Angela Rayner’s carefully crafted memo to Chancellor Rachel Reeves pushing for a new tax raid on savers shows the Deputy Prime Minister has overreached. But it also marks the return of Cabinet politics and a precursor of leadership battles to come.
The document was submitted to the Treasury in March but wended its way into The Daily Telegraph on Wednesday; it proposed eight tax increases. These included reinstating the pensions lifetime allowance and changing dividend taxes; a fresh raid on the million people who pay the additional rate of income tax; and a higher corporation tax level for banks.
While the Cabinet has had frequent discussions about fiscal direction, no one had yet taken the trouble to write to the Chancellor to tell her where she is going wrong. But equally, no one in the history of government has ever written a memo of this sort without the expectation it could see the light of day.
The memo is not a direct attack on Reeves’s fiscal approach in which spending cuts rather than tax rises are used to fill the black hole in the nation’s finances. None of the tax rises Rayner proposes would break the Chancellor’s fiscal rules. Rather the intervention is a reaction to the sterile debate in the Labour movement about the Government’s direction and the worry that any dissent will see so-called critics cast into the outer darkness.
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Even so, in a small sign that Rayner’s intervention was being walked back, on Wednesday morning her allies were pointing out the memo was sent by officials and not at ministerial level and wasn’t signed off by her. It should also be seen in the context of her department’s ambitious target to build 1.5 million homes by the end of the Parliament, which officials believe can’t be achieved without a boost from the Treasury.
Nervous Cabinet ministers are awaiting next month’s spending review which will set out how much each department has to spend – and crucially where cuts will be made.
Nonetheless the intervention is far from helpful for Reeves. The Chancellor and her Treasury team have spent the last six months trying – and mostly failing – to convince the rump of the Parliamentary Labour Party that the disaster of former Prime Minister Liz Truss’s “mini budget” changed the economic eco-system for the next decade. Never has the word “mini” done so much heavy lifting. No longer can British chancellors even chance a punt that international money markets will cut them some slack on increased borrowing.
Coupled with the continued squeals from businesses after October’s tax hike, and an assurance by Reeves that the country had reached its maximum tolerance for tax rises, where is a beleaguered Chancellor to look next?
Instead, the Rayner prospectus speaks to a wider Labour disquiet that the longed-for Labour administration isn’t the sunlit uplands they expected in opposition. In Westminster, Labour MPs spent Wednesday morning swopping theories on who’d leaked the memo, like a unglamorous version of the Wagatha Christie intrigue.
MPs close to Rayner say she is speaking for a Labour Party increasingly fed up at having to publicly defend Treasury spending cuts and reacting to the kicking voters gave them at the local elections. More senior members of the Government, while mostly sympathetic to their colleagues’ concerns, privately say backbenchers are missing the wider point that the world has changed. They also worry that the call for wealth taxes will only exacerbate capital flight from the UK and allow their political opponents to portray them as adolescent socialists who haven’t moved on from the Jeremy Corbyn years.
Cue Conservative Leader Kemi Badenoch at Prime Minister Questions. “She knew exactly what she was doing when she briefed it into the newspapers,” Badenoch told Sir Keir Starmer of Rayner. “His Cabinet is in open warfare.”
An intervention from a Cabinet minister, even done in semi-public manner, now does allow a wider conversation within the party which until now has been shut down. It also marks the return of proper Cabinet Government, with interventions from big beasts rather than nodding dogs. Some of her suggestions could prove popular. A tax on bank profits would be undoubtedly go down well with both Labour MPs and the public.
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Treasury insiders are mostly zen about Rayner’s note. While Reeves welcomes contributions from all Cabinet colleagues, as Chancellor she very much decides taxation and spending policy. Reeves is safe in post for as long as Starmer is Prime Minister because to sack her would be to embrace an entirely different economic direction.
Of course there are discussions at the top of Government about direction. The appointment of Olaf Henricson-Bell, a former Treasury insider was made the new head of the No 10 policy unit in January was a sign of the premier taking more oversight of the Treasury than had previously been the case.
Starmer and Reeves are not immune to the changes that need to be made. Starmer’s announcement at PMQs that he will U-turn on winter fuel also shows that the Government is prepared to change course in the face of strong internal opposition.
Rayner may have lost this battle, but she may yet win the war on taxes. She may win an even bigger prize: the leadership. Reeves and Rayner also get along well on personal level. Don’t expect the Chancellor to mince any opposition to her becoming the next leader, as Gordon Brown would have done.
“It shows that with her undoubted political charisma there is a sharp brain,” Labour strategist John McTernan, who served in Tony Blair’s Government, told The i Paper. “By extending the debate around taxation but not challenging the fiscal rules she is extending the scope of the debate about Labour’s position on tax and spend.”
Starmer won’t be prime minister for ever. While Rayner is underestimated by many, she enjoys union backing, she has charisma, and her authenticity would be a match for Reform UK’s Nigel Farage.
Like Punxsutawney Phil in the film Groundhog Day, Rayner’s intervention is a politician poking her head out of her hole, sniffing around for signs of spring. She’ll go back in for now, but she won’t be underground forever.
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