Is Rachel Reeves now unsackable?

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0:46But my job as Chancellor at 12 o 'clock on a Wednesday is to be at PMQs next to the Prime Minister supporting the government. And that's what I try to do. I guess the thing that maybe is a bit different between my job and many of your viewers is that when I'm having a tough day, it's on the telly and most people don't have to deal with that. A cheerful and confident looking chancellor there making her first statement since the upset yesterday that we all saw live on television. She's insisting the issue was personal and yet her tears moved markets. So I guess the question is, how much has her future been cemented by what happened at PMQs?

1:34Because if yesterday was all about maximum vulnerability, today, because of those market reactions, has she become impregnable, unsackable for Keir Starmer? Welcome to the News Agents.

1:56The News Agents. It's John. It's Emily. It's Lewis. Lewis is back from his cabin. I am back from my cabin. Yes, yes. And looking rather bronzed, actually. Hey, look, it's the Costa del Nodga. It's the Costa del Nodga. Easy of you to say. Yeah, exactly. Anyway, well, welcome back. Lovely to see you. You missed quite a day. Cheers, Dad. You missed quite a day yesterday, didn't you? I know, while I was watching it in real time. I was getting updates. I knew you were. You must have been fun on holidays. Yeah, yeah, yeah. Great world holiday. Nothing like a birthday week, as my wife says. Anyway, well, lovely to have you back.

2:28But what an extraordinary event it was that unfolded in the Commons. And there's a sort of move today to say nothing to see here. It's all personal. We move on. I'm smiling. Let's crack on with government. But there are questions because of what happened and the aftermath of it. Yesterday, markets sort of went down. The pound went down. cost of government borrowing went up which is a nightmare for uh rachel reeves again keir starmer comes out and says no worries she's safe she's staying for years and the markets react accordingly and are reassured and the cost of borrowing has gone back down again for the government which is good news and so you kind of think there is an awful lot of political unpicking that needs to be done as a result of what happened at pmqs yesterday yeah and i think it's all very well saying oh my god leave the poor woman alone what she was going through was a very personal moment very personal situation and that may be entirely true you know we still don't know what the cause was and i would be the first to say allow her her privacy on whatever was going through her mind at that particular point but i think once the markets have stepped in the personal and the political basically elides and you can't separate the two and that was clearly i think the position that Keir Starmer found himself in when he was giving interviews last night and this morning, because once he was seeing the bond market's response to the very idea that Rachel Reeves might be about to leave her job, it became an issue not just for her, but for him, but for the whole of government.

4:06And we should say, I think we feel slightly differently on this. You think that the city loves Rachel Reeves. Maybe the city loves Rachel Reeves. Maybe it is just that they see her fiscal rules as being absolutely essential to the stability that they think government needs right now. And maybe they were anticipating that somebody would come in, as it were, on the left of Reeves, who would be more of a kind of a left radical to the party rather than the sort of the centre right position that Reeves has established. So I don't know if it was a personal thing about Reeves's brilliance so much as about the stability that the markets want to see continue.

4:41What was extraordinary about the market reaction is that the markets were completely sanguine, i.e. they barely reacted at all, about the substance of the U-turn itself. The substance of the U-turn itself, and this is the important thing here, right, leaving aside the sort of emotion of yesterday. The substance is that Rachel Reeves is going to have to find at least an extra£5 billion come the budget, possibly even more. Her fiscal headroom is all but evaporated. And yet the markets, in terms of the reaction to that political U-turn and policy U-turn, did not react. But when they saw, as everybody else did, Rachel Reeves basically break down in the House of Commons, that is the moment when sterling started to slide and where government borrowing costs started to soar rapidly.

5:24And why did they do that? Well, I think the reason is because the markets adduce that Rachel Reeves is so politically tied to her fiscal rules that if she were to be removed, and as you were both saying yesterday, for an hour or two, it genuinely looked like she could be on the way out, either via resignation or potentially even a dismissal when Starmer did not back her in the House of Commons, that it looked like she could be on the way out. And as you say, Emily, she could have been replaced by someone who was not so attached to those fiscal rules. The paradox of the last 24 hours is that Rachel Reeves, at that moment, had never looked more politically vulnerable, and yet now as we sit here has never looked politically stronger because the Prime Minister and other government ministers have been forced, basically in fear of the markets because they saw the market reaction, to say that she is in post and as the Prime Minister said today, she will be in post for a very long time, up to the next election and beyond the next election.

