Why it's time for Keir Starmer to sack his Chancellor Rachel Reeves
We all know the old adage “when in a hole, stop digging”, but the first problem with acting on that advice is recognising you are in a hole in the first place. Surely it is time for the Prime Minister to recognise he is indeed in a hole and ask who is doing the most digging?
It would be difficult not to conclude the problem is the decision-making of his Chancellor. If he wants Labour to win a second term, he seriously has to think of how he replaces Rachel Reeves. Let us consider the record since Labour won the general election back in July.
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Hide AdStarmer’s government got off to a very bad start after Reeves announced she was axing the winter fuel allowance for the majority of pensioners by making it means-tested from this winter. This was done despite Starmer having assured the payment was safe in Labour’s hands and attacking the Conservatives as unsupportive of the annual benefit.
Lives at risk
Labour had even commissioned research by the Resolution Foundation in 2017 that estimated 3,850 pensioners’ lives would be at risk from restricting the payment to only those receiving pension credit – the approach that Reeves decided to take. The change is expected to affect ten million pensioners for a saving of £1.4 billion at a time when Reeves had also agreed to public sector pay increases costing at least £9bn – including 22 per cent for junior doctors and 15 per cent for train drivers. The optics were very poor, to say the least. Reeves also signed-off the continuation of net-zero payments to African farmers for an unspent budget line totalling £11.4bn.
Naïvely, Reeves had already set another train wreck in progress by delaying the announcement of her first Budget statement for four months – allowing time for speculation and uncertainty to eat away at investment and tax revenues as deals were delayed or abandoned. As an example of that, we learned last week that stamp duty revenues in England are expected to have fallen by £140 million since March.
Reeves raised the stakes on the doom-mongering and negativity around the economy by justifying her poor decisions as necessary due to her discovery of a £22bn black hole in the public finances. We were told the Office for Budget Responsibility (OBR) would confirm the funding gap existed, requiring benefit spending cuts but when the supportive Budget papers came they failed to confirm the black hole existed.
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Anti-growth Budget
Another policy Reeves has overseen and takes most of the responsibility for is the introduction of VAT on independent school fees from January 2025. Choosing to start the charge in the middle of the academic year in the run-up to exams only maximises the distress if pupils are forced to move schools and parents face greater costs. The change creates significant problems for smaller schools and those specialising in special needs or providing for gifted children such as choir and music schools.
The burden on the state sector having to find places for additional pupils is unknown but research suggests 5,000 pupils will move mid-term this year alone, while HM Treasury expects it to be 35,000 by 2030.
That was all before Reeves’ Budget – which has only maintained the momentum of digging Labour deeper into a hole. Labour came to the election promising economic growth was its top priority. Unfortunately Reeves delivered a Budget that the OBR estimated will reduce growth following increased employment overheads, increased unemployment, rising inflation, and part of the biggest peacetime tax rise being used to pay increased interest rates on greater public debt.
Labour’s 100 rural seats at risk
In the process, Reeves managed to ignite a very public battle with farmers by making the average farm liable for the death tax. Having used unrealistic HMRC figures and not consulted her Environment Secretary – whose department’s numbers suggest a much higher number of farmers being caught by the tax – Reeves then gave incorrect clarification about the transfer of allowances to spouses that had to be corrected by the Treasury. Labour has 100 rural seats, losing those would put its large majority at serious risk.
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Hide AdThe enormity of the Budget changes to business costs will eventually touch everyone. Reeves slashed the earnings threshold for employers’ National Insurance contributions from £9,100 to just £5,000 and increased the rate from 13.8 to 15 per cent while raising the minimum wage by 6.7 per cent and cutting business rates relief from 75 to 40 per cent – this combination has led to announcements from supermarkets and other large employers of likely price increases and reduced wage settlements.
Business start-ups and entrepreneurial investment were also targeted by changes to capital gains tax – again damaging economic growth. By making pensions liable for inheritance tax, Reeves has also planted a pension time bomb that removes the incentive for saving through pensions with the consequence of higher future welfare costs.
Reeves facing ridicule
Pensioners, farmers, small and large business owners and their workers, entrepreneurs, investors, savers, parents – the list of people Reeves has offended just keeps growing.
To top it all, the Chancellor was then found last week to have exaggerated her CV to claim work experience as an economist she did not have, leading to her being ridiculed as “Rachel from Accounts”.
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Hide AdLabour won the general election with only 34 per cent support of those who voted and polling shows Starmer’s personal popularity crashing. A petition calling for a new general election attracted over two million signatures in less than two days, council by-elections are regularly being won by anyone but Labour – and the unpopularity repeatedly leads back to a common factor: Reeves’ decisions.
With the worst of winter still to come and the Budget to fully play out across next year, the hole will get larger and deeper. Surely it’s time for Starmer to climb out of it by taking the shovel away from his Chancellor?
Brian Monteith is a former member of the Scottish and European parliaments
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