Keir Starmer is looking for a new economic adviser. The job description seems to be a good person, but not so good that they will create unstable cracks with the Prime Minister. Big hitters don't have to apply.
The Prime Minister's independent attitude towards economic policy left all his thoughts to the Ministry of Finance, which is a recognized weakness of his 10th government and that government. On Downing Street, it takes more than a new troll to solve the Labor challenge, but few people will doubt that need. Starmer and his Prime Minister Rachel Reeves are facing fiscal estimates. In short, labor can no longer surpass the consequences of its early economic and political choices.
There are many benefits in next week's spending review. Supporters will cheer for a £113 billion capital investment, the first currency to be unveiled on Wednesday and launched with railway, bus and tram projects. (You wait for years to shipment plans outside London and then immediately appear.) Members of Congress welcome the people who look like a hub back to the left-handed agenda. However, capital gains cannot mask the pressure on current spending in most sectors except health and defense.
Labor inherited a mess. But it also traps itself in assumptions and tax commitments. Its economic strategy is based on the belief that changes in government will restore confidence and therefore begins with government investment leaders spending on infrastructure, housing and clean energy. This will ensure that this will ensure the broader ambitions of Labour.
Fears of conservative campaign attacks due to this belief, laborers entered elections with promising strict fiscal rules, and no increase in income tax, state insurance, value-added tax or corporate tax. (Although Reeves has risen sharply with employer NICs and retains the Tory restrictions on freezing income tax thresholds.
Reeves’ rules no longer match the limited political pain the party is ready to bear. She won't abolish her financial rules, nor should she. In addition to concerns about market response, it will undermine the discipline of thrifty MPs. Partisan or stomach that may not have large spending cuts (save money specifically for asylum seekers). Labor is concerned that restrictions will hinder commitments to housing and public services.
Starmer has backed off on cutting pension fuel payments, with members of Congress blaming the disastrous local election results last month. This alone would not be disastrous. Voters like to listen. However, many MPs view it as a green light to resist other welfare cuts, especially for disability benefits and demand that families with more than two children pay the Conservative hat reversal.
The broader issue, however, is that the expenditure review covering much of the rest of the semester will leave many issues unresolved. Local councils can still go bankrupt, and universities warn to close. Social care is still in crisis. The police chief is openly running for additional cash, especially plans to deal with more early prison issuances and community sentences. Even the winners of most measures have been the winner so far, but in this week's strategic defense review, companies dating that beat GDP's spending targets. That itself is NATO's request.
Members of Congress are increasingly lamenting what people call a lack of “moral narrative.” The term “change plan” is to manage public impatientness, but it conveys little faith. One Starmer Ally believes that too many options seem to be driven by the Treasury needs rather than strategies to improve the lives of people whose interests are eager to manage.
With fiscal rules out of reach and the labor force is stiff, Reeves will soon be forced to look elsewhere. A senior insider admits that it is now just a "quantum of revenue". Some experts believe she must beg President Trump for new circumstances and violate the declaration’s tax commitments. But the government needs a really special situation to justify the breach of the obligation to express commitment, no matter how stupid it is.
Therefore, Reeves will look for increased invisibility, such as the freezing of the income tax threshold for at least higher earners. Other ideas proposed include taxes on the gambling industry, reducing pension relief or closing commercial property stamp duty loopholes. A steady decline in gasoline prices since 2022 will justify ending the freezing of fuel taxes.
The central question is not whether Reeves will raise taxes in the fall budget, but how far she feels she can go. Political strategy excludes hitting ordinary voters. So far, she has little interest in tax reform. The business has been hit hard, and the effort to raise more efforts from non-disease seems to be backfire. The key danger for the government still falls between each stool, adding enough taxes to thwart growth, but not enough to meet spending ambitions.
Before her first budget, Reeves assured the business that her huge tax rise was “a”. What seemed optimistic at the time now seems unsustainable. Maybe she and Starmer can use extra advice after all.
robert.shrimsley@ft.com