Rachel Reeves is misleading people about her Budget choices – and Starmer could fall with her

The original sin of this Labour government is that it was utterly unprepared for office. In opposition, Keir Starmer thought that hiring Sue Gray – a mid-level civil servant with a certain mystique to her reputation – was all he needed to do while he and his team focused on winning the election.

Thus, he and Rachel Reeves yielded hostage after hostage to fortune, and they are now paying the ransom.

There was the drafting of the manifesto. The wording of the section on tax was a mess. It said “Labour will not increase taxes on working people”, a blanket pledge which was followed by specific promises on national insurance, income tax rates and VAT.

During the election campaign, Starmer and Reeves compounded the problem by accusing Rishi Sunak of “lying” when he said that Labour would put up taxes. It is never a good idea, in politics or in life, to use the l-word, and here is a good example of the trouble it leads to. The video clips of Starmer and Reeves are on loops on social media now that Sunak turned out to be right, as everyone knew he would be.

Then, in her first Budget, Reeves said she would not extend the income tax thresholds freeze – a stealth tax that she inherited from the Conservatives. She said it would be a tax on working people, so she ruled it out for the future as well. This was unwise, as many commentators pointed out at the time, because she couldn’t be sure that she wouldn’t need to do it.

After her first Budget, she told the CBI that she was “not coming back with … more taxes”, before hurriedly clarifying that she meant “... on the same scale” as the taxes she had just imposed.

Three weeks before this month’s Budget, she gave a scary speech in Downing Street, warning that bad things were about to happen. Yet she already knew that the Office for Budget Responsibility forecast wasn’t as bad as outsiders assumed it was.

Maybe she was hoping that the voters would sigh with relief when she raised taxes by “only” £26bn a year in three years. Instead, journalists felt they had been led up the path to Mount Doom and back down again, and the voters are left wondering why they are paying higher taxes for higher welfare spending.

Her defence of this Budget is now completely confused. She hasn’t broken the manifesto promise, she says, although she has asked “working people” to “pay a little bit more”. And while she claims, in an interview today, that she has “chosen to protect public services”, the immediate increase in spending is on welfare, while plans for spending on everything else degenerate into “we’ll worry about that later” in the year before the next election.

For a chess player, the chancellor cannot seem to see one move ahead, let alone a whole game. Which is why Starmer should worry when The Guardian asked her about the prospect of a challenge to his leadership. “I just don’t think it is a mainstream thing in the parliamentary Labour Party,” she said.

But it is not the “mainstream” of Labour MPs that Starmer needs to worry about – he should fear the most unreasonable 20 per cent of them. It would take that many MPs – 81 of them – to nominate Angela Rayner to force a leadership election. There are about 30 Labour MPs in the Socialist Campaign Group or with a similar outlook. So it needs only 51 MPs of the so-called soft left to go over the top and it is game over.

It seemed like a big deal at the time, in 2021, when Morgan McSweeney, Starmer’s fixer, and Shabana Mahmood, Starmer’s other fixer, changed the party rules to make a leadership challenge harder. They pushed it as far as they could, and only just got the change through the party conference, but in hindsight, they didn’t go nearly far enough.

That change raised the proportion of Labour MPs needed to nominate a challenger from 10 per cent to 20 per cent. So all it takes is 81 MPs and it goes to the members. And the members, according to a Survation poll for Labour List this month, would vote for Rayner over Starmer by about 60 per cent to 40 per cent (excluding don’t knows).

With Starmer staring defeat in the face, he might be persuaded to stand aside and let Wes Streeting stand against Rayner. This manoeuvre might be complicated by McSweeney having apparently fallen out with Streeting, which is the most plausible explanation for No 10’s briefing against the health secretary a few weeks ago.

I have previously been sceptical about a leadership challenge after the May local elections, not least because Labour rules require MPs nominating a rival candidate to go public, unlike the secret Tory procedure. I had assumed that Starmer would survive until 2027.

Now I am not so sure. He and Reeves have been so bad at thinking and planning ahead that they may have failed to foresee their own fall.