Watch: Labour’s ‘total clusterf**k’
It wasn’t supposed to be like this.
Exactly a year ago the Labour government swept into office promising stability, competence and economic growth. So why, on the one year anniversary of their victory, does it feel like their dying days?
This has been a pretty extraordinary week in British politics and it’s a week that will leave its mark on the UK economy.
Downing Street will hope to move on – that’s how it works – their message calendar has had NHS written on today’s date for months and it’s the NHS they’ll want to talk about – but none of us will forget what happened this week and no amount of government spin will gloss over it.
The sight of the Chancellor, Rachel Reeves, sobbing in the House of Commons while the Prime Minister – just inches away from her – was on his feet defending their policies while pointedly failing to defend her – will endure in our political memory.
I take no pleasure in the obvious distress of Rachel Reeves, whether the cause was ‘personal’ as No 10 insists or related to her job and the wider crisis facing the government. I won’t join in any effort to mock or criticise the fact that she cried – but the strain she’s under and the impossibly contradictory political and economic agendas pulling at her cannot be ignored.
Week from hell
The government’s week from hell began with a humiliating u-turn on their plans for welfare reform.
Now, criticising governments for u-turning or abandoning unpopular policies can be overblown but there’s no exaggerating the absurdity of what happened in the House of Commons on Tuesday night.
Ministers held up their welfare reform plans as vital for the public finances but in fact the savings planned were tiny – a mere £5bn off a welfare bill touching £300bn a year. But it was a signal – to the markets and the rest of us – that they would and could take tough decisions to make their spending plans add up.
When it came down to it, they couldn’t get it over the line. Just 90 minutes before the vote ministers announced they were slicing out the money-saving elements. Rebel Labour MPs had demonstrated that they hold enormous power over the Prime Minister.
It was a humiliation for Starmer up there with all those bruising Brexit defeats inflicted on Theresa May. So much for stability and competence. It was, in the words of one Labour MP, “a total clusterfuck.” And that’s one of the softer reactions.
And of course, it leaves the Chancellor with a £5bn headache – money she will now have to find in spending cuts or tax rises – or borrowing.
A has just been proven, spending cuts are not getting through this crop of Labour MPs and borrowing isn’t an option if the government wants to maintain any fiscal credibility and so – as we at CityAM have been warning since the end of last year – tax rises are coming.
No wonder the Chancellor was apparently overheard in the Commons – moments before she was seen crying – saying “I’m just under so much pressure.”
She is indeed. Because her plan – Starmer’s plan – in as much as they had one – has not worked.
The tax burden is at a record high and the growth rate is barely registering. Employment is down. Job vacancies are down. Business confidence is down.
There’s a reason why I’ve been banging this drum pretty much week in, week out – it’s not just sport.
At the mercy of the bond markets
It all points to what one top asset manager described yesterday as a “hell slide” where the economy doesn’t grow so the government’s spending plans don’t add up so they hike taxes to fill the hole and so the economy suffers yet more pain.
And watching all of this, taking it all in, are the bond markets.
Ten year gilt yields are at the same level now as they were at the height of the Liz Truss crisis. In fact, they’ve climbed steadily since Labour were elected. Now there are a variety of reasons for this and it’s not unique to the UK but our political and economic conditions are contributing to a nervousness among investors – a nervousness that the UK might not be quite as politically stable as it appeared this time last year.
A nervousness that this government will not be able to pass tough spending decisions.
And that nervousness tipped over into panic yesterday – briefly – when it looked as if the government was about to lose its Chancellor.
Now there are plenty of voices calling for a new Chancellor, but I’m not one of them. Indeed I said in an episode two months ago that we had better hope Reeves remains in office because – and this is what spooked markets yesterday – the only reason for getting rid of her would be to scrap or rewrite the fiscal rules on borrowing and spending – the only thing currently keeping bond markets at bay.
Bond traders yesterday feared for a post-Reeves world.
I don’t like what this government – what this Chancellor – has done to our economy but we are stuck with her, at least – perversely – we’d better hope we’re stuck with her because if she goes Starmer will be saying that his economic agenda has failed and, as this week shows, it’s his MPs that are calling the shots and they are calling for tax rises and no further cuts to public spending.
If they win that argument, it won’t just be the bond markets that panic.
So, happy birthday to the government. One year old today.
At the dawn of the last era of Labour rule, in 1997, the party’s anthem was Things Can Only Get Better.
Today, all we can hope for is that they don’t get any worse.