Kwarteng’s affinity with Truss could earn him keys to British vaults

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(Bloomberg) — If political events go Kwasi Kwarteng’s way, he’ll soon be supplementing the little burgundy notepad he carries with an altogether more substantial and brightly-colored item — the famous red box wielded on budget day by the UK Chancellor of the Exchequer.

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Kwarteng, 47, is being tipped by Conservative Party insiders to become Liz Truss’ finance minister if she wins the race to succeed Prime Minister Boris Johnson next month. With inflation at its highest level in four decades and the Bank of England predicting a recession, it’s a daunting prospect for the business secretary, who prides himself on ‘Making Shit Happen’ – the meaning of the letters ‘MSH’ which adorn a whiteboard in his office above a list of factories the government has supported financially.

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According to his allies, his priority as chancellor would be to deal with soaring energy prices and the crisis in the cost of living which dominates political discourse. He and Truss stressed the need for tax cuts rather than aid, but were less forthcoming about helping retirees and low-income earners heat their homes amid winter energy bills set to triple compared to last year.

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Kwarteng’s economic nirvana is low taxes and high competition, growth and wages, a person familiar said. He sees the value of government intervention, but in a targeted way rather than one big state, and favors supply-side reforms to revive the economy. He has also voiced his opposition to a windfall tax on the profits of energy companies – even after the government he still serves introduced one.

Those economic goals align him ideologically with Truss, and the two have a history of working together, co-authoring a 2012 book, « Britannia Unchained, » advocating deregulation and free markets.

“They understand there is an opportunity to do something radical,” said Helen Thomas, a former adviser to former Chancellor of the Exchequer George Osborne and CEO of BlondeMoney, an economics consultancy. She said the « ideological sympathy » between the two portends a « more harmonious relationship » than Johnson’s with his former chancellor, Rishi Sunak.

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miss the target

Adding weight to that notion, a person close to Kwarteng said he believed the Treasury should facilitate, not emasculate the prime minister. He was frustrated with the Sunak Treasury, describing officials as bean counters who said « no » to projects based on cost rather than potential future value.

Still, Kwarteng and Truss may have to compromise on some of their economic principles to help retirees and low-income people cope with soaring energy bills. The Resolution Foundation said on Thursday that Truss’ plan to reverse the National Insurance hike « completely misses the mark », benefiting wealthier households far more than poorer ones. And the Institute for Fiscal Studies has said its plan to reduce green levies on energy bills will only have a « modest » effect. Critics also say that the goal of low taxation would inevitably lead to spending cuts or increased borrowing.

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Like Truss, Kwarteng was born in 1975 and grew up under the government of Margaret Thatcher. Both joined parliament in 2010, and Kwarteng, the son of Ghanaian immigrants, lives a few blocks from Truss in south-east London. He would be the UK’s first black chancellor.

The author of several books on politics and the British Empire, Kwarteng attended Eton College, the same elite school as Johnson. He studied at Cambridge University and Harvard, where he was a Kennedy Scholar. He married in his 40s and had his first child last year.

Like Johnson, he campaigned for Brexit, and the two also share a reputation for not being « details » guys. A person who knows Kwarteng said he got away with it as business secretary – but that would be a worrying trait in a chancellor. An energy official who attended several meetings with Kwarteng said he acted like he knew everything but left the impression he was not fully in control of his case.

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It is a characterization that others suggest as unfair. An official said it is a reflection that Kwarteng prefers to prioritize what is important. A former colleague from his constituency office in Spelthorne – the south-west London parliamentary seat he represents – said his memory was phenomenal, with an ability to remember the names and addresses of people he he had met five years ago.

The notebook he carries is used to jot down interesting information throughout his ministerial duties, and he delves into market fluctuations, constantly checking commodity prices on a Bloomberg terminal in his office.

Kwarteng’s current role puts him in direct contact with businesses, and he regularly plans business visits to areas he hasn’t been to before. This also means that he is responsible for the government’s response to the energy crisis and ensuring security of supply. While electricity and gas networks have so far proven resilient, the UK is forecasting several days of staged blackouts over the winter in a « reasonable worst-case scenario ».

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Those who work with Kwarteng say he is smart and serious about his work, but also good-natured: his belly laugh can be heard from other floors. He also likes that people get to the point quickly and can be abrupt – a trait that even his allies say can come across as rude.

College Challenge

Kwarteng’s self-confidence allows him to make decisions quickly, and compared to previous ministers he does not need as much briefing time, people familiar said. This confidence was evident during the Cambridge admissions process, when her interviewer apologized for being late and said to bear it. Per his own account in a BBC podcast, Kwarteng told him: « Don’t worry, I’m sure you’ll do just fine. »

One of the rare occasions where nerves got to grips was during the University Challenge, a TV quiz show that his team eventually won. To calm down beforehand, he smoked a cigarette.

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« I don’t think he’s ever smoked before, so it was an illogical decision, physiologically, » said Erik Gray, a teammate who now teaches English at Columbia University. « It seems to have worked psychologically: he did very well in the next game. »

As Chancellor he may have to calm his nerves more often: the BOE predicts the UK will enter nearly two years of negative or no growth the month after Truss – if she wins – takes office. It also forecasts inflation above 13%. Meanwhile, markets are betting that early next year the bank will be forced to raise rates above 4%, a level not seen in more than a decade and which is likely to cause difficulties for millions of homeowners on variable rate mortgages.

Truss says she wants a ‘tax event’ in her first weeks in office to deal with the cost of living crisis, but with the warning from utility Electricité de France SA, more than half of households Britain will likely be in fuel poverty by January, details are lacking. She said it will be up to her new Chancellor to announce how they will protect vulnerable Britons from a long winter of economic hardship.

If it turns out to be Kwarteng – who said last weekend that “help is coming” – it’s those details that can make or break it.