6:23So we're in this weird place where internally her authority looks weak and yet she has never been stronger in the position that she's in. Another paradox that I was talking to a Labour person this morning who was saying her fiscal rules, which were designed to create stability and reassurance to the market, are a frigging nightmare because you've got this really narrow landing zone which you've got to hit each time. And if something untoward happens, what happened with the vote on welfare reform, there is a sudden panic. Oh my God, five billion. given the size of the UK economy, 5 billion ain't that much money.

7:02And yet it's enough to say, oh, my God, she's not going to meet her fiscal rules. Something drastic is going to have to happen. And the fiscal rules, far from bringing the stability that they intended it to bring, actually bring more instability. Because if you get anything that a growth forecast goes down, inflation goes up, interest rates move, you've suddenly got a crisis over whether the fiscal rule is going to be met or not. And on that note, Bloomberg last night revealed that it believes the UK now faces a£20 billion fiscal black hole. Where have you heard that figure before? It's the one that Keir Starmer has been using for the last 12 months to explain the problem they inherited from, he would say, Jeremy Hunt and the Conservatives.

7:46Bloomberg Economics says we think the government will miss its goals by around£20 billion in 2029 to 30. OK, so three years hence, mainly due to growth downgrades. So it appears to be a question of when, not if, taxes will need to rise again. To your point, once you have boxed yourself in, it becomes harder. And, you know, I'll forgive Rachel Reeves for not taking my economic advice on this, but I can't help feeling that there was that moment when the German Chancellor Mertz, I'm going to call it the Mertz moment, said, we've got to spend a big amount on defence now and we're going to borrow to do that.

8:20And I do sort of think in that one sort of opening, she could have decided to do the same thing and made the case for national security, an existential threat. There's a Russia on the doorstep and said defence spending, which we know has got to increase, can all come from borrowing. And they could have just made that a separate thing and allowed that to be part of something entirely different, which would have given her more headroom to spend on the stuff that they actually need to get right now. Except the difference is that Germany's debt to GDP is around 60%. I get it. And ours is around 100%.

8:54I'm just saying as a narrative, I get that it's not entirely consistent. You know, we're not the same country as Germany. I just mean, as a narrative, given that she doesn't want to raise taxes, and they now have to, and she can't, it seems, cut spending. I mean, that's the real lesson of this week. We don't know. We don't know what she's going to do. I do think that one of the lessons of the last week should be for the Parliamentary Labour Party, which is this. I think Rachel Reeves has made many mistakes since she became chancellor. Winterfuel, the way she presented it was a mistake. Most of the welfare problems ultimately erodes lead back to Rachel Reeves because she, instead of saying to the Department for Work and Pensions and saying to Liz Kendall, look, come back to me with a two to three year plan about how we're going to substantially reform welfare.

9:36We're going to genuinely do something to liberate people from just the scourge of being on welfare for a long time. All these young people with mental health problems. And yeah, that might mean we need to spend more money to begin with. But in the long term, we'll save. She didn't do that. She treated it as an arithmetical exercise just to save some money, five billion pounds. And DWP came back with what they came back with. So she has made loads of mistakes. And I do think, again, one of the paradoxes of the last 24 hours is that she has been cemented in place, which has calmed the markets. But I think over the long term could be a problem for this government because I think her political antenna have been often wrong.

10:11All of that said, she is right about one thing, which is the Parliamentary Labour Party need to weigh up to the fact that it is not 2010. It is not 2015. It is not 2019. We have moved on from the era of ultra low interest rates and ultra loose monetary policy. The fact of the matter is, is that partly as a result of that and partly as a result of the Liz Trust debacle, we are still living in the crosshairs of the international capital markets. One wrong move and you get contagion in those markets and suddenly you have a run on the pound and the Labour Party has a long history, a long history of currency crises which come back to haunt them and damn those governments.

10:49That is what is in Rachel Reeves' mind. I think part of the pressure she's feeling at the moment is that she is highly cognizant of those pressures and she has endless spending pressures that are coming her way. Yes, the parliamentary Labour Party, I think, have not woken up to that change fiscal situation. Yes, she could be more creative. Maybe there is some potential for some extra wealth taxation. Yes, she has boxed herself in on income tax and national insurance and all of those sorts of things. But the fact of the matter is, is the Labour Party is governing in a time of scarcity, something the Labour Party is fundamentally uncomfortable with.

