Now, perhaps more than ever, Britain needs a stronger Chancellor
The question no longer seems to be whether Keir Starmer will survive, but when and how he will go, and who will succeed him. Even if the Prime Minister clings on for a few more weeks or months, his authority is shot. Either way, the Labour government looks set to lurch even further to the left.
The markets have already spoken. The cost of government borrowing has jumped again. The FTSE has fallen, led by banking stocks. Sterling is wobbling.
Investors are understandably worried that a new leadership, or simply a lame duck in Number 10, will mean more spending, more borrowing, more inflation, and more taxes. This could include additional taxes on “wealth” and on banks, as well as other clumsy interventions that encourage more capital flight.
Worse still, any crisis of confidence is unlikely to be contained to the bond market. Sterling will surely suffer further too, and mortgage costs will jump if official interest rates are expected to be higher for longer.
Keir Starmer and Rachel Reeves have at least been the devils that the markets know. Investors have rightly given the Chancellor some credit for sticking to the fiscal rules and rebuilding the headroom in her last Budget, even if they disliked how she did it (with tax rises rather than spending cuts).
The alternatives still worry the markets even more. The persistent uncertainty alone is enough, but investors also have specific concerns about each of the potential leadership candidates.
Angela Rayner has made no secret of her enthusiasm for welfare spending and wealth taxes. She also led the charge on the increased regulation of the labour and rental markets – “reforms” which show little grasp of basic economics.
Andy Burnham had already unsettled investors with his warnings against being “in hock” to the bond markets. But he had doubled down by suggesting that the fiscal rules should be bent to allow increased spending on defence. More borrowing is still more borrowing, whatever the purpose.
Meanwhile, Wes Streeting has splashed a lot more cash on the NHS with little to show for it, while Ed Miliband’s dismal track record on energy policy speaks for itself.
Nonetheless, Rachel Reeves also deserves some share of the blame for the position that the government – and the country – now finds itself in.
For a start, the cost of UK government borrowing has been the highest in the G7 group of advanced economies throughout almost all her time as Chancellor.
This partly reflects a series of poor economic and political judgements made by Reeves herself. Indeed, the Labour government’s first big misstep was the rushed decision to scrap the universal Winter Fuel Payment in July 2024.
The new Chancellor’s first Budget then saddled businesses with huge increases in employment costs. These were inevitably passed on in the form of higher prices and fewer jobs.
The misleading communications and unnecessary speculation in the run up to her second Budget inflicted further harm, with real economic as well as financial costs.
But there is a more fundamental problem at the heart of this government. Keir Starmer does have two things in common with Tony Blair when he was Prime Minister – a lack of interest in economics, and a desire to move the UK closer to the European Union, at whatever cost.
Fortunately, Tony Blair had Gordon Brown as his Chancellor, and Brown, whatever his many faults, was a true heavyweight who kept the UK out of the euro.
In contrast, Rachel Reeves provides very little of the balance which is now needed. She has not been robust enough to counter the madder policies which have damaged the labour, energy and housing markets. Nor has the Chancellor made enough of the opportunities created by Brexit. Instead, she has parroted the dodgy claim that leaving the EU has already cost the UK “as much as 8%” of GDP.
To be clear, the buck stops with the Prime Minister. It would be pleasant to think that what finally does for Keir Starmer is his belief that the solution to any problem is “more Europe”. But now, perhaps more than ever, the country needs a stronger Chancellor too.
This piece was first published by the Daily Telegraph on 12 May 2026
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