A Government on the Edge of a Precipice

If Rachel Reeves were to sit down and read a copy of Charles Dickens’s celebrated novel David Copperfield, she’d come across that time-honoured piece of advice from Mr Micawber:

“My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Micawber of course never followed his own advice even though it was basic common sense. The papers are awash with excoriating criticisms of a chancellor who seems to be in the process of systematically abandoning any pretence at sorting the public finances.

According to Matthew Lynn in the Telegraph, “It is the most chaotic Budget in recent history.” He goes on:

As an experiment in the psychology of high-pressure decision-making, the 2025 Budget may one day have a certain academic interest.

The process is being played out in public, in real time, with plans changing by the day and sometimes even by the hour.

The trouble is that investors are losing faith in the UK and companies are giving up.

In reality, Rachel Reeves, the Chancellor, has a week left to get a grip on the process – and if she can’t do that, the moment has surely arrived to resign.

The Mail’s Dan Hodges was even harsher, and more personal, commenting that Reeves is looking terrible and hopelessly out of her depth:

Reeves should have the self-awareness – and indeed, self-respect – to accept what her colleagues, her opponents, the country and the financial markets all now know to be true.

She is simply not up to the job of Chancellor. And she should step down before she does any more damage to her personal reputation, her party, and the nation she has been elected to serve.

There have been bad Budgets. There have been disastrous Budgets. There have been Budgets – such as the catastrophic Truss/Kwarteng statement of September 2022 – that have changed the political and economic trajectory of the United Kingdom.

But Rachel Reeves’ 2025 Budget is the first in post-war British history that has managed to cripple the economy before it was even delivered.

As he notes, flying the odd kite is hardly unusual for chancellors. But:

Reeves has launched so many kites she has blocked out the sun. Then reacted to her blunder by manically opening up with a machine-gun in a panic-stricken attempt to shoot them all down again.

There is no longer any benefit for anyone in ignoring the obvious. Whatever political qualities Reeves has, they do not extend to the sound and steady management of the national finances. Since entering office, every decision she has taken – every single one – has had the diametrically opposite effect to the one she intended.

Even the Left press is giving up on Starmer’s Government. The Guardian was inclined to focus on how the markets have been spooked by the sudden U-turn on raising income tax:

The episode has left Starmer’s authority weakened and the prime minister under pressure from MPs not to let the budget worsen Labour’s political position.

Reeves had been indicating for weeks that she was prepared to raise income tax for the first time in decades in order to plug a hole in the public finances and reassure the markets that she is committed to fiscal discipline.

Her choice to raise a smaller amount in taxes instead through a broader range of measures sparked a sell-off in the markets as investors pushed government borrowing costs higher and the pound lower.

Treasury sources have suggested Reeves is now looking for an extra buffer of £15 billion, but that is less than many bond investors had expected, increasing the risk that the budget will be badly received in the markets.

Meanwhile in New Statesman, even Andrew Marr, a practised apologist for the Left and sometime ardent fan of Sir Keir Starmer, was more interested in the dissolution of the Starmerites:

In this week of tumult and mild hysteria, after the Keir Starmer ‘coup’ briefing and then the sudden reversal of the previous Rachel Reeves kite-flying about breaking a manifesto commitment on income tax, the conclusion is clear. Nobody saluted. Indeed, there was a concerted attempt to cut the flagpole down. Not a pitch-perfect triumph.

The original proposal to break election promises and raise income tax was a good one economically. The money was genuinely desperately needed, and the measure meant not having to hit specific groups intolerably hard, as the earlier inheritance tax impost had hit farmers. Better a widespread, everyone-together reckoning than a series of crises. Trouble is, the overall impression of uncertainty and misdirection again spooked the markets. (It caused a sell-off of gilts, though much of this was recovered.) And, ofcourse, it leaves open the big questions about where the missing money will come from. Tax thresholds seem likely to be frozen rather than cut, which is again sensible. But what will happen to drivers, savers, gamblers and people in expensive houses?

The cloud of unknowing, which the bond markets so hate, hangs over the politics of the Starmer Government more generally.

Worryingly, as the pace of disintegration at the top accelerates, Marr reviews the potential candidates for Starmer’s job:

Streeting has the talent for the top job but still needs to forge the full policy prospectus he could sell. Close to Rachel Reeves, he would probably keep her on. So he would have to demonstrate why he was not, in economics, continuity Starmer.

