
One crucial question: and then what? The calls for the defenestration of Rachel Reeves – it’s all going a bit ducking stool right now – are heard in private from Labour MPs and ministers, and in public, loudly, across the media. Sack her, the argument goes, because her growth strategy has already failed and it’s her fault. Boot her out and pensioners, farmers and millions of other voters will cheer.
Keir Starmer is not a sentimentalist. He has given Reeves his full support, which in politics is usually tantamount to the last rites. But what does Pat McFadden or Wes Streeting or whoever he replaces her with do next? What is the alternative economic strategy they could adopt that would lead to growth coming fast enough to avoid a spring fiscal squeeze?
Make no mistake: the agitation against Reeves – which from some quarters carries a whiff of sexism against the “Iron Chancellor” – is real. It isn’t a Tory or media confection. Anxiety is greatest among the new intake of Labour MPs, who are getting heavy abuse from voters over everything from the grooming scandal to living standards, and feel something must change. After the winter fuel payment row, the prospect of deeper welfare cuts this spring to balance the books feels like a last straw wafting down on to the back of a knackered camel. Reeves’ critics want a U-turn on winter fuel, no more spending cuts, a deal with the farmers and… “a reset”. There is no plot, but some MPs are looking to Angela Rayner to speak for them.
The obvious quick fix is one Starmer will never accept: more tax rises, breaking the election promises, plus more expensive borrowing. Were this to happen, Starmer would be done. More importantly, the economy, already close to stagflation, would be done. Reeves is not well-liked by business, remember, because she did what Labour MPs now want more of. Yes, things are grim right now. Yes, the Budget has misfired. Yes, Reeves no longer looks like a deft politician. But internal party warfare isn’t a smart answer. Better to hunker down, pull every growth lever, and trust the spring brings a better economic mood. In the longer term (when, as Keynes pointed out, “we are all dead”), the Reeves “stability” growth strategy may work.
In the short-term, all this makes the recent flurry of promises about AI – the government launched an “AI Opportunities Action Plan” on 13 January – and a Blairite dash for technology to save us both understandable and essential. Yet technology, still less AI, is not some antiseptic, values-free alternative future divorced from politics. Consider this week’s prime menace to social democracy – the bond markets. Britain is not in a crisis, but it’s not very far away from one either. One error in thinking about this is to put the cost of borrowing in a different mental category from, shall we say, the rage on social media driven by Elon Musk and the grooming gangs. Gilts in one corner; Rotherham in another. But everything connects.
The big buyers of UK debt are the major commercial banks and financial institutions and, yes, they are huge glass towers and algorithms – but they are also people. These intimidating “bond markets” turn out to look like the rest of us, only perhaps better dressed, and with a predator’s squint to their eyes. The market-makers – British and American, but of almost every nationality – get up in the morning, make coffee, scan newspapers, glance at X and Instagram, and then clamber on to a train or into a limo or taxi to go to work. Meanwhile, they are continuously assessing the reputation of the UK government. They read and remember the commentators and tech bros who insist Starmer and Reeves are useless, wicked failures. That mental landscape forms the background to their decisions about which nation’s bonds to buy at what price.
I am not saying the bond customers are credulous, but like all of us they live together in a highly emotional ecosystem, either online or in trading rooms; they WhatsApp one another. Over time, the image of Britain under Labour as a decayed, failed state run by idiots is one they react to – and amplify. And as they price the £250bn Starmer and Reeves need to sell this year, they are pricing reputation. They are making political judgements about credibility. There is no prophylactic barrier between politics and money, and never has been. Britain’s situation today is more urgent than usual because the people in the bond markets, most of whom naturally lean to the right, are whipped up by Musk and his mainstream media allies. Meanwhile, Musk, Zuckerberg and co are also behaving in a logical, political way.
As David Allen Green, late of this parish, argued recently in the Financial Times, the biggest tech companies, and Zuckerberg most recently, are bowing to Donald Trump for normal commercial reasons. They need his heft in seeing off one of the biggest growth challenges: regulation from non-US powers, particularly Europe. Meta has already faced EU fines of nearly €1.5bn. Perhaps only Trump, threatening tariffs and Ukraine, might get Brussels off their backs. For the time being at least, California business technology and “America First” in the White House will stride together, imposing their giant will. So what should Labour do?
It’s a fundamental question that takes us back to the AI revolution. As with steam power or electricity, whatever the disruption, we can’t pause the world and get off. We must grapple with the forces coming at us. With the third-largest AI market and deep roots in the new technology – think Geoffrey Hinton, the “Godfather of AI”; Demis Hassabis, CEO and co-founder of DeepMind; Tabitha Goldstaub, co-founder of CogX – Britain is well placed to be a significant player in this new world. There are 60,000 jobs directly in AI here. At the government’s last investment summit, £24bn was pledged directly to AI-related projects, including from Meta, Apple and Google. OpenAI has opened an office by London’s St James’s Park. So has Musk: his firm xAI listed late last year with Companies House in London and has opened its office close to Piccadilly Circus.
If the Starmer AI strategy is actually implemented (big if) the government could become a respected player rather than the butt of online abuse. Again, what’s the alternative? Britain could still, along with the EU, decide to impose a more restrictive regime on Meta and X. But Starmer can’t turn his back on the revolution. He can’t pretend Donald Trump isn’t happening. I can see this becoming a great fissure in Labour politics. The Prime Minister wants to work with Trump so far as he’s able to, but Musk is making it harder for him. The left wants anti-social media regulations, restrictions and higher taxes. Stuff scary job-killing AI, they say, stuff Trump and stuff Musk. Emotionally, that is very appealing. However, the Blairites say: no, hold your nose, think of economic growth and the next election, and play a longer game. This, not whether or not to cart Rachel Reeves to the village pond, is the real choice ahead.
[See also: Elon Musk shows the perils of populism]
This article appears in the 15 Jan 2025 issue of the New Statesman, The Disruptors