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Rawla Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
Sooner or later every Prime Minister will remember that his formal title is First Lord of the Treasury. No matter how harmonious their relationship with the Chancellor, there is always a moment when a leader concludes that everything cannot be left to the Economic Ministry in Whitehall. For Sir Keir Starmer, that moment is overdue.
If there's one trend worth watching for next year, it's the first signs of a rift between Starmer and his chancellor, Rachel Reeves. What's more, this is how it should be. Prime Minister and Chancellor have different jobs. The latter is to manage public finances and the economy; The former must see the wider picture and intervene when necessary.
To be clear, I am not suggesting a growing rift between Starmer and Reeves, that he has lost faith in her or is wavering on Labour's growth strategy. The two are strongly connected and Reeves is one of his most trusted and important allies. Starmer's fault. In part, his approach reflects his overall leadership style. He believes in delegation and, aides say, clearly dislikes being called upon to judge between his ministers.
But "I have a woman who takes care of it for me" is not a viable approach. For all those who trust Reeves, those close to Starmer worry he exerts too much control over the treasury. Many senior Labor figures now regret the heavy political cost of the move to test winter fuel payments for pensioners. They feel that this indicates that the number 10 should be more active in sentiment-testing, rather than agreeing with the treasury's views. Arguments were going on about this step. It signaled markets and Labor MPs were ready to take tough decisions. But the backlash has eroded support and confidence.
Given the centrality of economic development to his policy platform, Starmer's Downing Street is remarkably passive. The Treasury has filled the gap, as it always does. Part of the problem is that prime ministers show little natural appetite for economic policy. He has shaken up his political operation but has no significant economic advisers in Downing Street, apart from Rao Athwal, Labour's long-standing and broad-based policy director. His most important officials, among them the new Cabinet Secretary, also shed light on Treasury experience. No government wants destabilization of rival camps in numbers 10 and 11 but the prime minister should be able to challenge decisions. A good premier improves his chancellor.
Successful PMs have to provide a bit of grit to the machine. Even the closest of partnerships – David Cameron and George Osborne are often cited – need a leader who can push back on Treasury orthodoxy and inject a bit of political fault into decisions. This will become even more important as the Treasury completes its two-year spending cycle. Ministers should be able to hear from 10 numbers.
Greater political involvement and economic brainpower seem essential in the number 10. Amid alarming figures and unpopular tax hikes, Labor is losing control of its growth narrative, Starmer's central mission declares. While there is much to admire in labor planning and pension reforms, they offer short-term dividends. Reeves says the first year should be tough and people should get their bearings. A colleague argues: "It's only been five months."
Yet there has been a substantial increase not only with the winter fuel decision, but also with employer national insurance contributions, jobs and tax on businesses. Meanwhile, the bulk of new investment is going into public services rather than into growth-promoting sectors. This all makes sense given the legacy, but it doesn't make for a strong story to sell to the business and investors. Taxes are rising. Brexit realignment feels like mood music. While Starmer has expressed frustration at financial and environmental regulators stifling growth, he has increased the regulatory burden on employers.
There is no current prospect of a major rethink but key figures could see the need for more near-term measures to boost business confidence and persuade foreign investors to reconsider the UK. Friends are also worried. Sir John Kingman, city grandee and former treasury official, was appointed this week Labour's Industrial Strategy CouncilIt was written last month that "We need a big bazooka".
Labor does not feel able to cut taxes and its instincts are unregulated. A change of pace and emphasis will be required if ministers are to lift the mood and woo foreign investors. Kingman's suggestions include much more ambitious steps Develop the Oxford-Cambridge arcWith greater commitments to laboratory space, housing and infrastructure. This would be a sign of a country investing in its own strength.
A "change in tone" is promised in the new year. Starmer, Reeves and others will do more to get the country talking. But it takes more than words to change business sentiment.
This is not about undermining or breaking Reeves, but about a more active use of the role of Prime Minister, cajoling, challenging, demanding more. Starmer is naturally apt to hold his nerve but sometimes impatience is required. This issue, more than any other, will determine the fate of his government and the country. Just sometimes it means a big preparation to become that title.