Labour needs Reeves to be an imperial chancellor
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When Labour strategists were drawing up the grid for the first weeks in office, it seems unlikely that a row over a decision to means-test winter fuel payments to pensioners was central to the plan. Few will have anticipated that the settling of outstanding public sector pay disputes could be depicted as a story of higher rewards for train drivers while impoverished pensioners are left afraid to turn on their heating this winter.
Even more alarming to supporters will be that, while the plan is defensible, both Prime Minister Sir Keir Starmer and Rachel Reeves, his chancellor, were surprised by the scale of what seems a fairly predictable backlash against taking money from the elderly.
Nor would a government apparently laser-focused on economic growth and restoring the UK’s reputation as a good home for inward investment want to see the summer dominated by stories about expansive new employment rights and unchecked speculation about increases in capital gains tax (this in addition to the planned moves to tighten the tax regime for non-doms).
A corrective is needed. This government is barely two months old. Much of what consumes Westminster is ephemeral. Rows fade and Reeves’s first Budget next month will set Labour’s true course. Even so, the leadership has tested the tolerance of its own MPs and let a negative narrative erode the already limited public goodwill from its so-called loveless landslide.
What is going on? How has Labour allowed the story of its first months to be quite so faltering? Insiders see a number of challenges. Notably, the election timing left a long gap until the Budget and spending round. This has created a policy vacuum as departmental ministers wait to hear what they can afford to do.
Aside from Reeves’s first foray on the public finances in a July speech to the Commons, the gap has been filled by those ministers who arrived in government with the most advanced, and lowest-cost, plans. The consequence is that the early running has been made by Ed Miliband on energy and net zero, Angela Rayner on employment rights and Louise Haigh at transport, all on the soft-left. Hence the primary impression of empowered unions, increased state intervention and regulation.
At one level ministers are easy about this. They stress that part of their mission is delivering for the working class. Even Wes Streeting, the Blairite health secretary, argues that the last Labour government was “too quick to declare victory in a classless society”.
But those waiting on Reeves feel the delay. Reviews are proliferating and big issues are being pushed into later in the government. The future of social care is again being shunted into the middle distance with another Royal Commission.
The next difficulty springs from the relentlessly downbeat political message of Labour’s first weeks, designed to establish Conservative culpability for the state of public services and finances. Starmer knows it is time to move beyond the gloom and will use his Labour conference speech to offer a more optimistic picture of what Streeting call “the house we are building once we have fixed the foundations”.
He and Reeves clearly hoped any blame for the rationing of pensioner fuel subsidy could be pinned on Tory predecessors; she also wanted to reassure markets about her fiscal rectitude. But critics argue that it was an example of Reeves succumbing early to “Treasury brain” as officials presented her with their “it’s even worse than you think chancellor” message.
One close to the centre worries that “policy is being driven by the Treasury,” not Number 10. This raises two issues. First, Reeves must be more alive to potential political flare-ups even if she then decides to face them down.
The second is that if this is to continue, she must become a more imperial chancellor, closer to the model of Gordon Brown or George Osborne, who stretched their remit widely across domestic policy, than predecessors with a narrow focus on the economy and public finances. This means setting priorities that best match the overall missions. Few question Reeves’s primacy among colleagues or her readiness to play that role. What’s more, she has all the tools she needs for control. The current one-year spending round is expected to be followed by a two-year one in 2025.
But the pensions row will have sown doubts. Those who already feared Starmer was insufficiently political are looking to Reeves to fill the gap. As well as evidence of strategic oversight, MPs will also want to see that it is she who is driving Treasury policy — not the other way round. She needs to show prudent stewardship without succumbing to the departmental orthodoxy which would compromise Labour’s “change” agenda.
Her anticipated change to the debt definition should increase room to borrow for investment. Meanwhile, allies argue she has scope for around £20bn of tax rises.
Her first Budget must not merely be an expression of her discipline on public finances but of the breadth of Labour’s ambitions for this parliament. It must deliver an overarching and ambitious story for the government on growth and public services.
The Budget will be this government’s defining moment. If it lands well, it will mask the early mis-steps and give Labour a song to march to. Both she and the party need to emerge larger from the event. Reeves already has the empire. Now she must show she can don the purple.