Rachel Reeves has been branded a “Chancellor in name only” with Sir Keir Starmer creating his own economic team in Number 10 as he fights to end the chaos which has put his premiership in the “danger zone”. Labour insiders say the Prime Minister has “lost confidence” in Ms Reeves but cannot sack her after vowing she would be Chancellor “for a very long time to come”. There is fear in Labour ranks the party is heading towards disaster in next year’s Scottish, Welsh and local elections – with voters still appalled by the Chancellor’s early decision to scrap winter fuel payments for millions of pensioners.
A Labour MP claimed the situation was so serious Sir Keir could be gone by the end of the year, saying: “I think Starmer is on the brink. I think it’s very, very serious.
“He’s one more mistake away from having to go. I think he is in the danger zone.
“The only hope of holding onto Wales or regaining power in Scotland is by changing him. He is that much of an electoral liability.”
The Government is reeling from the resignation of Angela Rayner as Deputy Prime Minister and the sacking of New Labour giant Lord Mandelson as ambassador to the US. Confidence in the PM and his team took another blow when it emerged Downing Street officials were aware of supportive emails between Lord Mandelson and Jeffrey Epstein when Sir Keir defended the peer during Prime Minister’s Questions.
He is understood not to have known about the contents of the emails until Wednesday evening – after he told the Commons he had “confidence” in Lord Mandelson during Prime Minister’s Questions at midday.
Backbench Labour MP Olivia Blake said it feels like Sir Keir Starmer’s operation has “gone into the bunker”. She told the BBC it is “really embarrassing” if Sir Keir was told about the emails too late.
Conservative leader Kemi Badenoch said: “The Prime Minister has very serious questions to answer. The only way to clear this up is full transparency about who knew what, and when.”
Writing in the Sunday Express, Shadow Foreign Secretary Priti Patel said: “This is not a serious or respectable Government at all. It lurches from chaos to crisis on a near weekly basis.
“Its ministers don’t have the skills or the aptitude to deliver on policies required to build a successful economy and country for the future as they are all consumed with securing their positions.”
Meanwhile, Sir Keir is determined to ensure Ms Reeves’s Budget statement on November 26 does not cause more damage to his floundering Government.
A former Labour frontbencher said: “There is a shadow treasury team run out of Number 10. That is where economic policy is being made.
“She is the Chancellor in name only now.”
It follows Sir Keir’s decision to bring his own economic experts into 10 Downing Street, with former Bank of England Deputy Governor Minouche Shafik appointed as his economic adviser and former senior Treasury official Daniel York-Smith as Principal Private Secretary. Former Treasury Minister Darren Jones, previously Ms Reeves’s deputy in the Treasury, was given the newly-created role of Chief Secretary to the Prime Minister.
Sir Keir has set up a so-called Budget Board to oversee Budget preparations, with weekly meetings to ensure the Chancellor cannot repeat the mistakes of previous announcements which increased National Insurance contributions for employers and ended winter fuel payments for swathes of pensioners. However, the Budget will need to include measures to plug a hole in the public finances which some estimates put at more than £50billion.
Board members include Treasury Minister Torsten Bell and Katie Martin, Ms Reeves’s chief of staff, but the committee is packed with Number 10 figures including Ms Shafik, Mr Jones, Sir Keir’s chief of staff, Morgan McSweeney, and his communications chief, Tim Allan.
A Labour insider said: “It’s a power grab by Number 10. He is centralising policy.”
They said the Prime Minister had also taken control of the whips office by handing the role of Chief Whip to Jonathan Reynolds, the former Business Secretary, who is the husband of Keir Starmer’s Political Director Claire Reynolds.
Sir Keir was forced to promise not to sack Ms Reeves after she was seen crying during Questions to the Prime Minister in Parliament in July. Conservative leader Kemi Badenoch asked whether the Chancellor’s job was safe following a humiliating Government u-turn on benefit cuts, and the Prime Minister failed to give a clear answer.
