ALEX BRUMMER: Labour is dropping the plot

Few opposition parties receive enough time to prepare for government as Keir Starmer’s Labour.

The only surprise about Britain’s July 4 General Election was the timing. When Rachel Reeves outlined Labour’s economic plans in the US in May 2023, with an accompanying policy paper, the central theme was ‘securonomics’.

There was a paean of praise for the Biden approach to economic management. That’s long before the chattering classes had any belief in a comeback for Donald Trump. Since Reeves arrived at the Treasury, any reference to securonomics has disappeared and the Chancellor often seems strangely at sea. Even the often Labour-friendly FT is confused.

Despite all the talk about change and growth, Reeves has (in the view of a leading article) sapped the ‘animal spirits’ out of the economy. This is a phrase, purloined from Britain’s most lauded economist, John Maynard Keynes, which should be familiar to readers of this space.

It took the Chancellor four months to unveil her £40bn tax-raising Budget on October 30. The lengthy lead time, with a series of poorly orchestrated leaks, undermined consumer, business and entrepreneurial confidence. Upbeat investment surveys have vanished over the horizon.

Now we learn that a proposed review of public spending, scheduled to be delivered in March with the spring Budget, will not happen until June. The untidiness of the process shows unpreparedness and uncertainty when the private sector, and for that matter working people, crave stability. Governments have a duty to produce an autumn statement (or Budget) and a spring Budget. Reeves has injected fresh chaos into the process.

Zig-zagging: Chancellor Rachel Reeves

Admittedly, there are serious problems to be addressed, such as the disastrous state of local authority finances as underlined this week by the National Audit Office. But it is hard not to contrast Reeves’s zig-zags with Gordon Brown’s start when Labour last came to office with a big majority in 1997. The Bank of England was given its independence in days, and taxes were speedily imposed on pension funds and utilities to finance Brown’s plans to end youth unemployment.

There has been much focus in the last 48 hours on France’s budgetary problems. French bond yields have jumped to a shade under 3 per cent amid fears that Michel Barnier’s government is close to collapse.

Borrowing costs are at a similar level to Greece, often seen as weak link in the eurozone. Before anyone here laughs out loud, it is worth remembering that Greece has memorably recovered since the dark days of the euro crisis when the yield on its ten-year bond reached a peak of 35 per cent.

Moreover, Starmer and Reeves have failed to calm UK bond markets despite Britain’s biggest ever tax-raising Budget. The ten-year gilt is trading with a yield of 4.25 per cent, a full one and quarter per cent higher than France, and at a level which has sent the cost of fixed-rate mortgages in the wrong direction. Hope that Labour would show a sure-footed approach to the economy, public finances and cheaper home loans has vanished.

Hidden gems

Missing from the Bank of England’s financial stability report is any direct mention of the car finance scandal and the bill for compensation winding its way through the courts and regulatory process.

Nevertheless, the Bank’s regulation czar Sam Woods noted that when the Bank did its most recent stress testing of commercial lenders, it was there, with a potential cost of £25billion used in the modelling.

This reminds me of the apocryphal story of a journalist sent out on an assignment to the Lake District who charged a pair of hiking boots to his expenses claim. Sent away with a flea in his ear, he resubmitted the expenses for the same amount without the boots. Asked what happened to the boots, he replied: ‘They’re there, alright.’

Going hostile

If Amanda Blanc thought the £3.3billion bid for Direct Line was going to be a pushover, she must be greatly disappointed. Briefing hostilities have begun with suggestions that Direct Line directors could be in breach of ‘fiduciary duty’ if the board failed to put an offer, with a 57.5 per cent pre-bid premium, directly to shareholders.

Pistols at dawn before the Christmas day deadline.