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Keir Starmer is looking for a new Economics Adviser. Job statements seem like a good person, but they don’t seem to be good enough to cause a volatile rift with the Prime Minister. You don’t need to apply for a big hitter.
The prime minister’s isolated approach to economic policies leaves all his thinking in the Treasury, and is the established weakness of his No. 10 and this government. To solve the worker’s challenges, we need more than a new victory on Downing Street, but we rarely question the need. Yu and his prime minister, Rachel Reeves, face financial calculations. Simply put, labour can no longer overtake the consequences of its early economic and political choices.
There are good things to do with next week’s spending review. Supporters support £113 billion in capital investment, the first tranches announced on a massive rail, bus and tram project on Wednesday. (After years of waiting for a transport scheme outside of London, dozens come at a time.) The MP welcomed what looked like a pivot back to the leveling agenda. But capital boosts can’t hide the pressure on current spending in most sectors, beyond health and defense.
Work that inherited the confusion is not determined. But it was also enveloped in assumptions and tax pledges. Its economic strategy was built on the belief that governmental change would restore trust and launch an investment-driven recovery prepared by government spending on infrastructure, housing and clean energy. The growth this ensures will fund the wider ambitions of workers.
Workers, reinforced by this belief, terrified of conservative campaign attacks, took part in elections that promised strict financial rules and promised an increase in income tax, national insurance, VAT or corporate tax. (Reeves pushed the limits of that pledge with a massive rise in employers’ NICs and held the Tory freeze at income tax thresholds.) Alas, higher growth has not yet been realized, President Trump has added economic pressure, and the collapse of popular workers has panicked lawmakers.
Reeves’ rules and pledges no longer coincides with the limited political pain the party is ready to endure. She should not abandon the financial rules, nor should she. Aside from concerns about market responses, it would disrupt discipline among spending MPs. Due to massive spending cuts, the party, or perhaps the country, has no stomach (saving money dedicated to asylum seekers). Workers fear that restrictions will pledge to housing and public services.
Starmer has already cut down on pensioners’ fuel payments. This alone is not miserable. Voters are like being asked. However, many lawmakers see it as a green light to resist other welfare cuts, particularly disability benefits, and demand a reversal of payments to families with two or more children.
But the broader problem is that a review of spending covering much of the rest of the term is not exempt from many issues. Local councils still can go to Bust, and the university warns of closure. Social care is at stake. Police Chiefs are publicly campaigning for additional cash, particularly to address early prison releases and community writing plans. Even defense, the winner of most measures, has so far been rejected a solid date to achieve its 3% GDP spending target in this week’s Strategic Defence Review. That in itself does not meet the requirements of NATO.
Lawmakers increasingly lament what they call the lack of a “moral story.” The term “planning for change” communicates with Minister Pepper to try to manage the public’s impatience, which conveys little conviction. One priority allies argue that too many options appear to be driven by the needs of the Treasury, rather than strategies to improve the lives of those seeking to govern.
The intractable financial rules and the stiffness of workers against cutting will force Reeves to see elsewhere soon. One senior insider admits that we need “amount of revenue” now. Some commentators have argued that she must sues President Trump’s new situation and break her manifesto tax pledge. But the government really needs exceptional circumstances to justify violating an explicit pledge, but stupid.
So Reeves looks for an increase in stealth, such as extending the freeze on income tax standards, at least for high-income people. Other ideas floating around include taxes from the gambling industry, stopping pension tax easing or close stamp duty loopholes for commercial property. A steady decline in gasoline prices since 2022 would justify ending the fuel tax freeze.
The central question is not whether Reeves will raise taxes in her fall budget, but how far she feels she can go. Political strategies prevent ordinary voters from hitting them. So far, she has demonstrated little desire for tax reform. Business is being attacked in large numbers, and efforts to raise more people from non-dons appear to be backfiring. The serious danger for this government remains falling between all flights, raising enough taxes to irritate growth, but not enough to meet spending ambitions.
Ahead of her first budget, Reeves assured the business that her massive tax rise was “ends in one.” What seemed optimistic now seems unsustainable. Maybe she and priorities could have used additional advice after all.
robert.shrimsley@ft.com
