I wouldn’t like to be in Rachel Reeves’s shoes right now.
All smiles: but Rachel Reeves must keep an eye on Keir Starmer (Image: Getty)
The Labour chancellor is in an impossible position, and she knows it. As her second Budget looms, she’s staring at a £50billion black hole in the public finances, according to the Institute for Fiscal Studies. There are only two ways to fill a gap that big. Either raise more tax or slash spending. Both will trigger fury.
Taxes are already at their highest level since the 1940s. M&S boss Stuart Machin is the latest to warn that piling on still more tax will trigger an “economic doom loop of ever-higher taxes and lower growth”.
He says Reeves should do the opposite and “spend less, borrow less, tax less, regulate less, reduce inflation and enable growth”.
But she can’t. The Labour Party won’t let her.
When she tried to find £5billion of savings from sickness and disability benefits, backbench MPs went berserk. No 10 did a sharp U-turn.
Labour can’t cut spending. It would trigger a revolt. Reeves knows it. PM Keir Starmer knows it too.
To bring the public finances under control, a government has to believe it’s the right thing to do, and be willing to take the political pain. Like Margaret Thatcher did.
But Labour only believes in taxing more and spending more. So that’s what Reeves will do. And it’ll kill what little growth is left.
The public sector already gulps down 45% of national output, the highest share in modern history.
Since 1997, productivity in the public sector has barely shifted, while the private sector has climbed by a third. Taking still more money from productive workers and businesses and handing it to the unproductive state is a recipe for long-term decline.
The only way to raise enough tax is to break a Labour manifesto promise and hike one of the big three: income tax, national insurance or VAT. My bet is on income tax. Pensioners will be targeted too.
But if Reeves does that, she’ll be accused of lying to voters and all hell will break loose. In fact, whatever she does, all hell will break loose.
Deep down, she knows it. Starmer knows it too. And he’s planning accordingly.
Loyalty isn’t one of the PM’s traits. He ditched the Corbynites after using their votes to win the leadership. His September reshuffle, triggered by Angela Rayner’s resignation, confirmed that he can be ruthless when it suits him.
Starmer didn’t try to remove Reeves, despite all the criticism. Right now, she’s just too useful to him.
Not for her economic brilliance, I’m sorry to report. She isn’t even writing this Budget, that job has been delegated to pensions minister Torsten Bell.
It will then be run through Starmer’s new team of economic advisers.
But Reeves will be the one who stands up and delivers it on November 26. And she’ll take the blame when it blows up in our faces.
And that’s Starmer’s secret plan. To use her as a human shield. Let her take the flak then cast aside what’s left.
Rachel Reeves will have been stabbed in the back but can console herself with this thought. She will have served her purpose nicely. For Keir Starmer.
