Like a tandem skydive, Sir Keir Starmer and Rachel Reeves will land safely – or not – together.
After a week of political drama culminating in the Prime Minister guaranteeing his Chancellor her job until the next election, the pair’s political fortunes are now padlocked.
Starmer has relied on her political judgement more than he has any other minister, according to multiple Cabinet sources. That’s fortunate, because her tears in the House of Commons on Wednesday made her virtually unsackable.
Despite the chaos and temporary rise in the cost of gilt yields as she brushed away tears, the bond traders’ response may have inadvertently rescued Reeves. This is not modern chivalry. As a pathologically unemotional bunch, the bond vigilantes didn’t care about a woman crying. Instead, they feared her potential dismissal – replacement with a more fiscally liberal chancellor could cause government borrowing costs to surge.
“I think they are locked in together. I think Keir really values Rachel’s instincts and judgement,” one Cabinet minister told The i Paper, reflecting on the last week. “Like any working relationship I know that there are times when they’ve sought to work through where there could be disagreement in order to find the right approach.”
The pair are also personally close, with Starmer offering Reeves’s young son football tips when he is kicking a ball around the Downing Street garden.
Starmer had a long chat with Reeves on Wednesday afternoon after he had caught up with what had been going on behind him in the Commons chamber. Facing Conservative leader Kemi Badenoch during Prime Minister’s Questions and surrounded by a wall of noise, he had been unaware of the drama taking place beside him. On Thursday, at an event to mark the NHS’s 10-year plan, he gave Reeves a bear hug as she smiled for the cameras.
The tears were an out-of-character blip for a woman whose distinctive laugh can usually be heard ahead of her before she comes round a corner. Reeves has worked incredibly hard to persuade businesses and the gilt markets Labour can be trusted on the economy. And while taxes on employers’ national insurance contributions have eroded goodwill from the former, the latter still see Reeves as the bulwark against Labour’s spendthrift instincts.
Traders appreciate the commitment to strict budgetary principles, especially funding daily government spending through taxes, as it reduces government debt. The market’s response on Wednesday stemmed from Starmer’s failed parliamentary support for his Chancellor and Reeves’s emotional display, at that point unexplained.
The episode confirmed Reeves in post for the rest of the Parliament and, ironically, in a stronger position than before. Reversing the benefit cuts cost the treasury approximately £5bn. Reeves’s autumn tax rises, anticipated by economists for months, are now openly admitted by the Chancellor.
Considering the size of the black hole, Reeves will likely need to increase revenue via income tax, VAT, or national insurance. However, this is problematic because Labour promised during the election not to increase these taxes for working people.
Extending the current income tax threshold freeze, set to expire in 2028, is the most probable course of action. Rising earnings push people into higher tax brackets and a two-year freeze extension to 2030 could generate an additional £9.2bn.
Another option would be to look again at pension tax relief. It costs the government £42.5bn a year in unclaimed revenue, because basic rate taxpayers receive 20 per cent relief on pension contributions while higher rate and additional rate taxpayers can claim 40 per cent, or 45 per cent, respectively.
Higher corporation tax and a fresh round of wealth taxes are understood not to be in favour, because of the existing NICs rise and the exodus of non-doms from the UK.
Reeves’s allies claim that responsibility for the tax increases now falls directly on Labour MPs who opposed the welfare reforms. Even Labour MPs who rebelled are now talking about the Chancellor’s tax options.
“Of course, the easiest thing would be to stick a penny on income tax, but we can’t do that within the bounds of protecting working people so I’d say maybe half a per cent on VAT would be my preferred option,” one rebel told The i Paper.
And Starmer, who Treasury civil servants claim was relatively hands-off during Reeves’s first Budget, is now much more actively involved in economic decision-making. No 10 was keen to help departments identify which key projects to save in the run-up to the slashing of budgets at the spending review last month.
“It was obviously a Treasury lead but with a lot of input from Keir and from No 10, and [it was] a strong and collaborative process in order to get us to the best possible position but obviously align with the political priorities of the Government. It’s important that the Prime Minister does have an input into those priorities,” the Cabinet minister said.
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In most parts of the Labour Party there has been an outpouring of concern after Reeves’s emotional Commons outing. Hundreds of messages of support have flooded in. But some Labour backbenchers have their reservations about the party’s direction, and are still mutinous about how they were treated during the welfare bill preparations.
A question lingers from last week: did the timing of Tuesday night’s thunderstorm, which broke the capital’s heatwave, come too late to impact MPs’ fractiousness? A listed building with no air-conditioning, some Commons offices had reached 32°C by the time of the crunch welfare vote on Tuesday night.
It was probably coincidental. Labour MPs had been warning for months that they had objections to the bill. At the end of the week, many still have concerns about the Government’s direction and how they had been taken for granted.
Starmer must woo his own MPs; he could start by meeting the ones he hasn’t seen yet since winning office. Reeves is going to need to help him.
“I’ve spoken to the King more often than I’ve spoken to Keir Starmer in the last year,” one Labour MP remarked dryly. “If the PM rang me now, I’d have to congratulate him on winning the election.”
For both Starmer and Reeves, bringing Labour colleagues with them is key. Last week was undoubtedly hideous, but the hardest part is still to come.
The Autumn Budget will be an increasingly bumpy affair. Fights on child poverty and farmers’ inheritance tax are speeding towards them like the ground rising up to meet tumbling skydivers.
But whatever comes towards them, Starmer and Reeves are now bound inextricably together.
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