Over a week ago, just off The Mall leading to Buckingham Palace, the HQ of the Institute for Government was packed with the great and the good.
The big draw was Rachel Reeves and the launch of her new book, The Women Who Made Modern Economics.
Reeves is the woman making modern economics for Labour right now, and from think tank soirees to City boardroom breakfasts, there’s a palpable buzz whenever she enters a room.
Crammed with politicians, academics and Whitehall officials from past and present, the audience for her book event was a veritable Who’s Who of the last New Labour government.
Former business secretary Peter Mandelson, former cabinet secretary Gus O’Donnell, Gordon Brown’s gatekeeper Sue Nye, Tony Blair era aides Deborah Mattinson and Peter Hyman (both now Keir Starmer advisers) were all present. Even Bernard Donoughue, who ran Harold Wilson’s policy unit in the 70s, was there.
Dame Sharon White, former Treasury second permanent secretary and current boss of John Lewis, summed up the mood when she joked: “It’s like the old gang is back.”
With Sir Keir Starmer now presiding over a consistently large lead in the opinion polls and Labour winning safe Tory seats in by-elections from rural Yorkshire to mid-Bedfordshire, it’s no wonder one guest confided the gathering had “a real 1996 vibe” – when Blair and Brown were on the edge of power.
The big difference between now and then, of course, is that the economy was booming 25 years ago and Tory Chancellor Ken Clarke was set to bequeath to New Labour a rare combination of solid growth, low inflation and healthy public finances.
And in interviews for i’s new podcast series, Labour’s Path To Power, opinions varied widely on whether Reeves was learning the right lessons from 1996/97, or the wrong ones.
On public spending, both Ed Balls and Clarke – who sparred with each other before and after Blair’s landslide election – say she was right to avoid any unfunded commitments ahead of an election.
Clarke is adamant that Labour didn’t win the election on the economy, pointing out the Tories were still ahead on economic competence in the polls. But what New Labour did brilliantly was to shift the campaign into a broader “time for a change” theme, particularly on the NHS and schools.
“They very cleverly stopped the economy being an issue in the election by simply saying they wouldn’t change my policies… Gordon saying he would stick to my figures, tax and spending, which he promised to do for two years.”
Balls insists that while it was right to change Labour’s image as the tax-and-spend party (an image rammed home to devastating effect by the Tories’ scary “tax bombshell” TV ads in 1992), the more important aim was to show Labour ministers would assess every penny currently spent.
“It’s important to go back and understand why we were doing this. My main job really, for the whole of the 18 months before the election in ‘97 was working on our policy programme. I spent two or three hours a week, maybe sometimes more than that, with Terry Burns, the permanent secretary of the Treasury, every week for the whole year before the general election, going through lots of policy, but particularly around process and how we would do things.”
Gordon Brown’s three-year comprehensive spending review replaced the old model of rolling one-year spending forecasts (with a sketchy second year attached), while adding efficiency targets and “Public Service Agreements” for each department to tie cash to delivery.
“The comprehensive spending review was brilliant. People were coming along to these weekly Cabinet meetings called PSX to go through all of this detail. Nobody was banging the table and saying, ‘I need my money now.’ They all took it really seriously. And so it did lay the foundations for the next 10 years. And I think it showed the Civil Service as well as the country that it wasn’t just about Labour throwing extra money at problems.”
Reeves is expected to have a similar approach. But a decade of austerity, followed by a recent uptick in spending under Boris Johnson and Rishi Sunak, plus increasing pressures from an ageing population and higher defence spending, mean that she has much less room for maneouvre.
At the Institute for Government event, the 11 Labour frontbenchers present – including shadow Health Secretary Wes Streeting – may have squirmed uneasily in their seats as the shadow Chancellor spelled out why fiscal rectitude was not a “right-wing” attribute: “You’ve got to have fiscal discipline, it’s the underpinning of everything else. You can have all the growth ideas and all the investment in the NHS ideas, Wesley, that you like but it’s got to be built on that platform of economic stability.”
Balls says that a “combination of realism and optimism is the sweet spot you’re trying to get to”. One indication of the dilemma facing Reeves is some in the party think she’s not offering enough hope, while others are concerned she’s not preparing voters enough for the long, tough road ahead.
Reeves and Sir Keir have gone big with their mission to get the “highest sustained growth of the G7 group of leading nations”, powered in part by radical planning reform to build more houses, wind farms and infrastructure.
Some in Labour roll their eyes at that growth target. One old hand told me it repeated Sunak’s error of making promises – like “stopping the boats” and “halving inflation” – that were out of his or any Government’s direct control.
Torsten Bell, of the Resolution Foundation, puts his finger on the problem. “Can we invest more while also saving public services and not wanting to raise taxes significantly? That is going to be very hard indeed.”
Former shadow Chancellor John McDonnell believes a “wealth tax” is still the best option. “You’ve got to say where the money’s coming from. Or if you don’t do that, you’re going to say what you’re not doing, and then the problem there is that people are going to ask a question: why vote Labour?”