Starmer and Ed Miliband are close, and I suspect will become closer still as the internal conflict worsens. Miliband’s chances of protecting his net zero and clean energy agenda have never been stronger, because Starmer needs him so badly. The Home Secretary, Shabana Mahmood, bringing her radical thinking on the ECHR and the Refugee Convention to the Commons this coming week, is another possible successor eyed with deep suspicion by other ministers.

And, if there is an obvious traditional Labour candidate waiting quietly in the wings, it is John Healey, the Defence Secretary. With strong Yorkshire roots, he would be a ‘safe pair of hands’ reassuring choice for a party facing electoral meltdown.

Meanwhile, the Mail took great pleasure in telling its readers about a family of seven from South Wales who live off £1,935 in benefits each month, topped off with having their rent paid too. They collect roughly the same money as a family with employment income of £37,000 after tax and national insurance, which of course people on benefits don’t have to pay. What’s more, they’re on track for a whopping 50% rise:

Under the expected lifting of the two-child benefit cap, five-child families such as the Whites could be as much as £10,000 a year better off.

The Treasury had drafted plans to ‘taper’ the limit – and reduce the handouts available as the number of children increases. But under pressure from its restive backbenchers, who also sunk plans to curb welfare spending in the summer, Labour is now set to abolish the cap in full at an annual cost of £3.5 billion.

This of course means additional children will be converted from liabilities to assets for benefits claimants. But there is a way to feel good about Britain’s mounting welfare costs, says Sam Ashworth-Hayes in the Telegraph:

It’s going to be you who pays for this. But don’t feel discouraged. Remember, when the alarm clock goes off, and you trudge to work with your baby in childcare: think of the PIP claimants and UC dole bludgers tucked up in their duvets. You’re doing this for them.

Underpinning all these stories is the simple and unpalatable fact that the country is living wildly beyond its means and that political leadership is in crisis with a chancellor sinking into quicksand. Even worse than that, Starmer and his Government have amply demonstrated that not only are they unable to protect the population from the forces of chaos or resist the pressure of their backbenchers but have also become the agents of a whole new tier of chaos created by themselves. Andrew Marr again:

The trouble is, the briefings have made the Prime Minister’s position much rockier, while the budget speculation has damaged both the economy and the Chancellor’s authority. To return to those original metaphors, the kite’s crashed into the flag, the troops have stopped saluting and are punching one another instead, while any attempted flushing-out has left the system blocked, groaning and about to burst. No, on the whole, not the finest week’s work.

Janet Daley in the Telegraph believes Labour won with a pitifully small share of the vote and without any idea what they were going to do in power, contributing to why the British public loath Keir Starmer:

Labour walked into a huge majority on a vague promise of ‘change’ which turned out to amount to nothing more than a change of personnel, not a new set of solutions to the country’s problems. It is clear now that they said so little about their positive plan for the future because they didn’t have one, and the electorate is justifiably furious.

Their supposed shock at the mess they ‘inherited’, which they offer as an explanation for their ineffectualness in office, is scarcely credible since the daunting proportions of that mess were the constant theme of their election campaign. The electorate might be thinking, quite legitimately, that Labour should have had some idea of what steps it would take to solve these problems even if they now claim to have been ignorant of the scale of them.

She focuses acutely on the paradox that some politicians appear to be able to weather storms, even of their own making, and still maintain a loyal following. Her argument then is that, regardless of the maelstrom of catastrophes the Government is crumbling in the face of, the real reason for the mood of utter despair is that no-one knows who Keir Starmer is or what he stands for. “It matters that Sir Keir is an expressionless, monotone mystery of a person.” If so, then the real crime of the Labour Government is the failure to have a leader with the personality and charisma to pull off the job, however bad it gets.

Before Margaret Thatcher became prime minister, she said this:

“It is not a function of the State to grab as much as it can get away with. It is not a function of the State to act as ring-master, to crack the whip, dictate the load which all of us must carry or say how high we may climb. It is not a function of the State to ensure that no-one climbs higher than anyone else. All that is the philosophy of socialism. We reject it utterly for, however well-intended, it leads in one direction only: to the erosion and finally the destruction of the democratic way of life.”

Thatcher had one overwhelming asset: she did what it said on her tin. Even her opponents grudgingly look back to her with some nostalgia.

Once she came into office, she said something which now seems to belong to a long time ago, in another galaxy, far, far away:

“I came to office with one deliberate intent: to change Britain from a dependent to a self-reliant society – from a give-it-to-me, to a do-it-yourself nation. A get-up-and-go, instead of a sit-back-and-wait-for-it Britain.”

Our present Government seems to be dedicated to the exact opposite, and to do so in as painful and chaotic a way as possible.