After her jaunt to the O2, Rachel Reeves may be aware that the musical oeuvre of Sabrina Carpenter includes I Still Haven’t Found What I’m Looking For, Bad for Business, Couldn’t Make It Any Harder, Feels Like Loneliness and Rescue Me.
Tunes for the chancellor to hum when she contemplates her approval ratings, which have tanked to the point where her unpopularity is now perilously close to matching the depths plumbed by Kwasi Kwarteng during his brief and calamitous stint at the Treasury. She is almost completely friendless in the media. Rightwing outlets blame the paucity of growth on higher business taxes while voices of the left decry reductions to incapacity benefits as balancing the books on the backs of the poor. The public mood is grim. The Opinium poll that is published today suggests that only half of those who voted Labour in 2024 think this government is handling the economy better than the Conservative one that the country evicted last July. Thinktank world reckons that last week’s spring statement was a can-kicking exercise that leaves the fiscal position fragile and the government at the mercy of events. Planned reductions to welfare payments are generating a sulphurous atmosphere among Labour backbenchers and this will not dissipate anytime soon. Implementing these cuts requires putting them into law. This means that horrified disability charities and other appalled groups will have many weeks to campaign against the legislation while venting their outrage at Labour parliamentarians. “This is not what Labour MPs came into politics to do,” says one of their number who would normally be counted as a loyalist.
Can the chancellor survive so much opprobrium and opposition? Yes she can, so long as she still has a friend at Number 10. The opinion that matters to her most is that held by the prime minister. He may be no economist, but he will be the ultimate decider when, and if, her number is up. In the early 80s, Sir Geoffrey Howe had a much grimmer stretch of his chancellorship than she is enduring now, but he got through to the other side because his strategy had a fully paid-up subscriber in Margaret Thatcher. George Osborne’s humiliatingly awful “omnishambles” budget in 2012 might have done for him had he not been best mates with David Cameron.
The dynamic between the current duo is interesting. Cabinet colleagues generally portray their relationship as “rock solid”. There is certainly no sign of the festering resentments and bitter rivalries that disfigured dealings between Tony Blair and Gordon Brown when those frenemies were the neighbours of Downing Street. On the other hand, the Starmer-Reeves pairing is not as chummy as Cameron-Osborne who were godfathers to each other’s children. It is worth noting that the relative statures of Sir Keir and Ms Reeves have shifted with time and circumstance. In the early phase of this government, it was she who radiated the power. The Treasury looked extremely dominant, while Number 10 was debilitated by the internal struggles between Sue Gray and Morgan McSweeney’s gang. Officials were surprised by how little and late the prime minister’s involvement was in last October’s budget; they were even more startled that Sir Keir seemed content to almost entirely delegate economic policymaking to the chancellor. More recently, his star has been in the ascendant as have his priorities. While the chancellor has been besieged, the prime minister’s efforts to handle Donald Trump and give succour to Ukraine have drawn widespread plaudits. His ratings have had a boost, albeit from a low base.
They have maintained a front of unity for public consumption, but there have been disagreements behind the scenes. She was initially resistant to extra funding for defence. That contrasted with the prime minister who was quick to heed the argument that more had to be spent on the military in response to Trump’s return to the White House. Sir Keir has been very struck by surveys suggesting that global uncertainty is shooting up as a concern among voters. But this is about much more than polling. He regards it as a personal mission of the highest importance to persuade the US president to keep America bound into Nato’s security guarantees. He will be pleased if one of the things said about his prime ministership in years to come is that he played an essential role in ensuring the future of the Atlantic alliance. It was when she appreciated the strength of his feeling that the chancellor pivoted to a more accommodative position on defence spending. She has taken to talking up additional investment and jobs in defence manufacturing as a potential engine of prosperity. Once Labour’s growth ambitions were concentrated around becoming a “clean energy superpower”; now the chancellor wants to be a “defence industrial superpower”. Khaki is the new green.
The Office for Budget Responsibility is increasingly controversial in Labour’s ranks where there is regret that the chancellor championed the legislation elevating the status and clout of the fiscal invigilators. The OBR has cheered the government by judging that planning reforms will result in a permanent improvement to GDP over the longer-term. But the watchdog also made life difficult for the chancellor in the short-term by telling her that she’d bust her rules unless she made additional spending reductions. The complaint is that policymaking has become too subservient to satisfying OBR guesstimates about what growth and debt might be in five years. I have it on exceedingly good authority that the prime minister himself has come to the view that it is unhelpful, to the point of being barmy, that the government has to live in dread of an OBR report card every six months, rather than face an annual verdict at budget time.
It remains hard to detect significant differences between him and the chancellor on the fundamentals. I remarked back in January that their fates were entwined because they were lashed to the same mast and they are tighter bound as the headwinds howl with increased ferocity. Both have made improved growth the centrepiece of strategy, so both will pay a continuing political price unless and until it materialises. Both believe the world has become a darker place since the new year without being able to say explicitly that the principal author of this turbulence lives in the White House. Both share the dread of the damage to the economy and the government’s finances that is threatened by the US president. Though his big reveal on tariffs is supposed to be coming this Wednesday, cabinet members and officials tell me they don’t have any certainty about what might be in store. Even if the UK manages to dodge the worst of the Trumpian tariffs, we will still suffer from the fallout of a global trade war.
Yet prime minister and chancellor remain as one in believing that there is no alternative to doubling down on toughing it out in the hope that it will ultimately galvanise growth and generate respect.
Faced with crunchy decisions they’d rather not have to make, many Labour people, including a significant number of the cabinet, think life could be made a lot easier by relaxing the fiscal rules, which the chancellor declares to be “non-negotiable”. Some of these critics describe it as a terrible mistake to strap Labour into a self-imposed straitjacket. This argument has no traction among her supporters, one of whom retorts: “We all know Labour governments have to work harder to sustain credibility. Borrowing is right at the limit of what the market will tolerate. If the government cannot prove that it can stick to fiscal discipline, it will be shot to pieces.” In this, the chancellor has, so far, had a steadfast ally in her nextdoor neighbour. When Sir Keir encounters ministers who argue for easing the fiscal rules, he has been heard to contemptuously dismiss it as “classic Labour” to seek a reality-swerving refuge from facing difficult challenges.
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The prime minister grew up as the son of a severely disabled mother. Rather than soften his resolve on cuts to incapacity benefits in the name of getting people into work, his background appears to have strengthened the conviction that bearing down on the rising cost of the welfare budget is the right thing to do. He is at least as adamant as his chancellor about this.
It looks like a coin toss on as to whether or not Ms Reeves will be meeting her fiscal rules in time for her autumn budget. In bad case scenarios, she will have to further tighten spending and/or introduce more tax increases. Then she will really need a foul-weather friend at Number 10.