11:22But it needs to wake up to the fact that we are a couple of moves away at any given time at the moment from a fiscal crisis, which is deep. ultimately will destroy this Labour government if it gets out of control. Lewis, honestly, I think that it's the two-way street there, isn't it? I mean, I think that Downing Street and the Treasury need to do a better job of speaking to Labour backbenchers about the position that they're in. Yeah, they do. And if they don't take these measures, then these will be the consequences and this will be the end of the Labour government because you should be proven to be ungovernable.

11:52There'll be another currency crisis, the likes of which we saw with Callaghan, the likes of which we've seen with Wilson, you know, you can go back and see 1920s Labour government. Yeah, exactly. All the past history of those sort of problems coming back to haunt them again. And frankly, Labour backbenchers need to be a little less kind of self-indulgent and decadent about the situation that they're in and recognise that it's not a cost-free option just to say we're rejecting this out of hand. Yeah. And to exactly that point, I've just been reading a Tim Shipman piece where he He describes a memo that Morgan McSweeney sent out to the party when they just won power.

12:30And what he says is this. When the Tories win power, they always do so with the aim of retaining it. This is a memo that he writes to the Labour Party. The decisions they take are always orientated towards winning the next election. When Labour wins, we seek to change the world. And I think each party hearing that would probably agree with it. You know, the Tories think that they're doing it to retain power. and that is a goal in itself because that's how you get things done. And Labour would say, what is the point of achieving power if you're not going to use it to change the world? And to your question, is the Labour Party, is the PLP thinking, great, we've won, that's how we're going to do business from now on, or are they thinking, we've won this, but we nearly lost the whole ship?

13:13I don't think we know the answer to that yet. And I don't think, you know, going back to that original vote when they had 123, 126 potential rebels, the really interesting question is, would they all have voted no? If they'd stared down the barrel, would they all have voted no? Or would they have basically, would somebody in government have been able to say, you're a bunch of fucking idiots if you do this because you will watch the collapse of this government? And actually, if you were a Labour rebel, you'd go, well, I didn't, you know, as we said, I didn't come in to see disabled people worse off, right?

13:46Emily, don't you think that Starmer must be looking 3 ,000 miles across the Atlantic to Washington, D.C. and watching how supine the House of Representatives is to Donald Trump's wishes, with no Republicans daring or hardly any daring to cross it. And yet our parliamentary system gives a lot of space for that. And so you've got all these backbenchers that are saying, screw you, Keir, I'm going to go my own way. And I know this is what the government wants, but I don't want it to have to go back to my own constituency. So has that set, that's the question, has that now set the pattern for future policy?

14:20I think it's such an interesting question because what we've done so far, we've talked very much about economics and what, you know, the consequence of the markets of the past 24 hours. What we don't know is the psychology of the relationship between the PLP and Rachel Reeves now. will they think oh god actually maybe we've gone too far and maybe we were kind of unthinking about the pressures that she is under and maybe we need to re-evaluate they're meant to be on the same side I don't know I think that is a kind of really interesting about whether any hearts and minds have kind of adjusted to this whether Rachel Reeves is viewed differently now to how she was viewed yesterday I think she's entirely accidentally she obviously didn't mean to do it but she's ended up buying herself some breathing room and some breathing space.

15:08And the government will have that anyway because we're coming up to recess. And I think from their point of view, recess has never been more important. It'll be the first sort of proper summer break that MPs have had since the last election because at that time the parliament was... Well, they worked all through the summer, right? Exactly, because the government had just been elected. So it'll be important. It'll be an important moment of strategic reset. But I think, developing your point, Emily, the most important thing that Starmer and Reeves can do now over the long term, and the thing I think that would satiate and placate Labour MPs most, which I think is ultimately the root of a lot of these problems, is Keir Starmer and this government are in desperate need of having a narrative and theory of social justice.

