You may not cry for Reeves, but there is worse to come

Telegraph

3 days ago

Be careful what you wish for. Few chancellors are ever popular, either within their own party or among voters. Theirs is the thankless task of repeatedly having to say no to whatever the latest spending or tax-cutting demand might be.
But in all my years as a financial journalist I can think of none quite so unpopular as the current incumbent, Rachel Reeves.
This feat has moreover been achieved in double-quick time. In just one year, she has managed to alienate just about everyone, from backbench MPs to pensioners, savers and welfare recipients, and from non-doms and millionaires to the tens of thousands of small businesses up and down the land struggling with higher taxes and punishing minimum wage increases.
Few any longer give her much chance of survival amid the litany of broken promises and policy about-turns. Physically, she looks wrecked, with a tear visibly rolling down her cheek during Prime Minister's Questions on Wednesday.
Whatever your politics, it would require a heart of stone not to feel at least a degree of sympathy for this lonely and diminished figure.
Regardless, the optics are terrible, even if, as Downing Street insists, it is a personal matter that afflicts her rather than the pressures of the job.
Politics is a cruel and unforgiving business, and the position of chancellor is where the punishment is most acutely felt.
Yet paradoxically, Reeves is perhaps the best hope the country has got of managing its way through the current quagmire of challenges without descent into devastating fiscal crisis.
Already there are signs of confidence draining away after the latest failure to push through meaningful cuts in welfare spending, with bond yields again lurching noticeably higher.
The barbarians are at her gates, and once toppled there is no telling what madnesses and delusions come next from a Labour Party which, despite its growing roster of missteps and appalling poll ratings, is absolutely secure in its majority and therefore its immediate grip on the levers of power.
It's not quite right to say, as Norman Lamont once said of John Major, that Labour is in office but not in power. There is much ruin that can be visited on a nation by political paralysis.
What's more, once Reeves goes, the floodgates will be open to the hotheads of Labour's rank and file calling for wealth taxes and an even larger state.
Britain is just one step away from another fully blown bond market revolt, and Reeves is perhaps the last line of defence – a fiscal hawk who stands almost alone amid the clamour from her own ranks for ever higher spending and wealth-destroying taxation.
She is the woman with her finger in the dyke in an ever more desperate attempt to hold back the deluge.
This might seem an odd thing to argue given that, politically at least, Reeves only has herself to blame for the precariousness of her position.
From the start, her policy mix has lacked cohesion and any discernable purpose, besides merely attempting to keep the debt markets at bay.
It's not hard to see why Labour loyalists are seething. The case for the prosecution is long and damning. Her early down-payment on fiscal responsibility – abolition of the winter fuel allowance for all but the poorest pensioners – was unnecessary and politically inept, marking her out as a chancellor who is too beholden to the 'Treasury view', and perhaps even entirely captured by it.
She also committed the cardinal sin of talking the economy down by declaring hers to be the worst economic inheritance since the Second World War and warning of a largely made up £22bn 'black hole' in the public finances.
Even as a way of getting her excuses in early, this was disingenuous and counterproductive. She then proceeded to kill off a nascent pick-up in growth with a £40bn tax-raising budget, the proceeds of which were substantially consumed by inflation-busting pay awards to public sector workers.
Despite numerous warnings that tapping non-doms for more taxation would lead to a mass exodus, and therefore risked costing more than it raised, she nevertheless blundered straight into it.
A steep rise in employers' National Insurance contributions was the final straw, bringing one of the few bright spots in the UK economy – a booming jobs market – to a grinding halt.
I could go on.
But despite all this, Reeves should be commended for at least attempting to keep the lid on the public finances when all around she is being urged to open the spigots as wide as can be and to tax until the pips squeak to finance it.
Unlike many of her backbenchers, she instinctively recognises that to tax the wealthy and the high achievers too much is to undermine growth, and therefore to tip already wafer-thin confidence in fiscal sustainability over the edge.
By demanding £5bn of cuts in benefits to make her budgetary numbers add up, Reeves has been widely blamed for the debacle of welfare reform, but at root the fault has nothing to do with her. Rather, it is a Labourite inability to tolerate almost any form of cut to entitlement spending.
No doubt it could have been done better, but in the end there is no way of sugar coating these things. To get the welfare budget under control requires either a reduction in eligibility for working age benefits or a cut in their generosity.
Only then will the Government begin to remove the incentives that cause people to choose welfare dependence over work. No doubt it could have been done better. Many of us thought that the original proposals didn't go nearly far enough.
But the Chancellor is perfectly entitled to demand that the budget be cut, and leave it to the relevant departments to work out how it might be done in a reasonably sensitive, politically acceptable manner.
It's not Reeves's fault that they failed to deliver.
The problem now facing the Government is that markets no longer believe ministers have the stomach for meaningful cuts, making counterproductive tax rises all but inevitable.
Whatever her faults, Rachel Reeves has to her credit made fiscal responsibility her calling card. It may be a facade, but she's essential to the fragile confidence that sustains the Government's ability to borrow in bond markets.
From the US to Germany, France and Japan, we are seeing record levels of debt issuance; it's an ever more competitive market in which the UK's position looks increasingly at risk.
The last thing Britain needs is to be seen as the economy least capable of paying its debts.
They can throw Reeves to the wolves if they want, but it is only likely to hasten the eventual reckoning. Looking at Labour's front-bench, and even further back into the hinterland of ministerial positions, it is depressingly hard to see credible alternatives.