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Sooner or later, every Prime Minister remembers that his official title is First Master of the Treasury. No matter how harmonious the relationship with the Chancellor is, there is always a moment when the leader concludes that everything cannot be left to the British government's Ministry of Economy. For Sir Keir Starmer, that moment is long overdue.
If there's one trend worth watching in the coming year, it's the first signs of friction between Starmer and his chancellor Rachel Reeves. What's more, this is how it should be. The Prime Minister and the Chancellor have different jobs. The latter exists to manage public finances and the economy. The former is supposed to see the broader picture and intervene when necessary.
To be clear, I am not suggesting an imminent split between Starmer and Reeves, that he has lost confidence in them or that he is wavering on Labour's growth strategy. The two are strongly allied and Reeves remains one of his most trusted and important allies. The fault lies with Starmer. His approach partly reflects his entire leadership style. He believes in delegation, and colleagues say he clearly hates being called upon to separate his ministers.
But “I have a woman who takes care of this for me” is not a viable approach. Despite their confidence in Reeves, those close to Starmer are concerned that he is transferring too much control to the Treasury. A number of senior Labor figures are now lamenting the high political cost of a move to test winter fuel payments for pensioners. They feel this shows that No 10 should be more active in validating the Treasury's ideas, not just approving them. There were arguments for this move. It signaled both markets and Labor MPs were prepared to make tough decisions. But the backlash has eroded support and trust.
Given the central place of economic growth in his political programme, Starmer's Downing Street is notably negative. The Treasury filled the void, as it always does. Part of the problem is that the Prime Minister does not show a great natural appetite for economic policy. He has shaken up his political operation, but apart from Labour's long-standing and wide-ranging policy director, Rafe Athwal, there is no significant economic adviser in Downing Street. Its most important officials, including the new Cabinet Secretary, do not have much experience in the Treasury. No government wants to destabilize the rival camps of Nos. 10 and 11, but the Prime Minister must be able to challenge the decisions. A good Prime Minister is a good advisor.
Successful prime ministers have to bring a little grit to the machine. Even the closest partnerships – the oft-cited David Cameron and George Osborne – require a leader who can step back from Treasury orthodoxy and inject a little political reason into decisions. This will become even more important as the Treasury completes its two-year spending round. Ministers should be able to get a hearing from No 10.
Greater political participation and 10th economic brainpower seem essential. Amid alarming data and unpopular tax rises, Labor is losing control of the growth narrative, Starmer's central stated mission. Although Labour's reforms in planning and pensions are laudable, they offer little benefit in the short term. Reeves stresses that the first year is tough and people have to keep their nerve. “It's only been five months,” says one ally.
However, confidence has been shaken not only by the decision to save fuel in the winter, but also by the significant increase in employers' National Insurance contributions, the job and corporate tax. At the same time, the bulk of new investment goes into public services rather than sectors that might boost growth. All of this is understandable given the legacy, but it doesn't make a strong story to sell to entrepreneurs and investors. Taxes are high. The Brexit realignment sounds like mood music. While Starmer expresses frustration that financial and environmental regulators are stifling growth, he has increased the regulatory burden on employers.
There is no current prospect of a major rethink, but key figures could see the need for further measures in the near term to boost business confidence and convince foreign investors to look again at the UK. Even friends are worried. Sir John Kingman, a City peerage and former Treasury official, was this week appointed Chancellor of the Exchequer Labor Industrial Strategy Councilhe wrote last month “We're going to need a bigger bazooka.”.
Labor does not feel it can cut taxes, and its instincts are not free from regulation. A change of pace and focus will be needed if ministers are to improve the mood and attract foreign investors. Kingman's proposals include more ambitious steps to achieve this Development of the Oxford-Cambridge Arcwith greater commitments to laboratory space, homes and infrastructure. This will be an indication that the country is investing in its strengths.
He promised to “change the tone” in the new year. Starmer, Reeves and others will do more to lift the country up. But it takes more than words to change business sentiment.
It is not about undermining Reeves or breaking with him, but about making more active use of the role of prime minister, cajoling, challenging and demanding more. Starmer is temperamentally suited to keeping his cool but sometimes a touch of impatience is needed. This issue will determine, more than any other issue, the fate of his government and the fate of the country. And sometimes, that means being more willing to be the title holder.
