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There are dangers in calling for the resignation of a chancellor of the Exchequer because of one week’s bad numbers.
Mel Stride, the shadow chancellor, made something of a fool of himself on Tuesday, suggesting that the question for Rachel Reeves was “to go, or not to go”, because the pound was down and the interest rate on 30-year government debt had gone up.
The next day, the new figure for inflation was lower than expected. Now, the International Monetary Fund has raised its forecast for UK growth this year. Oh, and the 30-year interest rate has gone back down to where it was before the entire social media-verse became experts on the gilts market last week.
The brief hue and cry about long-term interest rates provided a case study in motivated reasoning, with Liz Truss, the least successful prime minister ever, leading the way in misunderstanding the blip. She seemed to think that because long-term rates were as high as they had been after her mini-Budget in 2022, Sir Keir Starmer and Ms Reeves must have failed as badly as she and Kwasi Kwarteng had done.
In reality, there is no comparison. World interest rates are rising gradually: what was different about her unfunded tax cuts was that the markets lost confidence, with immediate and catastrophic results, and there was no end to the meltdown in sight until policy was abruptly reversed.
Sir Keir and Ms Reeves are in a very different position. Yes, they have made an uncertain start, and they have made some suboptimal decisions. But overreacting to week-by-week fluctuations in economic statistics does not help to assess Ms Reeves’s early record as chancellor.
She was quite right to dismiss the speculation about her future in a BBC interview: “I haven’t taken it personally this week. It’s political. Some people don’t want me to succeed. Some people don’t want this government to succeed.”
But she would be the first to accept that she and the government need to raise their game. She said that she was not going to let the people who don’t want her to succeed “stop me from doing what this government has got a mandate to do – and that is to grow the economy, to make working people better off”.
Here is the problem. There is no crisis, but there is a stubborn problem of low growth that is likely to put the public finances under strain in the later years of this parliament.
Some of Ms Reeves’s colleagues seem to be pursuing policies that are inimical to the mandate “to grow the economy and to make working people better off”. Angela Rayner, the deputy prime minister, is promoting an employment rights bill that will further load costs on employers and make it harder to take on new staff – not to mention a frankly bizarre clause that seems to threaten free speech in order to protect employees from hearing words with which they disagree.
Ed Miliband, the energy secretary, risks increasing energy costs and exporting green jobs to China; while Bridget Phillipson’s schools policy seems likely to lower standards in a way that will constrain growth in the more distant future.
All these failures lead back to the hole at the centre of this government’s programme, which is that it has made “growth” its number-one mission without a clear idea of what this means. From where do Sir Keir and Ms Reeves think growth is going to come – other than from the relaxation of planning controls? Will it be export-led? If so, what are the competitive advantages that Britain is most likely to be able to exploit in world markets?
There are several candidates – financial services; creative industries; life sciences – but we do not hear much from the prime minister and the chancellor about how the government will promote them. Instead we hear unrealistic rhetoric about Britain being a world leader in green tech or artificial intelligence.
Ms Reeves is entitled to take some satisfaction from the IMF predicting that the UK will be the fastest-growing large economy in Europe this year, but growth of 1.6 per cent is hardly the stuff of dreams. The chancellor – and her critics – need to pay less attention to the week-by-week fluctuations of the markets, and more to the fundamentals of what a government can do in a modern, open free-market economy to raise the long-term trend level of growth.
