When Labour swept to power last July, the party wasted no time celebrating its historic victory in the election just gone. Instead, within hours of entering office, it began putting into action its plan for winning the next one.
Morgan McSweeney, Keir Starmer’s strategy guru and now his Chief of Staff, had studied closely the period immediately after the 2010 election, when George Osborne and David Cameron took an axe to public spending, decimated services and made millions of people poorer, and yet were rewarded by voters at the next election. The key to their success? Convincing the public that the pain was necessary to heal the ills left behind by the last Labour government.
Inheriting a struggling economy from deeply unpopular opponents who had lost their way after well over a decade in power, there were obvious parallels for Labour to draw on. And so, even as they were settling into their new ministerial surroundings, Starmer and his top team set their plan in motion. The Government “discovered” a £22bn black hole in the public finances, declared the crisis in prisons to be worse than they had anticipated, and announced that the state of the NHS had also taken them by surprise. Everywhere you looked, ministers were on Whitehall rooftops bellowing about how the Conservatives had wrecked the country in a way that was even worse than anyone had realised.
As I wrote in this column back in July, the success of Starmer’s first term would depend in no small part on whether he and his team were able to convince the public of this. If it worked, the plan would mean that many of the tough decisions to come, along with any failures or perceived lack of progress under Labour, could be pinned on the Tories.
But Labour did not succeed. Polls showed that the public was sceptical about the idea of a £22bn black hole. A series of U-turns and flip-flops had left the electorate distrustful of Starmer and his team. Plus, voters were tired of hearing blame hurled between political parties. They had elected Labour to deliver change, not blame others for its failure to do so.
And so, when the difficult decisions inevitably came, it was Reeves rather than her predecessors who had to shoulder the blame. While any Chancellor would have had a difficult task given the state of the country, Reeves announced a series of particularly unpopular moves.
She ruled out a wealth tax on the richest one per cent while taking winter fuel payments away from Britain’s pensioners and hitting farmers with inheritance tax. Despite having seemingly ruled out hikes in national insurance increase, the Chancellor then announced one for nearly a million businesses. Voters furious at these decisions did not buy Reeves’ argument that she had been forced to make them. The strategy of pinning everything on the Tories had failed.
Since then, things have got much worse. The nascent buds of economic recovery have been frozen. Growth has stalled. Some experts believe the UK has already slipped into recession. The cost of borrowing has soared, leaving the government with almost no money to spend. The Bank of England is no longer expected to slash interest rates this year. Inflation is likely to remain higher than it was forecast to.
To say that Reeves’ first few months as Chancellor have not gone to plan would be putting it mildly. At the very heart of her problems is the fact that she is a Chancellor who promised economic growth and, so far, seems to have no plan for delivering it. Growing the economy is Labour’s number one “mission” – the promise that so many of its other pledges depend on. Yet nobody seems to know how they plan to do it. There has been no sense of urgency, until now; Reeves’ team was complacent about how long they had before voters – and markets – lost confidence in them. For a Chancellor who wanted to be judged on growing the economy, she is currently failing.
Now, seven months into her time in office, Reeves is reportedly planning a speech this month on her plan for delivering growth. She is said to be frantically asking colleagues, business leaders and government regulators alike to come up with proposals to jump-start the economy. Labour MPs are among those asking why on earth this work was not done when the party was in opposition. Why is it only now that the Chancellor is drawing up a plan to deliver what Labour insists is its top priority?
The failure to outline how she will grow the economy is at the root of many of Reeves’ other problems. Had there been a clear plan in place early on, the Chancellor would likely have been afforded more time to get it right. Instead, without any obvious long-term strategy, people are feeling the pain without seeing any gain.
Keir Starmer is doing Rachel Reeves no favours
Read MoreAsked what they are doing to stimulate growth, government officials point to a series of piecemeal announcements on housing, energy and health, but these will take years to be felt. Time is one thing that Reeves no longer has on her side.
Another is money. A surge in the cost of government borrowing has left what is supposed to be a reforming government with almost no cash with which to deliver reform. Reeves insists she will not break her fiscal rules to borrow more, aware that doing so would destroy all her remaining credibility. She has also said she won’t keep hiking taxes, so that revenue-raising option appears to be off the table too. All that remains at her disposal is a series of drastic spending cuts. Reeves may soon be forced into an Osborne-style programme of austerity, having failed at the political blame game that Osborne proved so adept at.
Politically, the position in which Reeves finds herself is potentially recoverable. The first year was always likely to be the most difficult for Labour. The benefits of what it is doing now will take many months to start to be felt. The next election is years away; the government may have plummeted in popularity (largely as a result of Reeves’s decisions), but there is time to turn that around. In time, voters may start to come back.
The markets will be far harder to convince. When investors and business leaders lose confidence that a Chancellor knows what he or she is doing, it is usually the start of an irreversible slide towards the appointment of a new Chancellor.
It was in this context that Reeves jetted off to China last week, defying her critics and insisting that Britain must do more business with the world’s second-biggest economy.
In her predicament, the trip made sense – inward investment will be crucial to getting the economy moving again. But here, too, the results were underwhelming. While in China, Reeves announced £600m worth of agreements spread over the next five years, a miniscule boost to a trade relationship that saw £88bn of goods and services flowing between the two countries last year.
The Chancellor must hope that her plan for growth – when it finally comes – is more successful than her trip to China, and indeed her time in office so far. If it isn’t, it won’t just be Reeves who could find herself out of a job.
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