Rachel Reeves Set to Go Out with a Bang – And She’ll Blow Andy Burnham Sky High
Rachel Reeves may be on her way out of the Treasury, but the political consequences of her time in office are unlikely to disappear with her. If anything, they could become one of the biggest headaches facing Andy Burnham as he attempts to reshape Britain’s economy.
The irony is difficult to miss.
Reeves spent her time as Chancellor arguing that Britain needed stability, investment and stronger long-term growth. Yet the next government has inherited a fiscal position in which difficult choices remain unavoidable. The latest figures showed an unexpected £1.8 billion public-sector deficit in July, while government debt has climbed close to £3 trillion.
That is hardly the backdrop for an easy political transition.
And Burnham knows it.
The new Prime Minister has arrived in Downing Street promising a different kind of Labour government, one that will put economic growth at the centre of its agenda and transfer power away from Westminster. His decision to establish “No 10 North” in Manchester is intended to demonstrate that the old London-centric model is being replaced.
But there is a problem.
Burnham can move government offices north. He can give mayors greater powers. He can encourage regional investment. What he cannot do is make Britain’s fiscal constraints disappear.
That is the nasty surprise waiting for him.
The previous government’s economic decisions have left a complicated inheritance. Public debt is high, borrowing costs remain uncomfortable and inflation is once again putting pressure on households. The July deficit was particularly awkward because it arrived just as the government was preparing for a difficult autumn Budget.
Burnham’s response has been to promise practical improvements while avoiding a spectacular expansion in government spending. His early agenda has included measures on transport, homelessness, business rates and household energy costs. Many of these policies are designed to be relatively inexpensive or funded by reallocating existing resources.
But eventually the arithmetic catches up.
A government can only redistribute money so many times before it has to decide where additional revenue will come from or which programmes will be cut.
That is why Reeves’ legacy matters.
Her tenure was dominated by the difficult relationship between growth and fiscal credibility. The government wanted to invest, but investment required money. It wanted to protect public services, but public services were becoming more expensive. It wanted to encourage businesses, yet higher taxes risked damaging incentives.
Those tensions have not vanished simply because the Chancellor has changed.
Indeed, they may now become Burnham’s problem.
The Prime Minister’s grandest political ambition is to decentralise economic power. His government has already announced plans to give regional mayors a share of income-tax and business-rates revenues, allowing local communities to benefit more directly when their economies grow.
That could be transformative.
But it also changes the political bargain.
If mayors receive more control over money and investment, voters can reasonably expect them to deliver better results. The traditional defence that “Westminster wouldn’t let us” becomes less convincing.
Burnham has spent years campaigning for exactly this kind of devolution.
Now he has to make it work.
That makes the economic inheritance particularly important. If the national economy grows strongly, Burnham can point to rising investment, higher employment and increased regional revenues as evidence that his model works.
If growth disappoints, however, the same system could become a political trap.
Greater Manchester and other regions cannot create prosperity in isolation. They depend on national infrastructure, financial markets, skills, energy costs and business confidence. Even the most powerful mayor remains exposed to wider economic conditions.
The latest economic indicators offer some encouragement, but hardly justify complacency. Britain’s services sector expanded more strongly than expected in August, while consumer confidence improved. Yet inflation remains a concern and employment has continued to weaken.
In other words, the economy is neither collapsing nor booming.
It is fragile.
That is precisely the environment in which a new government can get into trouble.
Burnham wants to deliver visible improvements quickly. But inflation, borrowing costs and fiscal pressures can make even modest promises expensive. The Prime Minister’s political honeymoon may therefore be tested by the same economic arithmetic that constrained his predecessors.
And then there is the question of taxes.
The government is under pressure to find additional money for spending commitments and defence while maintaining its fiscal rules. Reports suggest that the amount of financial headroom available to the Treasury has narrowed considerably.
That leaves Burnham with an uncomfortable choice.
He can raise taxes and risk angering voters and businesses.
He can cut spending and disappoint supporters.
Or he can borrow more and risk unsettling financial markets.
None is politically attractive.
This is why Reeves could arguably “go out with a bang” without making one final dramatic decision. Her most important legacy may simply be the fiscal landscape she leaves behind.
The political argument will inevitably become partisan. Supporters will say Reeves was forced to make difficult choices because of the economic inheritance she received. Critics will argue that taxation became too heavy and that the government failed to generate sufficient growth.
The truth is more complicated.
Britain’s economic problems did not begin with Reeves, and they cannot be blamed entirely on her. There are longstanding weaknesses in productivity, infrastructure, housing, skills and regional development.
Interestingly, new analysis has even raised questions about whether Britain’s productivity performance was previously underestimated because of weaknesses in official labour-market data. One recent study suggested productivity growth may have been substantially stronger than earlier estimates indicated.
If that evidence proves correct, some of the pessimism surrounding Reeves’ economic inheritance may eventually look excessive.
But that does not make Burnham’s challenge easier.
His government still has to pay for its promises.
His greatest opportunity is therefore also his greatest risk: devolution.
If regional leaders can genuinely stimulate investment, improve transport, expand housing and match skills to local jobs, the model could create a stronger and more balanced British economy. The government has already described its devolution programme as the biggest transfer of power from Westminster in a generation.
But devolution cannot simply mean moving responsibility around.
It must produce results.
Burnham’s “No 10 North” is intended to become a new centre of economic decision-making, bringing ministers and regional leaders together to coordinate growth policy.
That is an ambitious experiment.
And the timing could hardly be more demanding.
The government is preparing for a major Budget while facing high debt, elevated borrowing costs and persistent inflationary pressures. At the same time, Burnham has promised voters that his government will deliver growth “in every postcode”.
The expectations are enormous.
This is why Reeves’ departure may not end the argument over her economic record. It could intensify it.
If Burnham succeeds, he will be able to claim that Labour has finally broken with the old Westminster model.
If he struggles, his opponents will point directly back to the economic inheritance he accepted.
The most important question is therefore not whether Rachel Reeves “blew up” Britain’s economy. That is a political slogan, not an established economic fact.
The real question is whether the policies introduced during her tenure left enough room for the next government to deliver its promises.
Burnham is about to find out.
The new Prime Minister has ambition, political momentum and a radically different vision for how Britain should be governed. But ambition does not pay the bills.
Eventually, the Treasury arithmetic has to work.
And if Reeves really is about to leave the stage, she may discover that her most consequential act is not something she announces on her way out.
It is the set of constraints she leaves behind.
For Burnham, that could be the most explosive legacy of all.