The next day, Ms Reeves and Sir Keir hugged in front of the cameras when they appeared at a press conference together, and Sir Keir pledged her job was safe in a BBC interview.
But Conservatives accused the Prime Minister of “sidelining” his Chancellor. Shadow Chancellor Sir Mel Stride said: “Keir Starmer is in panic mode. By building his own private Treasury team in Downing Street and taking Rachel Reeves’ number two, the Prime Minister is clearly sidelining his Chancellor.
“No longer does Keir Starmer trust Rachel Reeves with the upcoming Budget having bungled her first year in charge. But sidelining her is not enough – he must also firmly reject her failed economic approach that has left Britain poorer.
“Growth is down. Business confidence has plummeted. Inflation has doubled. Borrowing costs recently hit a 27-year high. Our national debt is ballooning and we are paying over £100billion a year just on the interest.
“With yet more tax rises looming, it’s clear: Britain can’t afford Labour.”
Yvette Cooper, the newly appointed Foreign Secretary, said during a trip to Ukraine the decision to sack Lord Mandelson was “rightly taken” and she backed Sir Keir’s “strong leadership”. New Scotland Secretary Douglas Alexander told the Government was looking forward to moving on.
Deputy Labour leadership candidate and Education Secretary Bridget Phillipson made a plea for unity, stating: “We cannot afford to go back to the days of a divided Labour Party, to re-open old wounds. Labour Members want hope for the future, not grievance and division.”
The Chancellor was hit by another hammer blow last week as new figures showed the economy flatlining in July.
After a stronger-than-expected June, the Office for National Statistics revealed that GDP remained flat at 0.0% the following month.
Economic advisory firm Oxford Economics warned further tax rises were likely in the Budget, even though this would damage economic growth. A report authored by Edward Allenby, the firm’s UK Economist, said “Further tax rises look increasingly likely in the autumn. A combination of Government u-turns on welfare reforms and winter fuel payments for some pensioners, higher debt servicing costs, and the likely downward revisions to the Office for Budget Responsibility’s optimistic potential growth forecasts, suggest the Chancellor will need to tighten policy by around £30bn at her Budget on November 26.”
The Bank of England Monetary Policy Committee meets this week and could recommend a cut in interest rates. But Matthew Ryan, Head of Market Strategy at global financial services firm Ebury, said: “There is almost no chance of another cut, despite the bleak economic outlook. UK inflation remains too high for comfort, and until officials have confidence that the 2% target is in sight, we think that they will be reluctant to lower rates any further.”
Employers also warn that Labour’s new workers’ rights laws will make it harder to employ staff.
Tina McKenzie, Policy Chair of the Federation of Small Businesses, said: “The Employment Rights Bill threatens to be a real brake on growth if it is passed unamended.”
Whitehall is now rife with speculation about who will succeed Lord Mandelson as US ambassador.
Last night diplomatic sources said that former British ambassador to the US Dame Karen Pierce would accept the call to return to Washington, if asked.
Dame Karen was Britain’s UN ambassador in New York when she was called upon to replace Kim Darroch in 2020 after he was recalled from his role as British ambassador.
Since March this year she has been in Bosnia as the UK’s Special Envoy to the Western Balkans, tasked with upporting and strengthening regional stability and to encourage intra-regional cooperation.
And, with a spell as the FCO’s head Deputy Head of Eastern Adriatic (Balkans) Department under her belt, sources say she has embraced the role.
“She is dedicated to her mission – but would return to Washington’s if asked,” said a diplomatic source.
“While it may be unusual for an ambassador to occupy the same post twice, there is precedent. And ultimately, it is completely within the gift of the PM. If he wants it, it happens.
“However volatile the situation in the Balkans, the Washington Post is Britain’s most important, diplomatically and there are many advantages to her return.
“She is respected by Donald Trump and, from her time in New York, knows Trump and knows how to deal with him. This is, of course, a massive consideration.”