Sacking Reeves would make a bad situation even worse
This government has made plenty of mistakes but ditching Rachel Reeves would be by far the biggest. While my advice to ministers remains “I wouldn’t have started from here” I have to recognise that a misstep now could make a bad situation worse.
As Labour marks its first full year in office the Prime Minister is a diminished figure, unable to pass key pieces of legislation thanks to a parliamentary party that is unwilling to find £5bn of savings in a £310bn welfare bill. This is forecast to rise to more than £370bn by the end of this parliament, which puts the PM’s proposed savings into perspective.
His Chancellor, meanwhile, is in a catastrophic position. After a year in office the scorecard is clear; taxes are up and growth is down, as is business confidence and household disposable income. Even if the welfare bill passed Reeves would still have been forced into raising taxes again in October’s budget.
Now that it hasn’t passed, this doom-loop of higher taxes and weak growth looks set to become the norm. Angela Rayner’s ‘leaked’ memo ahead of the Spending Review that helpfully proposed a range of tax hikes the Chancellor could reach for now looks like a blueprint.
Labour MPs, emboldened by this week’s rebellion, are openly calling for a ‘wealth tax’ while experts are pointing to council tax, a so-called mansion-tax, threshold freezes and a hike to the bank levy as the most likely solutions to the Chancellor’s fiscal headache. But they are not solutions; they would be an admission of failure and they would condemn businesses, savers and investors.
Bond markets fear a post-Reeves world
Given all this, why am I not calling for the Chancellor’s head? Look at the bond markets.
Yields spiked when rumours of the Chancellor’s fate took hold. In other words, the markets take a dim view of a post-Reeves world. The only reason for getting rid of her would be to abandon the fiscal rules she set. She may have put the country on course to break them but at least, for now, she still insists they’re vitally important.
I have no hope that this government will correct its course and relieve businesses of the burdens it’s imposed, and I fully expect – have always expected – that they will add to those burdens come October, but if you think things are bad now just imagine how much worse they’d be if Starmer admitted that his Chancellor – and his economic agenda – has failed.