an extent, Johnson is stealing the clothes of those on the left who have been saying for ages that fiscal policy – tax and spending – should be less restrictive and the economy has been too dependent for too long on ultra-low interest rates.

As such, Johnson is conducting a long overdue experiment, which is to see how far you can stretch the elastic of fiscal policy in a low-inflation world without the economy going ping. The answer is probably further than conventional wisdom would have it.

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