Keir Starmer rocked by full-blown crisis as PM marks first year in office
Keir Starmer is facing a full-blown political crisis as he marks his first year in office under pressure from disgruntled MPs, frustrated businesses and jittery financial markets.
Speculation grew yesterday that Chancellor Rachel Reeves could be ousted from Number 11 after the PM failed to back her during questions in the House of Commons, with markets reeling from the spectre of a fresh face ripping up the government’s fiscal rules.
The prime minister was this week forced to make a bruising U-turn on the government’s plans to reform welfare after it emerged more than 100 of his own backbenchers were preparing to vote it down.
Nearly 50 Labour MPs still voted against the bill on Tuesday despite huge concessions offered by Downing St, which are set to add another £5bn to public spending, blowing a hole in chancellor Reeves’ wafer-thin fiscal headroom.
That has raised the odds of yet more tax rises in the autumn to a near-certainty, despite earlier government assurances of no further tax changes, with businesses bracing for more pain ahead following April’s hikes. Top minister Pat McFadden conceded there would be “financial consequences” to the u-turn on welfare.
Bond markets were rattled by the moves, with gilt yields soaring further still after Starmer appeared not to back Reeves in the House of Commons even as Reeves appeared to be in tears behind him.
Yields on 10-year gilts rose by nearly 20 basis points by mid afternoon on Wednesday, a one-day jump reminiscent of the fallout from the Liz Truss minibudget in 2022 as markets balked at the prospect of more government spending and a change in leadership at the Treasury. The pound fell as much as 1.4 per cent against the dollar.
A Downing St spokesperson said Reeves was upset due to a “personal matter.”
More tax rises ahead
With the government’s authority shaken, backbench MPs appear to be pushing for yet more tax rises in order to balance the books.
One of the leading Labour rebel MPs, Rachel Maskell, told the Today programme that “we need to look at those with the broader shoulders’ to balance the books,” adding: “We do need to look at things like a wealth tax, £24 billion, or equalisation of capital gains tax.”
Gordon Shannon, fund manager at Twentyfour Asset Management, warned of a possible “hell slide” over the government’s “inability” to produce the spending cuts needed to keep within the fiscal rules.
“It’s not that gilt investors are keen for tax rises but that looks like the only possible way to stay within the fiscal rules,” Shannon told City PM.
City analysts are now openly speculating over which taxes could rise, with concern growing that the so-called bank levy could be hiked from 3 per cent to 8 per cent.
Mike Regnier, the UK boss of Santander, warned against such a move, telling the BBC: “Santander lends £7,500 for every single person in the UK. That lending is what the economy needs to grow. And if you don’t have a strong banking sector, you won’t get that support.”