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It wasn't supposed to be like this.
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Exactly a year ago, the Labor government
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swept into office, promising stability,
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competence, and economic growth. So why,
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on the one-year anniversary of their
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victory, does it feel like they're dying
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days? Welcome to the Week in Business
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with me, Christian May.
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This has been a pretty extraordinary
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week in British politics, and it's a
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week that will leave its mark on the UK
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economy. Downing Street will hope to
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move on. That's how it works. Their
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message calendar has had NHS written on
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today's date for months, and it's the
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NHS they'll want to talk about. But none
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of us will forget what happened this
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week, and no amount of government spin
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will gloss over it. The sight of the
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Chancellor, Rachel Reeves, sobbing in
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the House of Commons, while the Prime
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Minister, just inches away from her, was
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on his feet defending their policies
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while pointedly failing to defend her,
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will endure in our political memory. I
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take no pleasure in the obvious distress
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of Rachel Reeves, whether the cause was
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personal, as number 10 insists, or
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related to her job and the wider crisis
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facing the government. I won't join in
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any effort to mock or criticize the fact
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that she cried. But the strain she's
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under, and the impossibly contradictory
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political and economic agendas pulling
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at her cannot be ignored. The
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government's week from hell began with a
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humiliating U-turn on their plans for
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welfare reform. Now, criticizing
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governments for U-turning or abandoning
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unpopular policies can be overblown, but
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there's no exaggerating the absurdity of
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what happened in the House of Commons on
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Tuesday night. Ministers held up their
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welfare reform plans as vital for the
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public finances. But in fact, the
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savings planned were tiny, a mere 5
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billion off a welfare budget of about
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300 billion. But it was a signal to the
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markets and the rest of us that they
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would and could take tough decisions to
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make their spending plans add up. When
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it came down to it, they couldn't get it
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over the line. Just 90 minutes before
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the vote, ministers announced they were
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slicing out the money-saving elements.
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Rebel Labor MPs had demonstrated that
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they hold enormous power over this prime
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minister. It was a humiliation for Star
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up there with all those bruising Brexit
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defeats inflicted on Theresa May. So
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much for stability and competence. It
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was, in the words of one Labour MP, a
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total cluster And that's one of
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the softer reactions. And of course, it
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leaves the chancellor with a5 billion
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pound headache. Money she will now have
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to find in spending cuts or tax rises or
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borrowing. Now, as has just been proven,
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spending cuts are not going to get
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through this crop of Labor MPs. And
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borrowing isn't an option if the
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government wants to maintain any fiscal
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credibility. And so, as we at Cityam
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have been warning since the end of last
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year, tax rises are coming. No wonder
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the chancellor was apparently overheard
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in the Commons moments before she was
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seen crying, saying, "I'm just under so
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much pressure." She is indeed because
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her plan, Star's plan, in as much as
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they had one, has not worked. The tax
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burden is at a record high and the
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growth rate is barely registering.
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Employment is down. Job vacancies are
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down. Business confidence is down.
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There's a reason why I've been banging
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this drum pretty much week in week out.
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It's not just sport. It all points to
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what one top asset manager described
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yesterday as a hellslide where the
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economy doesn't grow. So the
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government's spending plans don't add
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up, so they hike taxes to fill the hole.
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And so the economy suffers yet more
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pain. And watching all of this, taking
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it all in, are the bond markets. 10-year
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guilt yields are at the same level now
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as they were at the height of the Liz
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Trust crisis. In fact, they've climbed
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steadily since Labour were elected. Now
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there are a variety of reasons for this
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and it's not unique to the UK. But our
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political and economic conditions are
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contributing to a nervousness among
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investors. A nervousness that the UK
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might not be quite as politically stable
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as it appeared this time last year. A
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nervousness that this government will
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not be able to pass tough spending
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decisions. And that nervousness tipped
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over into panic yesterday briefly when
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it looked as if the government was about
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to lose its chancellor. Now, there are
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plenty of voices calling for a new
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chancellor, but I'm not one of them.
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Indeed, I said in an episode two months
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ago that we had better hope Reeves
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remains in office because, and this is
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what spooked markets yesterday, the only
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reason for getting rid of her would be
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to scrap or rewrite the fiscal rules on
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borrowing and spending. The only thing
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currently keeping bond markets at bay.
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Bond traders yesterday feared for a post
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Reeves world. I don't like what this
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government, what this chancellor has
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done to our economy, but we are stuck
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with her. At least perversely, we'd
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better hope we're stuck with her because
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if she goes, Starmmer will be saying
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that his economic agenda has failed. And
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as this week shows, it's his MPs that
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are calling the shots and they are
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calling for tax rises and no further
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cuts to public spending. If they win
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that argument, it won't just be the bond
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markets that start to panic. So, happy
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birthday to the government, one year old
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today. At the dawn of the last era of a
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Labor period of rule in 1997, the
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party's anthem was things can only get
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better. Today, all we can hope for is
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that they don't get any worse. That's it
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from me this week. Stay up to date and
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in the know with the city app and on
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city.com and I'll see you next week.
