Rachel Reeves is a shocking chancellor. Today brought the biggest surprise of all.
Better the devil you know? Chancellor Rachel Reeves lives (Image: Getty)
The first shock came when she axed the winter fuel payment for 10 million pensioners right after the 2024 general election. In one move, she wrecked PM Keir Starmer’s honeymoon period. Her two Budgets have since piled on £66billion in tax rises, at the fastest rate anywhere in the world, despite all those promises not to hit “working people”. Since then it’s been one blunder after another. But this morning brought something very different. Reeves must be reeling at the sudden turn of events. I certainly am.
Labour is in turmoil as politicians jostle to remove the PM. Wes Streeting has just issued a scathing resignation letter aimed squarely at Starmer. Angela Rayner has declared herself free of all tax issues and is ready for the fight. Andy Burnham is haunting the halls of Westminster, hoping he’ll be mistaken for an MP and be allowed to stand. Ed Miliband is waving his arms manically. Although there’s nothing unusual about that.
We don’t know who will end up in No 10, but everybody has been operating under one rock solid assumption. If Keir Starmer falls, Rachel Reeves automatically follows. The two were inseparable before the election, and their political fortunes have been tied ever since. Today, that assumption has gone. And that’s tremendous news for Reeves.
In Westminster, Whitehall and the City of London, Reeves is seen as out of her depth. But one corner of the financial world has faith in her. And it turns out to be the most important of all. The bond market.
They believe Reeves is the only figure in Labour capable of stopping Britain’s perilous finances from spiralling out of control. Since becoming chancellor, she’s broadly stuck to her fiscal rules. The aim is to cover day-to-day spending from tax revenues and reduce debt as a share of the economy over five years. Pretty much everybody else in Labour would smash them to pieces to satisfy the hard left.
Remember when Rachel Reeves broke down in tears at PMQs and we thought she was finished? Bond investors went into meltdown and gilt yields soared. Bond investors don’t think she’s much of a chancellor either. Until they look at the gruesome alternatives.
Leadership candidate Andy Burnham terrifies them. They reckon he’ll go on a tax, borrow and spend spree, potentially triggering a run on the pound. When Burnham said Labour must stop being “in hock to the bond market”, he revealed himself to be completely clueless about how government finances work. Gilt yields soared.
The thought of Rayner and Miliband in No 10 also strikes terror into bond investors. Yields on 30-year gilts are already around 5.8%, the highest this century. We can’t afford them to go any higher.
And that’s what’s protecting Reeves. As journalist Dan Hodges tweeted today, MPs now believe leading contenders will have to publicly commit to keeping her as chancellor right at the start of the leadership campaign. It’s the only way to calm bond market nerves and prevent a possible run on the pound.
So whoever wins – Burnham, Streeting, Rayner or Miliband – Reeves looks safe. Probably for the life of this Parliament. What a turnaround.
This completes a magnificent day for the chancellor. This morning, we learned the economy has even grown on her watch. Suddenly, against all the odds, her job looks secure. Reeves will be thrilled at the prospect of another three years in No 11. Express.co.uk readers may take a different view.