But it’s not just the left that are concerned. Even some of those usually loyal to Reeves and Starmer fear they have boxed themselves in too tightly on the issue of tax, talking about reducing the tax burden in a way that Gordon Brown always avoided.
Others in Labour privately point out that Rishi Sunak has got away with the largest tax rise in history, with his £54bn freeze of thresholds a ‘tax bombshell’ bigger than anything Labour planned in the early 90s under Neil Kinnock – and without any populist uprising against it.
Some in the party also say there are plenty of ways of raising substantial sums from closing multiple tax loopholes – something Treasury officials will already be pencilling in as options for ministers whoever wins the election.
Paul Johnson, of the Institute of Fiscal Studies, says that capital gains tax, business taxes, inheritance tax and council tax are all ripe for reform. “I think before you think about introducing a new wealth tax, let’s try and make the ones that we’ve got work… If you own and live in £100m mansion in Westminster, you’re still paying a lot less in cash terms in council tax than you would have been in rates 30 years ago, which is just bizarre.
“We have a tax, in capital gains tax, that’s entirely forgiven if you hold onto your property until death. That’s both unfair and inefficient.”
Torsten Bell agrees that there are plenty of examples of unfairness in the system. “You can see those in the inheritance tax system, you can see those in some bits of our pensions tax systems. There’s lots of different things to look at. None of those are easy, but neither is not properly funding public services, which are, as everybody in Britain now knows, having a pretty tough time.”
Ken Clarke tells i: “The art of raising taxation is to pick pockets without the taxpayer noticing in the way we do that. I didn’t have a fixation on taxation. Taxes sometimes have to go up, Taxes sometimes have to go down. It depends on the needs of macroeconomy and the public need. And yes, I raised taxes quite frequently and I cut some taxes.
“In my first Budget, I increased the total tax burden on the country by a greater amount than anybody since the war, but it was very popular because I wound up by taking a penny off income tax. I personally never went round ruling out any particular move in any particular tax in advance of my Budget. I made my mind up what was necessary.”
Peter Mandelson advises against any new tax hikes, yet Reeves does give herself a bit of wriggle room. “I don’t want the tax burden on working people to rise. If anything, I would like that tax burden to be lower,” she tells i. Then she adds what sounds like a crucial caveat: “But I’ve also been clear that all of our plans have got to be built on a platform of economic and fiscal responsibility.”
Clarke says the key to a Chancellor’s responsibility is to do “tough, unpopular” things soon after winning an election, and then defend it.
“Your responsibility is to not bother about tomorrow morning’s Daily Mail. It is to look two or three years ahead and decide what is in the national interest and remember why you came into politics: might you be able to make a bit of a difference that will benefit the community in future years?
“What you need is some sort of political skill in explaining what you’re doing, defending what you’re doing, trying to set out what you think the results are. Just argue the damn case.”
Former Treasury official Jill Rutter, now a fellow at the Institute for Government, says Reeves’s approach looks like “caution first, second and third before the election, trying massively to avoid saying anything very interesting”. But Ms Reeves’s first Mansion House speech would be a chance to show she was a tax-reforming chancellor rather than a tax-raising chancellor.
“There are loads of areas where you think the UK tax system really needs a sort of thorough-going look and set of reforms. I think it’ll be really interesting whether Rachel Reeves has big aspirations to go down, not just as the first female chancellor, but as a really significant reforming chancellor, the like of which we probably haven’t really seen since Nigel Lawson,” says Rutter.
“We may see a proliferation of institutional changes. One thing about institutional change is it costs peanuts and you can announce it straight away.”
Yet for many within and without her party, Reeves’s likely tax-and-spend plans remain an enigma.
One former senior insider told me they worry her caution will leave Labour exposed in the 2024 election campaign – which, unlike the short, sharp campaigns of 2017 and 2019, could be many weeks long.
Unless the party has something to talk about, its opponents will gladly fill the vacuum with attack lines of their own, they say.
Some of the success of Reeves’s book launch evening was punctured the day after, when she faced a plagiarism row. She and the publisher had to apologise for a failure to properly identify that some sections written by researchers were lifted from Wikipedia or newspaper articles.
The Tories promptly accused her of being the “cut-and-paste shadow Chancellor”, and some sceptical Labour MPs privately mutter that Reeves has “cut and pasted” her biggest policy, the £28bn a year spending on net zero, from Ed Miliband.
However, fresh from a personal endorsement by former Bank of England governor Mark Carney at the Labour conference, and Clarke’s verdict that she would be a “reassuring” and “responsible” chancellor, her stock within the party remains as high, if not higher at times, than Sir Keir’s.
Many colleagues are still unclear if Reeves will prove to be a politician who is cautious in opposition but then bold in government.
Still, there may be a clue in her latest book, which quotes former US first lady Eleanor Roosevelt: “A woman is like a teabag: you can’t tell how strong she is until you put her in hot water.”
Labour’s Plan For Power: The NHS and your health” is the second episode of an exclusive new i podcast series examining what a government led by Sir Keir Starmer would actually do if it wins the next election.
Hosted by Paul Waugh, i‘s chief political commentator, this fascinating four-part series will also dive into Labour’s plans for the NHS, Brexit and the North-South divide.
