Chancellor of the Exchequer Rachel Reeves admitted mistakes had been made during the government’s difficult first year when she addressed a private meeting of the parliamentary Labour Party (PLP) after announcing her spending review. Her audience knew what she meant: her catastrophic decision on the pensioners’ winter fuel allowance.
Reeves was more honest in private than she is in public. Even after their spectacular U-turn, she and Keir Starmer insist last July’s decision was right at the time.
In her defence, the chancellor said Labour had been out of power for 14 years and in office for one – an admission, perhaps, that ministers must learn on the job. She won a good reception at the PLP for her £113bn boost to investment projects and her framing of her review, first made in The Independent, as “Labour’s choices”.
But Reeves’ plea for Labour MPs to “get out and sell” the spending programme in their constituencies landed badly with some in her audience. On Westminster’s summer party circuit, they grumbled about a lack of salesmanship from both Reeves and Keir Starmer.
These critics have a point. Neither the prime minister nor the chancellor is a natural storyteller. They sometimes look like technocratic automatons as they prioritise the “stability” they offered after Conservative chaos over their election-winning pitch of “change”. Although the social democrat Reeves is more ideological than the arch-pragmatist Starmer, many Labour backbenchers complain she has become a prisoner of “Treasury orthodoxy”.
The double act of PM and chancellor works better when they complement each other. Tony Blair was a good communicator and Gordon Brown the brains behind New Labour’s strategy and domestic policy. The relationship between David Cameron and George Osborne was similar, and without the corrosive personal tensions between Blair and Brown.
Crucially, Blair and Cameron had a story to tell. Today, even some Starmer allies admit privately he has yet to articulate a coherent narrative about his and his government’s purpose.
However, ministers and Labour backbenchers sense the spending review marks the overdue start of such a process. They detect an important shift – from a technocratic approach towards Labour’s traditional goal of social justice: the winter fuel U-turn, an extension of free school meals and a £39bn boost for affordable housing.
The biggest symbol of this change of tack will be measures to combat child poverty in the autumn, likely to include lifting the two-child benefit cap. That would be a break with the opinion poll-driven approach of Morgan McSweeney, Starmer’s chief of staff. Although the cap is supported by the public, sometimes politicians have to lead public opinion rather than merely follow it.
Aides insist Starmer’s pragmatism is an asset that gives him the flexibility to try different approaches if Plan A doesn’t work and to correct mistakes. But the absence of an ideological anchor can be a liability. To see off the real threat from Nigel Farage, Labour will need more than attacks on Reform UK; it will require a positive vision based on Labour values to woo centre-left voters.
A crusade against child poverty will unite the Labour Party, while welfare cuts divide it. Soft-left ministers have a spring in their step: “Things are moving in the right direction,” one told me.
Indeed, the spending review was not dictated by “Treasury orthodoxy” and the short-termism which often results in cutting investment projects to balance the books. Reeves addressed at least some of the long-term challenges facing the country.
Labour’s poor results in last month’s local elections in England encouraged the rethink. They proved that caution isn’t working. What is needed now is not old Labour but bold Labour.
That will require more boldness and honesty on taxation. It’s an open secret that, barring an economic miracle, Reeves will have to raise taxes in her autumn Budget. Significantly, she is not ruling it out, reverting to the formula Labour used before last year’s election: there’s nothing here (in the manifesto/spending review) requiring higher taxes. It’s the politicians’ old, disingenuous friend of “no plans” used before Reeves raised taxes by £40bn in her first Budget.
Starmer and Reeves should prepare the ground now by making the case for higher taxes to deliver better public services and the higher defence spending needed in the dangerous new world of Donald Trump and Vladimir Putin. If they don’t, the vacuum will be filled by months of damaging headlines predicting which taxes Reeves will raise – many of which will turn out to be wrong.
If Starmer and Reeves don’t make the case, a right-dominated press will blame the inevitable tax rises on Labour economic mismanagement. There is another story to tell.
Although the public tend to prioritise avoiding tax increases over investing in public services, Labour can win the argument by exposing the fantasy economics of Reform and Tory plans to cut taxes and raise spending. Brown won such an argument when he raised national insurance to fund the NHS in 2002. Reeves’ fiscal rules can provide the “stability” and tax rises the “change.” Labour must deliver both.
Ministers need to start the debate on tax and spending that the country should have had before last year’s election. Now.
