Labour's muddled message
Rachel Reeves is not where she wanted to be. When the Chancellor announced winter fuel payment cuts almost a year ago they were designed to advertise her strength. In order to restore economic stability, ran the narrative, Reeves would venture where previous governments feared to tread (David Cameron repeatedly rejected Tory demands to means-test pensioner benefits).
Wonks applauded her taboo-busting. Paul Johnson, the director of the Institute for Fiscal Studies, whose book, Follow the Money, Reeves is fond of, praised the move as 'sensible'. The aim, No 11 said at the time, was to display discipline not just to the bond market but to voters (who often doubt Labour's economic competence).
Yet now, as Reeves' slow-motion U-turn continues, she is advertising her weakness. A government that has held office for less than a year and that has a majority of 165 seats has proved incapable of making a cut worth just 0.05 per cent of GDP (£1.4bn).
The new assertion from No 10 is that an improving economy – growth of 0.7 per cent in the first quarter – has made such munificence possible. Keir Starmer doesn't quite channel Ronald Reagan by declaring that it is 'morning again in Britain' but the suggestion is that the country is turning a corner – with four interest rate cuts and three trade deals.
The problem is how grim the situation remains. Debt, as Treasury aides continually point out, stands at 95.5 per cent of GDP (0.7 per cent higher than a year ago). Here is why Reeves is imposing real-terms spending cuts on unprotected departments (Angela Rayner and Yvette Cooper, defending housing and the police respectively, have yet to settle with the Chancellor). During a press conference yesterday, Reeves conceded that there were 'good things I've had to say no to'.
But as a consequence, Labour critics complain, the government's message is muddled. After entering office it promised short-term pain for long-term gain. 'Things will get worse before they get better,' warned Starmer. 'If we cannot afford it, we cannot do it,' declared Reeves (an inversion of JM Keynes' 'anything we can actually do, we can afford').
Some, including cabinet ministers, were sceptical of this strategy from the start, fearing that it would fail to resonate with an austerity-weary electorate that craved hope, not despair. But it was at least coherent. It pointed towards several tax-raising Budgets and fiscal restraint before a midterm or pre-election loosening.
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Yet now the government finds itself in a political no-man's land. It can find the money to U-turn on winter fuel payment cuts, to (most likely) abolish the two-child benefit limit and to keep its election tax pledges. But it cannot find the money to prevent renewed departmental cuts and to commit to spending 3 per cent of GDP on defence (even as Starmer speaks of the UK moving to 'war-fighting readiness'). Voters could be forgiven for being confused, and almost certainly are.
Reeves will have to use this autumn's Budget to raise taxes – the only question is by how much. One former aide to Gordon Brown notes the 'madness of spending lots at the start and less at the end of a parliament'.
Some in Labour believe Reeves' defining error will prove to be her refusal to increase income tax, VAT or National Insurance on employees ('that's the original sin as far as I'm concerned,' says one source). This has left the government reliant on small but often fraught revenue raisers (such as higher inheritance tax on farmers).
But there's a bigger challenge for Reeves: what kind of Chancellor does she ultimately want to be? She could have been the 'Iron Chancellor' – refusing to yield on her tough choices (such as winter fuel cuts). Or she could have been the 'anti-austerity Chancellor' – raising taxes to prevent renewed cuts. Or she could have been the 'growth Chancellor' – taking big risks for big rewards.
In practice, Reeves has been all of these at various points without ever settling on an identity. The Chancellor herself defines her approach as 'balanced'. But the risk is that voters simply see it as incoherent.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
[See also: Can John Healey really afford to go to war?]
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