Rachel Reeves' economic credibility is on the line

New Statesman​

a day ago

Photo byIt's Spending Review day, when Rachel Reeves gets to set departmental budgets for much of the rest of the parliament. The Chancellor's balancing act – ensuring public services have the day-to-day funds they need and are able to fulfil Labour's missions, without breaking her tax pledges or her 'ironclad' fiscal rules – is an unenviable one.
George Eaton has already written this week on how Reeves intends to rebut the twin accusations that the government is embarking upon austerity 2.0 and that Labour is losing its grip on the purse strings. Today, Reeves will try to frame her stance – maintaining her fiscal rules while boosting overall spending by £300bn – around a pledge to 'invest in Britain's renewal'. 'In place of chaos, I choose stability. In place of decline, I choose investment,' she will say (with an accompanying promise of £39bn for a new Affordable Homes Programme over the next decade).
It's a dangerous moment for Reeves: while the chatter about the precarity of her position at the start of the year has simmered down, there is real dismay within Labour at some of the Chancellor's choices, and her name is one of those most cited as patience begins to wear thin.
We'll find out later this afternoon if Reeves can pull it off, but rather than speculating on what we might hear in a few hours' time, let's zoom out and examine the wider context. While Spending Reviews are always important, this one comes at a particularly critical time. Less than a year since winning a landslide victory, Labour's popularity has plummeted. Though the Conservatives remain in disarray, Reform has leapfrogged both mainstream parties to top the polls, with Nigel Farage presenting himself a realistic alternative prime minister.
One of the key attack lines against Reform used by both Labour and the Tories has concerned economic credibility. Last month, Farage announced the outlines of Reform's economic programme, which consisted of lots of popular but expensive policies (slashing taxes while restoring the winter fuel allowance and scrapping the two-child benefit cap) with little word on how to pay for them. According to the IFS there is an estimated £80bn black hole in the plans. Cue accusations of 'fantasy economics' – or, as the Liberal Democrats pithily put it, 'Trussonomics on steroids'. The Farage-as-Truss comparison is one Keir Starmer has been hammering at PMQs.
Unfortunately, the public do not seem to be buying it. New polling from More In Common ahead of the Spending Review contains much to terrify Downing Street, but most disturbing is surely the revelation that Reform and Labour are neck-and-neck on who the public trust most on the economy (on 22 per cent each) – with Starmer and Farage virtually tied in a head-to-head (51 per cent to 49 per cent, in Starmer's favour).
Why isn't the Truss attack, which proved so effective at skewering the Tories (resentment over the mini-Budget still comes up on the doorstep), not working against Reform? One reason may be down to what people actually think happened back in October 2022. While there is widespread belief that 'Liz Truss crashed the economy', drill down in focus groups and you'll find people are far hazier on how exactly she managed to do so. 'They associate her with being shit but they don't know why,' as one pollster put it. And her failure is very much associated with the Tories. Farage could promise to do exactly what Truss did (his unfunded tax cuts are definitely comparable) and still skirt the toxicity associated with her.
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There are other worrying insights in the More In Common polling – for Labour, the Tories, and anyone else who values a stable a economy. While 46 per cent of people believe Reform would indeed be a risk to the economy (compared to 29 per cent who don't), almost as many (40 per cent) believe the risk is worth it as 'Reform can't be any worse than other parties when it comes to managing the economy'. This is Farage's argument any time he's called out on his party's dodgy figures (such as in Wales on Monday), pointing to the Conservatives' economic record and Labour's current struggles, with the implicit message 'how much worse could Reform be?'
There is an answer to that, and it's one that gives economists nightmares. But both Labour and the Tories need to find a way to tell it compellingly if they are to win on this key battleground.
Two other nuggets stand out. First, on economic credibility, the Tories are actually going backwards, with a decline in how much people trust them on a range of economic metrics since March. (Reform has increased trust on all metrics, while Labour is a mixed bag.) Most of the polling will have taken place before Mel Stride made his speech disavowing the Truss era. It's an apology which many Tories believe should have come much sooner.
Second, while people want an improvement in public services, there is little appetite for tax rises. The public seem to believe the progress they want can all be funded by that elusive ambition of cutting 'waste' – almost half of Brits (44 per cent) think the government could cut one fifth of government spending without damaging the economy or reducing the quality of public services. This is essentially Reform's argument, with its Musk-inspired DOGE initiative. If it were that easy, previous governments might have tried it.
All of which paints Reeves into a corner, at a time when the government's economic credibility – and its wider political reputation – is at stake. The Chancellor needs to make the case for her fiscal rules to an audience that doesn't really understand why they're necessary. That's what her lines about 'stability' over 'chaos' are all about. And she must find a way to present her prioritisation of capital spending over day-to-day budgets not as austerity, but as investing in the future. It's the kind of challenge that requires not just a rock-solid grasp of the figures but a laser-like comms operation. Good luck, Rachel Reeves.
[See more: Labour is losing Wales]
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