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.
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.
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.
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.
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.
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.
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.
“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.
“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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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.
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.
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.
But whatever comes towards them, Starmer and Reeves are now bound inextricably together.
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