Chancellor Rachel Reeves is expected to be sacked after Sir Keir Starmer's resignation, but her economic legacy may create a trap for potential successor Ed Miliband, according to a new analysis.
Reeves Faces the Axe
Reeves rose to power alongside Starmer, and now she appears set to fall with him. The look on her face on Monday, after the PM resigned, told it all. She wants to hold onto her job, and her supporters in the Labour Party are fighting to make her case, but it looks like a losing battle. Andy Burnham wants a clean break to send a signal to country and party, so it would be odd to leave her in position, especially given all the mistakes she has made.
Controversial Decisions and U-Turns
Reeves abruptly ended Starmer's post-election honeymoon period with her controversial decision to axe the Winter Fuel Payment for 10 million pensioners, which ended in a humiliating U-turn. Her maiden Budget was a nightmare, hitting Britons with £40 billion of tax rises after repeatedly claiming during the election campaign that “working people” wouldn't pay more.
By hiking employers’ National Insurance, she made it more expensive to hire people. Unemployment has risen on her watch, and businesses have struggled. Her botched welfare reforms triggered another U-turn and showed markets that Labour was unable to curb spending. Reeves had already lavished public sector workers with £10 billion worth of pay rises, with no productivity gains in return.
Economic Fallout
Many wealthy people fled the country to escape her non-doms raid, leaving ordinary workers to cover the lost tax revenues. Meanwhile, the economy slowed, borrowing rose and households felt poorer. Her second Budget brought another humiliating U-turn, this time on plans to increase income tax by 2p in the pound. She also raised tax rates on savings, while increasing benefits further, infuriating those who work for a living. No wonder Andy Burnham wants her gone.
Soaring Borrowing and Debt
She'll leave a dismal legacy at the Treasury, but it’s worse than that. Reeves will leave a ticking time bomb under the new PM and whoever replaces her as chancellor. Reeves repeatedly claims that she has restored stability and fixed the foundations of the economy, but it simply isn't true. Despite her much-vaunted fiscal rules, the nation's finances are racing out of control.
Public sector borrowing was already sky-high at £121.7 billion in the 2023/24 financial year, before she became chancellor. Reeves then drove it even higher to £151.9 billion in 2024/25. She borrowed £132 billion last year and is on course to borrow another £133 billion this year. The national debt could soon top a stunning £3 trillion.
Nightmare for Successor
This is the nightmare facing whoever follows her as chancellor, whether it is Wes Streeting, Yvette Cooper or most terrifyingly of all, Ed Miliband. It will also be a huge problem for Andy Burnham. He wants more tax and more growth, but as Reeves has shown, the two don't go together. Her tax raids have sunk economic confidence and growth, leaving the country in an even bigger mess than the one she inherited from the Conservatives.
Whoever follows her faces an even bigger challenge. And that's terrible news for taxpayers. This year's autumn Budget is shaping up to be as brutal as the two Rachel Reeves delivered. And possibly even worse, especially if Ed Miliband delivers it.
