Gordon Brown may not be every teenager’s political pin-up. But as an Oxford student, Rachel Reeves proudly kept a framed photo of him in her bedroom. It was Brown who introduced the first multi-year spending review in 1998: the kind of big political set-piece speech which he relished. Reeves’s speech on Wednesday showed the level of constraints facing the Treasury this decade vs the 1990s.
Chess, not poker, is the Chancellor’s chosen game of recreation. As a player and a politician, she prides herself on making decisions guided by skill, care and thought. Yet this week she staked her government’s future on a series of political bets. Her tax rises and changes to Treasury rules gave her some £300 billion to spend across Whitehall – including £113 billion in capital funding. This is proof, her supporters say, that Reeves offers the kind of long-term thinking so absent under the Tories. But her exposure to risk means she is less ‘Iron Chancellor’, more ‘Iron Chancer’.
Her first bet is on the UK’s finances holding strong until October. Her fiscal headroom is just £9.9 billion, a buffer that could prove insufficient against further economic shocks. Domestic growth is sluggish and the global economy is set for its worst decade since the 1960s. Within the Treasury there are predictions of another nervy summer spent watching the bond markets. In the past year, UK ten-year gilt yields are now higher than after the Liz Truss ‘mini-Budget’ which the Chancellor so disdains. The high UK risk premium means yields have risen more than their equivalents in any other G7 country this year, bar Japan. Reeves is waging that the City views her plan as credible both now and when the OBR reports in the autumn.
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