Reeves has just been duped by the very establishment she champions
Is Rachel Reeves the worst Chancellor in British history? As the country’s borrowing costs surge, the country teeters on the brink of a mortgage crisis and traders bet on a crash in the pound, it is tempting to conclude she is uniquely incompetent. If the public’s suspicion that the Chancellor may be out of her depth was first prickled when she became embroiled in a row over apparently embellishing her CV, then by now many voters are convinced that the robotic façade points not only to a lack of charisma, but a deficiency of intellect.
Perhaps implicit in some of the chatter about the UK’s first female chancellor is the intimation that the PM only gave Reeves the job to tick the diversity and inclusion box. If there was an image that sealed her fate over recent days it was her standing on a Beijing podium adorned with flamingo flowers, in futile pursuit of a China trade deal as the gilt markets went into meltdown. It has inevitably invited comparisons with the Winter of Discontent when Jim Callaghan hobnobbed with Jimmy Carter on the island of Guadeloupe as Britain battled a lorry strike and snowstorms.
The Tories in particular are keen to push the view that Reeves has been stupendously reckless. There is plenty of evidence to support their case.
First there was her mangled bid to push the narrative that her predecessors trashed the economy. In practice this attempt to pull the same trick as the coalition did after the credit crunch served only to spook the markets.
Then there was the public sector pay rise jamboree which left the Government with just £10 billion in fiscal headroom. As plans to radically loosen planning regulation fail to take off, Reeves is being savaged for making promises she can’t keep about growth.
Shivering in the Commons tea rooms, Labour MPs are warming their petrified spirits with gossip over who could be the next chancellor. “Safe pair of hands” Pat McFadden is currently the number one favourite.
But to pin all the blame for Britain’s woes on the Chancellor is to overlook one very important consideration. A conventional reading is that the markets feel they have been “duped” by Reeves. The truth is the opposite: it is the system that has duped her.
What is staggering about this whole saga is that, as far as the Westminster machine is concerned, Reeves has barely put a foot wrong. Consider the reluctance of mandarins to criticise the Chancellor, and contrast it with their antics around the time of the Truss-Kwarteng mini-Budget.
Perhaps one reason the BBC is not running the current gilt yield crisis as a rolling 24/7 story is that Treasury officials have not been particularly eager to brief against the Government. Whereas during the gilt yield surge under Truss, the Bank of England went out of its way to get the jump on No 10, this time it has brushed off the turmoil as mere “orderly” market moves.
Since becoming Chancellor, Reeves has followed the Treasury orthodoxy to the letter. After the failed rebellion of the Trussite heretics, Labour has presided over what amounts to a counter-reformation, vowing to stick closely to Whitehall scriptures on economic management.
Among her first political moves was to increase the influence of the Government’s economic forecaster, the OBR. She also faithfully committed to Bank of England independence.
Her most foolish decisions to date have Whitehall’s fingerprints all over it. The disastrous winter fuel allowance cut is considered a trademark Treasury policy.
It is not just the Chancellor, but her forecasters who seem to have underestimated the impact of a hike in employer national insurance contributions on growth.With the OBR’S models inadequately framed to compute the impact of regulation on growth, Reeves is only now looking for ways to cut red tape after a dressing down from big business.
Worse still, Reeves’s economic strategy hinged on falling interest rates, which Whitehall mandarins assured her were forthcoming when she came to office. At first the Bank seemed to be in lockstep with the Government, incrementally cutting rates. Now, with inflation still sticky, and fears it may overshoot when the latest data are published on Wednesday, it has seemingly got cold feet. And its policy of aggressively selling off £100 billion of bonds is only reinforcing Britain’s high interest rates. While Reeves desperately needs to get the economy going, the Old Lady may wish to slow it down, in order to maintain price stability. We are now in a situation where not only is the system incapable of growth but it essentially does not want it.
Conservatives are keen on the idea that the Whitehall machine has become a tax-raising, growth-crushing monster because it has been infiltrated by Remainer socialists. In reality the system is behaving more akin to uncontrolled AI, working against our interests.
Gordon Brown’s decision to grant independence to the Bank of England in the late-1990s, and George Osborne’s grandstanding launch of the independent OBR forecaster – both intended to establish the incoming governments as more fiscally responsible than the last – have caused more harm than good.
On the one hand, the Bank is dogmatically pursuing low inflation, though it failed fundamentally in this task in wake of the pandemic. On the other, the Treasury and OBR cling to a world-view in which everything that falls out of its core mission of balancing the books, or is not easily measurable and reducible to their models – from entrepreneurship to innovation to growth, all of which thrive in low-tax low-regulation environments – simply does not matter.
While Reeves may find her days are numbered, whoever succeeds her could find themselves in even more difficult terrain.
Perhaps the Chancellor deserves to be thrown to the wolves. But let’s not forget the good shepherds who have been guiding her. As a direct result of playing by their book, Britain is heading for full-blown austerity – and Rachel Reeves is destined to be remembered not for being the country’s first female chancellor but for being the most poorly-suited holder of the post since Anthony Barber.