Rachel Reeves' Repair Job — With Labour MPs
6 min read
Rachel Reeves delivered a Budget that sees her live to fight another day in No 11. It was a repair job, report Sienna Rodgers and Francis Elliott – just not the one many were expecting
When it finally arrived, the Budget somehow felt both late, following months of kite-flying, and early, thanks to the Office for Budget Responsibility (OBR) accidentally releasing all the details before the Chancellor got to her feet.
With many Labour MPs already having criticised the role of the economic forecaster since entering government, while insisting that their newfound scepticism towards it bears no similarity to the attitude of Liz Truss, OBR chair Richard Hughes fast became an easy villain. “Good for the economy, good for poor kids, Richard Hughes needs to go,” is how one Labour backbencher summed up the day.
There were even suggestions that the OBR had intentionally published its analysis early. “This may be paranoia, but I think it was deliberate,” said a different Labour MP. “How could that have been a mistake?” a suspicious spad chimed in.
Hughes, who is “personally mortified” by the incident and promises to ensure it never happens again, has explained that the documents “weren’t published on our webpage itself”, though a link was nonetheless accessible externally. The private Labour reaction no doubt precedes further public calls for reform of the body, as the Good Growth Foundation’s Praful Nargund did in the last edition of The House.
To continue the theme of having “had enough of experts” as Michael Gove once pronounced, a black hole in the public finances of £20bn to £30bn thanks to the OBR’s productivity downgrade, had been predicted, which would have left Reeves with an even bigger gap to plug. As it turns out, Reeves was facing just a £6bn shortfall to return to her spring headroom position.
The explicitly manifesto-breaking move of raising income tax rates was thus not needed. While this was a relief to government, the initial handling strategy of the good news was blown up when it leaked to the FT. Contrary to some reports, one source tells The House that Keir Starmer had been due to make the announcement in a speech the following week.
So, the repair job on the economy was smaller than expected. But the repair job on the Parliamentary Labour Party? Well, that was bigger than ever.
Amid constant leadership speculation and after calls over many months earlier in the year for Reeves to be sacked, No 10 and No 11 tied their fates together to produce a Budget designed to cheer up their very big and largely miserable cohort of Labour MPs.
We may not have done a ‘wealth tax’ per se, but we have enacted multiple wealth taxes, government sources argued before the Budget. Private jets, private schools and non-doms have all been hit, they pointed out. Now comes the turn of £2m property owners.
Government sources pointed The House to the Treasury’s distributional analysis showing that tax increases will be concentrated among the highest income deciles. They also highlighted how Reeves’ speech addressed the interests of various Labour groups – proof that parliamentary engagement has “massively improved”.
A pension boost for former mineworkers in a nod to red wall MPs; better playgrounds for loyal MP Tom Hayes and committee chair Sarah Owen; other changes dedicated to the soft-left Tribune group’s Clive Efford and new intake Scottish MP Scott Arthur; and on it went. Reeves was open about this being a budget for backbenchers.
“I’m very happy with this budget. More than happy!” says one MP cited at the despatch box. “OK, there is fiscal drag, but that is continuity with the Tories. I can live with that.”
And although Kemi Badenoch’s Budget response, which included brutal personal criticism of the Chancellor, won plaudits, it rallied Labour MPs to Reeves’ defence. “The trouble with Kemi is that she just can’t help being that little bit too nasty,” says one of those orchestrating that defence.
Beaming faces from Downing Street entered Strangers’ bar on Wednesday evening, one after another, to celebrate. “This budget was a return to proper Labour,” a spad enthused. “And the Tories didn’t even use the fact they got sight of it early. We would’ve been quickly poring over all the details.”
“Rachel did so well. You can see from who’s here how well it landed,” they added. It was not just the usual secretaries of state and advisers mingling, pint in hand, but also chief of staff Morgan McSweeney. “Best Budget ever,” he told The House.
And yet this classic Labour tax-and-spend Budget can also be seen as another signal that the McSweeney plan for government is not being followed. Back in the summer of 2024, refusing to scrap the two-child benefit cap was a “virility test” for Starmer, according to a Labour official. Missteps and poor parliamentary management mean the policy has since become proof of the PLP’s virility.
During the welfare rebellion, then chief whip Alan Campbell told Reeves and Starmer that MPs might be persuaded to back reforms if they were presented in a balanced package that included the lifting of the two-child benefit cap. The PM and Chancellor refused to consider it.
That the cap has now been lifted – and Personal Independence Payments reforms paused – cements the impression of many that No 10 and No 11 have lost direction and replaced principle with expediency.
“Cat Eccles said we can’t appease the electorate,” says one close observer, “but it appears we can appease the PLP”.
The irony, add some senior ministers, is that the two-child policy, which is supported by the majority of voters, is not opposed by all Labour MPs. Some had wanted the cap to be softened – not lifted entirely. Others, particularly in red wall seats, opposed the scrapping of the cap altogether.
There is a reason the left is claiming it as a win for their flank – and many of those left MPs will now proceed to the next demands on their list: a full-fat wealth tax, for example.
“I didn’t think it was going to be as bad as everyone was expecting, so it was about where I imagined,” is one’s verdict on the Budget. “There’s still no vision behind vague growth. No break with the economic status quo,” says another. “Ultimately, the pair have gone from drowning to treading water in choppy seas.” What was really needed, they add, “was a front crawl heading to dry land”.
Critics believe the overriding aim of this Budget was nothing as lofty as growing the economy, as intended at the general election. Instead, there were twin ambitions: protect the public from the bond markets and live to fight another day in Downing Street.
“You’re not going to write my obituary today,” Reeves told Times Radio the following day.
“This is a solid budget – I can’t see it unravelling,” says a spad, who now estimates that Starmer and Reeves could even survive the May elections.
A senior minister, who previously thought a challenge to the leadership possible after the Budget, agrees the threat has receded – as long as “no horrors emerge in the coming days”.
“Some of us remember cheering Gordon Brown after the 10p tax rate was introduced. You never quite know what is going to blow up.”
