The UK? Who would want to be Chancellor now, and what did Boris promise him?

Blain’s Morning Porridge – July 6^h 2022: The UK? Who would want to be Chancellor now, and what did Boris promise him?

“In my view, this falls far short of the standards of transparency we expect. It is a conflict of interest and should have been fully declared.”

This morning: The tragedy of Boris Johnson continues. The question is not why did they leave, but why have others remained in the bunker with him. Just what has Boris promised the new Chancellor, and does what is good for Boris coincide with what is good for the UK?

Last night’s implosion in UK politics was spectacular, but rather than force Boris to quit, its likely just caused him to hunker down even deeper in the Number 10 Bunker. Will we ever prise him out of Downing Street? What does it mean for markets? And what will our new Chancellor, Nadhim Zahawi mean for the UK? (Read on to the second half for my take on Zahawi.)

The outlook for the UK looks grim. Recession is a high probability. A cost-of-living crisis is upon us. Inflation is rampant and into double figures soon. The Bank of England has run out of policy tools and ideas. Workers are increasingly militant in their demands for pay rises. The national debt is 96% of GDP. The nations piggy bank feels empty, but Boris wants to spend his way back into popularity, even as the NHS, Defence and Education are all floundering.

Yada, yada, yada… that the UK looks grim has pretty much been the story of the last 7 years, so let’s not over-react. The sun will still come up tomorrow… Will it come up on Boris? Regrettably.. yes.

Yet, the tortuous politics of dispensing with Boris do matter. Any nation depends on the credibility of its political process to support the stability of its currency and bond markets – they key elements of a modern political economy, or the Virtuous Sovereign Trinity, as I call it. Last night it was almost a buy-the-fact moment when Chancellor Rishi Sunak and Health Minister Sajid Javid resigned. The markets reacted like it was good news – finally the end of the flailing Boris presidency. (Deliberate use of presidency – Boris’ only goal is the preservation of Boris.)

The TV yesterday was fascinating. I watched the lunchtime news and the shots of the Cabinet meeting. Everyone looked miserable. Sunak was not making eye contact. Javid had his head down. Something is up I thought. Sure enough. When the two big dogs said sod it, Johnston spent the rest of the evening making desperate promises to keep others in line – and its unclear exactly what they demanded and got from him.

In his hayday Boris was a popular politician as a rabble rouser, populist and charmer. He got Brexit done, and sure enough it’s the people that were. But, the details of government always seemed to elude him. Scandal and embarrassment from the Get-go. Never has a government so squandered a solid 80 seat parliamentary majority – and while that is embarrassing for us all, its also bad news for the UK.

A period of chaotic deconstruction may now be good for us. The complete shocking collapse of the Boris regime could open the political environment to a reset – where new government comes in, the old guard are swept away, allowing the nation can take stock and reinvent itself – and rebuild our relationship with Europe in particular. Out, but close. Etonians should be banned from politics for at least a generation.

I was deeply suspicious of Rishi Sunak – concerned at how he rose without trace in the party and that he would be in thrall to his multi-billionaire Indian father-in-law, but apparently he was a diligent Chancellor. He fell out with Johnson some time ago. Sunak wanted to put the country’s finances back in order – Boris wants tax-giveaways to boost his flagging popularity. Sunak was seen a potential challenger for the throne – it’s now clear it was Boris’ department of dirty tricks briefing against Sunak’s wife’s non-dom tax status and his personal wealth.

Sajid Javid, former chancellor who quite properly resigned after Boris and henchperson Dominic Cummings demanded he give up his personal advisors in 2019, who was called up to add gravitas as health minister, was a genuine resignation yesterday. Watching his expression at the Cabinet meeting yesterday it was clear he was thinking: enough is enough! Well done him for doing the honourable thing. If I was a Tory – he’d be getting my vote to pull them back together again precisely because he’s not part of the Cameron/Boris/Gove chumocracy of entitled public school gits that have been wrecking the UK since 2010.

Meanwhile, the big question is….. what did Boris have to promise his new Cabinet and the new Chancellor of the Exchequer – the oldest, and most critical, role in UK politics to accept the roll in his terminally damaged government?

To say the UK’s new chancellor Nadhim Zahawi is a fascinating character is a massive understatement. I’d characterise him as an opportunist. He’s apparently already promised to support tax-cuts for Boris, but what will he get in return?

A quick delve into the interweb quickly reveals Zahawi is extremely well connected. Zahawi was born an Iraqi Kurd. His family fled Iraq when he was just 9 years old. He went on to earn a degree in chemical engineering, and is famous for being co-founder of You Gov, the polling firm, before becoming an MP in 2010, and junior minister in 2018. He got the credit for COVID vaccination programme, before becoming education minister.

He has “done good” in the UK through his business interests. He is said to be the second richest MP, after Rishi Sunak. Which will be an enormous relief to everyone struggling to make ends meet as inflation eats away everything.

Zahawi has had some interesting side-gigs alongside being an MP. He was an advisor to failed oil company Afren – which he quit just before the Serious Fraud Squad began investigations into fraud and bribery which saw senior executives jailed. He was head of the All Party Group for Kurdistan, and later Chief Strategy Officer for Gulf Keystone Petroleum – which sponsored the Kurdish parliamentary group.

Keystone was heavily involved in extracting Kurdish oil – and the subject of much speculation about dubious contracts. There was something of a scandal over the amount it was paying itself and not paying to the Kurds. As chief strategy officer Zahawi banked over £1.3 mm from Gulf Keystone, including a £285k “settlement payment” while still an MP. He backed out when he became a UK Minister in 2018. He used the parliamentary loophole of a joint consultancy with his wife to avoid full disclosure of these earnings – which attracted much criticism.

His wife is also a mover and shaker. She owns two superstores through their joint consultancy – they have a £100 mm property empire, apparently. Together they own 5 homes – three in London, one in his seat, and another in Dubai. There were some eyebrows raised when a firm owned by the Brexit supporting minister bought an industrial site next to the Ashford Eurotunnel station days before the EU trade deal in 2020 was announced. Again, much criticism.

After his spell as a junior Education minister, Zahawi then proceeded up the Greasy Poll to become a junior minister in the business department (BEIS).  Sanjeev Gupta, head of the discredited Gupta Steel businesses, thanked Zahawi as being “personally instrumental” in enabling Greensill Capital to secure tax-payer backed Covid business support loans for his crashing empire.

Readers may remember Greensill as the “disruptive tech lender” supported by SoftBank and former Prime Minister David Cameron that went spectacularly bust. UK taxpayers face massive losses on the £335mm Zahawi’s help secure for Gupta. When the matter was investigated it was discovered key texts from dodgy David Cameron to Zahawi asking for government assistance were deleted from Zahawi’s personal phone – although Cameron’s phone contained a text to Zahawi: “Lex Greensill says you are being v helpful over HMT and CBILS programme.”

In view of Zahawi’s external interests, and the questions already raised about transparency of his interests, is he really the kind of fresh start the UK needs? And on that note, I wonder just what Zahawi has been promised by Boris to take the job.

Five Things to Read Today:

FT –                 Nadhim Zahawi: rapod rise of Britain’s new chancellor

BBerg –           Britain’s New Chancellor Zahawi Inherits a UK Economy on the Ropes

WSJ –             Oil prices pulled lower by dimming demand

Torygraph –     Households could survive rates of 5%, says Bank

Thunderer –     Now others must follow and do the right thing

Out of time, off for a swim, then back to the day job!

Bill Blain

Strategist – Shard Capital