One of the regular complaints heard at Labour conference this year, was: “Is this it?” Keir Starmer’s first annual meet since his party came to power, saw little in the way of planned fireworks.
Speeches were largely anodyne, the Cabinet broadly stayed on message and the lack of new things to say meant that the press spent more time talking about the things that Starmer doesn’t like: briefings against Sue Gray, the freebies he accepted and a union-led rebellion from the left on winter fuel.
New Labour MPs have been quick to blame the vacuum on the press team for a lack of a grid packed with announcements. “We need to have more to say,” says one of this year’s intake. But the biggest reason for the lack of news is that the party is in a holding pattern until next month’s budget.
The Chancellor chose not to have an emergency budget on entering government so time could be taken to assess the situation and consult with the OBR (something Liz Truss failed to do in her mini-Budget). But the downside is the event is hanging over the government and limiting what it can do and say in the meantime. “I think it was a mistake not to move sooner,” says a Labour old timer.
Reeves was working on Budget preparation from Liverpool in between her commitments and has ramped up preparations now she’s back in Westminster. While her decision to talk about a £22bn fiscal black hole and then cut the fuel payment for pensioners has so far proved the most talked about move by Labour in its first few months, that is expected to be just the appetiser. The Budget is likely to be the defining moment of Starmer’s first year – and perhaps his government.
The view in both 10 and 11 Downing Street is that the one thing they do have on their side is time – another four or so years along with a large majority which ought to mean stability. So they ought to take the tough decisions now – in the hope that as the election nears they can strike a more positive note.
But that rests on MPs, business and voters wearing what Starmer has called “painful” decisions. It’s why there is a frustration in the party that in advance of the tricky fiscal event so much good will has been frittered away on trivial things. “I don’t think a row about freebies or even Sue Gray is going to be what voters think about at the next election but it eats into morale when we know the next few months will be tough,” says a government adviser.
“It’s really tough,” warns a Reeves ally. The Chancellor is trying to perform a careful balancing act of warning of tricky decisions blamed on the Tory inheritance while also not going so far in her measures as to spook business and investors given that this government’s No 1 mission is meant to be economic growth.
A sense of her approach was evidenced at conference where she warned of tough choices while smiling about positive days ahead. Some thought her glued on smile was a bit much but are seeing the positives.
“It seemed a bit forced but at least it shows she’s getting the message that we need a bit more sunny uplands,” says a party figure. However, the complaints over the Labour business day that followed – with attendees complaining of a lack of access for the £3k charged – show that keeping business on side is harder in government than in opposition. “The business lot were raging after it,” said one lobbyist.
The Budget will force Reeves to show her hand and make tough choices. She is under pressure to scrap the two-child benefit cap having only narrowly avoided a large Commons rebellion earlier this year. This could happen – but if it does, it is likely to be packaged alongside tighter rules for benefit claimants. “This is the type of thing MPs are prepared to go to war about,” says a party insider. However, the Chancellor takes the view that the current benefits bill is unsustainable.
The answer some Labour figures have given in the past to all this is tax the rich. However, Reeves, is aware that going too far could see a flight of wealth from the country. It’s why any changes to capital gains tax require careful calculations so they don’t look like they are punishing entrepreneurs.
The Treasury has warned the current Labour non-dom policy could go too – so there are discussions about watering it down. But if Reeves does this she will then have to find new money elsewhere to pay for pledges such as breakfast clubs that were meant to come from the non-dom raid.
Already ministers are fearing – in the words of one – they may be “screwed over” in the Budget. Reeves and her effective deputy Darren Jones have warned there is no spare money flying around. But there is one ray of light for the departments which are heavy on infrastructure. The Labour government could rejig fiscal rules to allow for greater borrowing for capital spending.
This would likely be the most popular measure within the Labour party. The Unite union – that these days spends most of its time attacking Keir Starmer – has come out to praise such an approach. But it’s also the riskiest with business potentially – with warnings already that going too far in borrowing more could lead to the markets reacting badly.
It means that between a backbench rebellion, wealth flight and markets backlash, Reeves has danger on all sides that she must avoid to keep the new government falling further off track.
