It is a year since Rachel Reeves first fitted her snow grips to slither around at the World Economic Forum’s annual meet-and-greet in the Swiss Alps town of Davos. Pretty much all the then shadow chancellor needed to do was show up in her sombre navy suit and chat to the VIPs in the Congress meeting hall to get cheers.
At a breakfast sponsored by JP Morgan, the grandest of the US investment banks, she sounded a marked contrast with the Tories’ squandered record for stability. The political markets were all in on Reeves. Preparing the ground in lunches with investors and visits to hedge-funder offices had spelled reassurance.
What a difference a year makes. After a Budget which, to cite Rupert Soames, head of the Confederation of British Industry, “left a hole” in the confidence of enterprise and investors in the Labour Government – a tax-raising Budget which strained relations with small businesses and left a generally deflated feeling – the markets are now having their go. The resignation of Tulip Siddiq, the economic secretary as well as being responsible for addressing financial crime, feels like another luckless moment.
It is true that finance ministers live dangerously these days. Bond traders often do annoying things to governments, and at the moment, reflecting a general worry that wealthier nations will end up having to borrow in the next 20 or so years without the gains of automation and AI offsetting excessive reliance on debt, the free trade outlook is more fraught than it was.
You can argue that the UK is simply caught up in this on the coattails of much wider concerns. And yet, here we are – rather more affected than many other comparable countries. The fuzziest end of this unappealing lollipop is a hike in the cost of government borrowing.
So after a trip to China to signal an essentially open market for Beijing, in allowing a lot of its electric vehicles to be imported without EU-style tariffs, she will appear at the Swiss grandee think-in and shoulder-rub next Tuesday on a reassurance mission. At this year’s Davos she will intend to show that her basic maths of keeping down income tax and VAT, and either hitting spending commitments or being prepared to water some down, will steady things.
The Chancellor is going through a period of horror which only a top football manager after a run of home defeats can truly identify with – the Erik ten Hag effect, if you are (or aren’t) a Manchester United fan. The pattern is the same: the promises of the brand of the manager or politician is established as being the “answer” to previous troubles – in Reeves’s case that she had an economics background and had worked, if not directly in the financial markets, then at the Bank of England and could make sound technocratic decisions.
She sought to present herself as the “woman who knew”, to adapt the saying about the veteran ex-US Federal Reserve chairman Alan Greenspan, who was lionised in finance circles for steering America’s economic course under a succession of presidents and dealing with the financial crisis. But the Budget, as one senior City figure put it to me, “did not really reflect what she’s heard about how much change the UK economy needed to find its place between the US, China and an ailing Europe”. Today, Reevesianism looks more like a succession of things to do than a coherent whole.
She also looks strained – which is not an uncommon affliction for British chancellors going through a rough patch. Watching her mingle at a party over the holidays with a largely friendly Labour and media crowd, a figure who can be amusing and is broadly read and conversable seemed a little flustered by the attention a top job brings and a bit insistent on leaving, which is tricky when people naturally want to rub shoulders with the most powerful woman in Government.
But like it or not, the job is also about projecting confidence and determination, and building a team around her both ministerially and in person who can support her best when the water gets hot.
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Read MoreSiddiq was always an ill-advised choice for a Treasury role – and the wonder is that Reeves allowed a figure so inexperienced in finance to be in charge of tackling financial crime, even before the Bangladesh complexities and her property matters provided the coup de grace.
Whether in China or the Alps, Parliament or the endless City banquets chancellors have to endure, they are part of the shop window of the UK. That also means they need something to sell.
The China mission is a gamble which pits a softer line on the many harms Beijing is causing or amplifying in the world and the UK against triaging Britain to be a partner when Beijing is short of friends in the US and Europe. In fairness to Reeves, a skinny £600m of deals off the back of the visit is really priming the pump for more to come.
The bigger problem, however, is that the recipe for home-based growth looks so threadbare. We’ve seen under-ambitious education policy, the PM speechifying about AI – which felt a bit unconnected to a clearer sense of how the next two years or so would work out – and a vague realisation dawning on Labour MPs and exploited by her opponents that growth will not be achieved by doing a raft of fairly traditional things it wanted to do anyway.
Despite the clumsy handling of a question about whether she will be in post for the whole Parliament, Starmer is likely to stick by his most important ally for the foreseeable future. It is not as if the party has serried ranks of people who can make smart decisions within a very tight spending box of its own making – all while juggling spending decisions which can too easily end up with a Labour Government fighting off the twin accusations that it is imposing its own austerity, and yet not getting the va-va-vroom of economic uplift to end it.
That prospect is a politically terrifying one for Starmer and Reeves, and it explains why they are throwing as many possible solutions at the problem as they can.
The markets may yet oblige the Chancellor, by doing their overactive thing and then calming down. The bigger problem persists – the UK brand and its Chancellor don’t look confident. And that is always punished: in the markets, in the polls and, ultimately, in the economy.
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