15:46That is what they need. Michael Goh's been writing some good stuff about this in the Spectator, and he's absolutely spot on. A Conservative government can sustain itself, often simply through the existence of anchoring itself in power. They enjoy the practice of power. It's not to say they're devoid of ideology, quite the opposite. It's not to say they don't need an end point they do but not to the same extent labour mps labour mp psychology as that morgan mcswee you know says is about changing the world and right now this government you can point to thing a and thing b and thing c and thing d and you can say from a labour point of view those are good things nothing ties it together there is no adhesive there is no gel what keir starmer needs to be able to do and he hates ideology and he hates talking about political thought and all those sort of things that is a problem for a labour leader because a labour leader needs to articulate a theory of social justice.

16:33What is it the government is doing to make this country a more socially just place? That is not a vocabulary he feels comfortable with. And the net result and cost of that is Labour MPs are sat around thinking, what are we doing? What are we for? I mean, the absolute irony is if they'd done nothing on the winter fuel, if they'd done nothing on the welfare bill, they would be in a better state a year later. You know, I was talking to somebody at the Treasury who said that they'd been talking to somebody who was in the lock-in for the spending audit. This is last July. And apparently within one minute, one journalist had spotted the winter fuel cut and they all promptly ignored the rest of the statement, as you'd expect.

17:13And this person was under the impression that the government just hadn't clocked the story. So, you know, when you say that Rachel Reeves is, what was your word, impregnable or that she's kind of stronger than ever now, you know, she is unsackable. I think two things can be true. She may be unsackable, but she may be also completely responsible for terrible policy, you know, and it does feel like she has walked into, you know, we hear that she walked into the winter fuel cuts, because probably the Treasury had been pushing this on previous chancellors, they'd all said no. And she said, yes, we hear the same thing about the NIC, the National Insurance Contributions from Employers, that the Treasury had been pushing this.

17:54Hunt told us, you know, he turned that down. She said yes. I mean, there is something going on where she keeps making the wrong moves on policy. I think that's absolutely right. But I spoke to someone else who had been an advisor during the Blair years and was inside number 10. And I was saying, you know, God, isn't there a lot of blame to go around among the advisor about the political office, about the way they've handled this. And he said, look, I'd love to be able to sit here and tell you how fantastic I was as a special advisor in government during the Blair years but it's nothing to do with the special advisors it comes from the top it is down to Keir Starmer which is further to your point Lewis Blair apparently would sit in meetings and would say right we'll do this policy and then we'll unfold it like this we won't go just yet because we need to prepare the ground and we'll set a trap for the Tories and they'll fall into it so it was proper top down and it was not just about getting the policy right it was about also screwing the conservatives so that they had no repost or they didn't have any comeback or whatever which frankly was exactly how osborne works exactly completely osborne studied tony blair and so i think that there is an element where that is missing right now and it's for keir starmer to somehow find the language or find the the means so that you go from being the supreme pragmatist who doesn't have an ideology and just looks at each problem individually.

19:18To have a strategist. To have a strategy which tells the Labour Party, this is our direction of travel. Well, if we've got a few questions, then maybe someone who can help us answer them is Wes Streeting, the Health Secretary. We're going to be speaking to him after this.

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20:57Subscribe today and get the complete introductory system for just$49.95 at MeaningfulBeauty.com. You'll also get two free gifts, free shipping and a 60-day money-back guarantee. Visit MeaningfulBeauty.com and order today. This is The News Agents. Wes Streeting, you're here to talk about the 10-year plan for the NHS and we're going to get on to that. I just want you to try and make sense for me and give some kind of summary of what you think has happened in the past 48 hours. Well, in the past 48 hours, we've launched the government's 10 year plan for health. It's a plan to get our NHS back on its feet and make it fit for the future.

21:40We've agreed a new path to welfare reform where we'll take people with us to make sure the system's sustainable. And yes, I think it's been a week or two halves. Trump. I mean that some might say is a Panglossian assessment of what has happened in the past 48 hours where we've seen a rebellion. We've seen government caving in, shredding of some authority, Rachel Reeves in tears and the money markets taking fright. I mean, that would be another summary of the 48 hours. so I'd break both of those two things down for a minute because I think I'd separate you know Rachel yesterday from the welfare bill the night before we can all think of times in our lives where we've got something going on personally and when you go to work you don't have the luxury of leaving how you feel or what's going on at the door and becoming a completely different person and with all the anxieties and issues sort of put to one side and what makes us different as politicians is that when we're at work we're not just all at work we're often on show and that's what you saw yesterday but um you know this morning rachel's back in action i did say this morning should be bouncing back i know her well she's a friend as well as a colleague and she was there with us today with the prime minister launching the 10-year plan for health she was in good spirits and um she's tough and that's one of the reasons i mean look we don't comment on market movements by rule as government ministers.

