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History shows us that prime ministers tend to go down with chancellors
The closeness between Reeves and Starmer may well save her in the short term and damage him in the long term.
Rachel Reeves’s tired and haggard face as she sat on the front bench at last week’s PMQs was a picture that told a story.
As government borrowing costs shoot up to the highest level for fifteen years, she is a Chancellor of the Exchequer under pressure. Markets are looking sceptically at her flat assertions that there will be only one budget a year and no more major tax rises this parliament.
Doubts are being raised, including on her own side, about how long she can last at the Treasury. On Monday, at yet another would-be policy launch disrupted by external factors, Sir Keir Starmer reiterated he had “full confidence” in his chancellor as “absolutely central to what we do”. At the same time, he enhanced the impression of a football chairman shortly before parting company with the manager by ducking the question of whether she will be in post by the next general election.
There is speculation in the financial press that Reeves will be “binned” after what promises to be a very awkward financial statement in March. Nobody is giving odds on Starmer/Reeves lasting a decade to match New Labour’s formidable, if fractious, Blair/Brown combo. Yet, if anything, this prime minister and chancellor seem more dependent on each other.
Prime ministers and chancellors tend to be mutually dependent. The churn at the Treasury has generally been slower than in other departments. There have been dozens of education secretaries, for example, since Margaret Thatcher held the job, but only ten prime ministers since she went into Number 10. And just fifteen chancellors next door at Number 10.
Rachel Reeves appears to be still some distance from the brink. There has been no dramatic economic crisis to force big changes. But things are not going well. Inflation is “stubbornly high”, the Treasury’s fiscal rules are close to being broken, growth projections are pitiful. The pound sterling is sliding in foreign exchange markets.
There is widespread scepticism that Chancellor Reeves has adopted a strategy which will stimulate growth. She has lost the confidence of business. The walls seem to be closing in on the government’s economic options. Much of this may not be her fault. Certainly the jibes about “Rachel from Accounts” are uncalled for and sexist. She is an economist. But then I seem to remember Ken Clarke the lawyer, politician and former chancellor, who is defending her now, once remarking that “the last thing you want at the Treasury is an economist”.
The job is about more than figures and economic theory. Markets and the market sentiment are beyond the control of any government. Storms can blow up quickly, especially when the markets are already choppy.
The person in charge of the nation’s finances is a big political figure, and the only cabinet minister other than the prime minister, who is routinely replied to by the leader of the opposition, on Budget Day. In their own interests, chancellors and prime ministers usually stick together, aware that falling out often leads to the fall of them both and their government.
When a financial crisis hits, a prime minister may try to reset by replacing the chancellor. Whether they remain loyal to each other or not, such upheavals have also often foretold the fall of a governing party at the next general election.
Both prime minister Jim Callaghan and chancellor Denis Healey survived the 1976 crisis when the UK needed a “standby loan” from the IMF. Only to be ousted by Thatcher’s Conservatives in 1979 as inflation and trade union strife continued.
Two of Margaret Thatcher’s chancellors did for her. Nigel Lawson’s shock resignation in October 1989 ignited a year long leadership challenge. A year later, Geoffrey Howe, a chancellor she once moved aside for Lawson, finally left the cabinet with a resignation speech in parliament which delivered the coup de grace to her premiership.
Prime minister John Major tried to keep on Norman Lamont, his friend and chancellor after Black Wednesday, 16 September 1992. Markets forced the pound out of the European Exchange Rate mechanism and voters were terrified by emergency measures driving interest rates up to 15 per cent. Six months later, Lamont was out and Kenneth Clarke in. Even his economic recovery could not stop the Conservatives being punished in Blair’s landslide four years later.
George Osborne and David Cameron enjoyed a successful political partnership until Cameron ignored Osborne’s advice not to call an EU referendum. Liz Truss and Kwarzi Kwarteng formed a short-lived dynamic duo in October 2022 until their ill-advised mini-budget detonated. In an attempt to save herself, Truss sacked Kwarteng, only to follow him out of the door eleven days later.
There were five other Conservative chancellors serving the total of five Conservative prime ministers between the summer of 2016 and the Tory’s rout on 4 July 2024. Philip Hammond, Sajid Javid, Rishi Sunak, Nadhim Zahawi and Jeremy Hunt were compromise candidates rather than bosom buddies of the “First Lord of the Treasury” in 10 Downing Street. None were able to concentrate long enough to stop the economy declining.
The closeness between Reeves and Starmer may well save her in the short term and damage him in the long term. With their frequent joint appearances, they were the joint faces of Starmer’s election campaign and victory. Since then, he has relied on her analysis of the dire “black hole” inheritance from the Conservatives and her promise of stability and growth.
Reeves precarious position now is in large part because her outlook is so similar to Starmer’s. There has been little creative tension between the occupants of numbers 10 and 11 Downing Street. Both of them are confident that the Tories messed up the economy and that they must be given time to put it back on track. As part of this technocratic approach, they have revelled in “hard choices” hitting what they see as interest groups in contrast to the “working people” such as pensioners, users of private schools, businesses, and farmers. At the same time taxes on “working people” have gone up by stealth but the government has not the courage to argue that, if the economy is to be turned around for everyone, then everyone will have to contribute in the end.
It may be that a coherent case can be made for these measures – but it has not been made. Worse they are not working as yet. Perhaps unreasonably, the patient public is yearning for some signs of imminent improvement.
Starmer and Reeves's lack of political antenna resulted in winter fuel payments slashed in the same week that rail unions got above inflation pay awards. Their disregard for the little things as they concentrated on strategy led to their clumsy acceptance of freebies at the same time as dour lectures were handed out to an electorate, which thought it had voted for “change” rather than endless reminders of the government they had just rejected.
In response to all this, the government got rid of Sue Gray and appointed a head of “strategic communications”, who has remained invisible ever since. Reeves has not been touched. This weekend, she was dispatched to do business with China.
This government has a large parliamentary majority which puts time on its side. But it would be a pity to grimly run down the clock without learning from Labour’s first six months back in power. This government needs tactical nous - to inspire rather than berate. If the mood does not pick up soon, recent political history suggests that could mean a change of economic strategy and, at the very least, a change of chancellor.