The Chancellor’s political enemies are circling, their numbers growing by the day.
Rachel Reeves has found support from an unlikely source (Image: Getty)
Rachel Reeves is surrounded. Rebellious backbenchers to the left, ordering her to tax and spend even more than she already has. Kemi Badenoch to the right, demanding she resigns right now. Journalists are rampant, accusing her of everything from twisting the truth to lying through her teeth. I have ventured one or two criticisms myself.
Reeves knew power would be tough, but this is off the scale. Voters are angry, taxpayers are angry, businesses are angry, farmers are angry and the Office for Budget Responsibility is so angry it’s just thrown her under a bus.
So who can she turn to for support? Torsten Bell? The potty-mouthed chief treasury secretary who drafted her suicide Budget? I’m sure he makes soothing noises, in between uncontrollable bouts of effing and blinding, but she knows he wants her job.
What about the PM? Reeves and Keir Starmer rose together, Labour’s power couple, and many predict they will fall together too.
Starmer doesn’t fancy that. He views his Chancellor as a human shield, and will cut her loose the moment she’s served her purpose.
Reeves is besieged lonely but she’s not completely alone. Because one mighty force has her back.
It’s called the bond market, and it’s sticking to Reeves like glue. So what’s its game?
Bond investors are a handy ally to have. They’re propping up the Chancellor all on their own, and she’ll fall the moment she loses their support. Just like Liz Truss did.
Basically, bond investors mop up all the gilts the Treasury issues to fund the Chancellor’s spending spree. Currently, that’s around £150billion a year, plus another £150billion of expiring gilts we need to roll over. Which is an awful lot of money.
They want to be sure they’ll get it back. The more worried they get, the more interest they’ll demand from us.
Given that we already pay £110billion of interest on ourdebt each year, paying even more would be a disaster.
You might think that given the chaos Reeves has inflicted on the UK, the bond markets would be forcing her out. But they’re not. Why?
Because they’re terrified of who will replace her. Heaven knows Reeves as her faults, but as I’ve written before, she’s the only one in the Labour Party who accepts the basic concept that the UK has to balance the books.
The rest would spend, spend, spend until taxpayers could bear it no more, and send borrowing costs through the roof.
The left has lost its collectivist mind. From Labour’s mutinous backbench MPs to Jeremy Corbyn’s hilarious Your Party to the Green Party’s ludicrous Zack Polanski, they’ve completely detached from economic reality.
Reeves is clinging onto reality by her fingertips, and the bond market is clinging onto her, for fear of something worse.
Since the Budget, yields on 10-year gilts have actually fallen, despite all the controversy. Why? Bond investors are betting Reeves will survive, just.
They want that, because the alternatives are horrific.
The bond market is the best friend she could have. While it sticks with Reeves, we’re stuck with her.
