Who would want Keir Starmer’s job? Plenty of people as it happens. But few look at Rachel Reeves with envy. The Chancellor must contend with watchful bond traders, impatient voters and recalcitrant MPs. Governing has rarely been more defined by choosing who to upset.
As the Office for Budget Responsibility downgraded its productivity forecast – after 15 years of excessive optimism – Reeves’s aides reflected that there was no risk of her being viewed as a “lucky general”. The problem Reeves faces is the charge, as the former Bank of England chief economist Andy Haldane puts it, that she has played “a bad hand poorly”.
This Budget was meant to be a moment of candour. Reeves prepared the ground for the first rise in the basic rate of income tax since Denis Healey, her Old Right forebear, in 1975. It was a move that would have ended the fiscal fiction that the UK can have European-style public services with US-style personal tax rates and forced Reeves to make a social democratic case for contribution. But she and Starmer baulked at such an explicit manifesto breach.
That decision not to raise income tax still causes consternation in Labour circles. “The Treasury team made that mess, which all of us now have to clear up,” laments one MP. “The party would have been behind a bold and decisive Budget in the hope of a tailwind for the next election,” argues a senior Labour source. “The risk now is we, instead, get a messy attempt to squeak through.”
As Reeves wonders aloud about what “the popular path” would be, ministers draw unfavourable comparisons with Shabana Mahmood who last week displayed the politics of conviction. Can the Chancellor do more than muddle through?
Her Budget will not be without its bold notes. The two-child benefit cap, reviled by Labour MPs but backed by 59 per cent of voters, will be abolished. Some inside the party view this as a quiet victory for Starmer over Reeves (who was wary of the £3.5bn cost) and No 10’s chief of staff Morgan McSweeney (who was wary of the polling). But the Chancellor’s team recalls an opposition exercise in which she was asked to name her priority for a Labour government on a post-it note: “reduce child poverty”, wrote Reeves.
And while the Chancellor has refused to break one taboo, she is confronting another. A “mansion tax”, vetoed by David Cameron 13 years ago as un-Tory, will be imposed on properties worth more than £2m.
That measure was originally slated to appear in George Osborne’s 2012 “omnishambles” Budget. What few remember is that that was followed by a revival in Osborne’s fortunes and those of the economy (at least until the Brexit referendum intervened). Reeves, already accused of delivering a sequel, can only hope for a yet more improbable recovery.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
[Further reading: Rachel Reeves has a choice]
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