23:15But I do think yesterday what you saw was from, you know, captains of industry, from people in financial services, people who know what the economy relies on, the sort of leadership the economy needs. I think what you did see was a whole bunch of people saying, look, Rachel Reeves is the serious Chancellor we need. She's the person we've got confidence in because they know her, they trust her, they trust her judgment, they trust her strength, they trust her ability to say no as well as yes and that's why she's here to stay. So she's unsackable? Well, I mean, look, Prime Minister can get rid of any of us any time he likes, but why would he want to?

23:51She is the bedrock upon which Labour's last election victory was built, because unless they trust you with the economy, unless they trust you with the money, they don't trust you with anything else and Rachel's leadership is no small part why we are in government today and she will lead our economy from strength to strength for many years to come about that there is no doubt Wes you talked about you've got to separate out what happened with Rachel yesterday at PMQs from the whole debacle over the welfare reform measures but it would be entirely understandable I mean apparently she said to the speaker you don't realise the pressure I'm under there was a vote that went against which means there's a five million black hole Bloomberg would say it's a 20 billion black hole in the state of British finances.

24:38She's got her fiscal rules. I mean, blimey, it would have been absolutely natural to be, you know, in tears over the state of everything and the pressure that she's been under. But as she said, this is a personal matter, not a professional matter. And I've seen Rachel under pressure many times before. She thrives under pressure. She knew the challenge she was taking on when she became shadow Chancellor, let alone Chancellor. And I have been in meetings and tough meetings with Rachel sometimes where I and other ministers have gone knocking at her door to say we need this, that or the other. And as well as saying yes, as I said, sometimes she has to say no.

25:15And that doesn't always make her choices popular. But I think people see that she makes the right choices for the right reasons and she's determined to make sure the economy goes from strength to strength. That's how we got interest rates down four times in a row, how we've got wages finally rising faster than living costs and also how we've got the fastest growing economy in the G7. But we know that there's so much more to do on the economy as with everything else. And Rachel's leadership in that regard is really important. And on welfare, there's no doubt that the choices that were made this week do make the fiscal pressures in the short term harder, not easier.

25:52Ultimately, we concluded as government ministers working with Labour MPs that it was, worth the delay in order to get this right and to take people with us and not just Labour MPs but disabled people and a range of disability organisations that said they had concern not so much about the principles of reform and what we were trying to achieve with the reforms but whether we'd got all of our ducks in a row, whether there wouldn't be unintended consequences arising from those plans. So I think it's not been the easiest, smoothest week, I'm not going to pretend otherwise but I think ultimately we've landed in a better place as a result.

26:27Do you think there's been a penny drop moment for some Labour backbenchers who saw the way the markets reacted when it looked like she was either about to resign or be sacked? And the cost of borrowing for the British government went up and the pound went down. And then you get the reassurance from Keir Starmer that she's staying. And the reverse thing happens that, you know, the cost of guilt yields go down. Is there a recognition from Labour-backed benches that you can't just say, OK, well, we're not going to bother with that£5 billion in savings. We'll find something else when, you know, the markets move on what this government does.

27:07Well, I think there's certainly an appreciation for the fact that economic credibility is hard one, especially for the Labour Party when it's in opposition. And what Rachel built in opposition day by day, week by week, month by month was credibility, not just for her own credentials as chancellor, but for the economic and fiscal policy that she set out. That is hard won, but easily squandered. And that's why it's so important that people know that the fiscal rules, the discipline, the leadership that Rachel was brought to the office of Chancellor and Rachel herself are all here to stay. I think the other thing I would say is that when it comes to the public finances more broadly, we shouldn't underestimate that because of the reckless choices of our predecessors, borrowing is really high.

28:05We've got a debt to GDP ratio of 100%. And so when borrowing costs move, that has big implications for the public finances. And that's why I know it's tempting and we always have people coming at us with alternative sort of economic policies, arguments, ideas. And, you know, we don't mind having that debate. But ultimately, it does matter. Keeping the cost of borrowing under control does matter. Showing discipline does matter. Do the Labour rebels need to grow up a bit? I think that would be too harsh, actually, a characterisation, because what motivated my colleagues in recent weeks, it wasn't...