The Chancellor City insiders would fear the most

While Keir Starmer clings on to his premiership, in the City all eyes are on Chancellor Rachel Reeves. If Starmer goes, it is probable his successor will ditch Reeves in order to change economic policy, and free themselves from Reeves’s fiscal rules, which have limited her room for manoeuvre. If he manages to keep his job it is possible that he ousts Reeves in a reshuffle, in order to have an eye-catching economic reset. “She is the elephant in the room as far as we’re concerned. What happens to her?” one City insider said. “A reshuffle that keeps her in post could not be hailed as a major reset, a refresh, as Starmer would like it to be, without moving her.” Shorts A taste of the dangerous financial shifts that could come if Starmer loses his job, or reshuffles Reeves, came last July when borrowing costs surged and the pound fell after Reeves appeared in the Commons in tears – leading to speculation that she was about to resign or be sacked. Changing Chancellor is a drastic measure Similarly, on Tuesday morning, when speculation that Starmer was about to quit was at its highest, the bond markets again wobbled and the price of borrowing – essentially how much the Government pays to service its debt – hit its highest levels since 1998. This means less money for the government to spend, meaning it has to borrow more, at more expense – a vicious economic circle. The markets like stabilty. But this does not mean that Reeves is universally popular. Nevertheless, ditching the Chancellor would be seen as a drastic measure. Usually the Prime Minister and Chancellor work in tandem – the leader and the keeper of the public purse. In Labour’s case that is doubly so, since Starmer and Reeves performed a double act in the run-up to the general election, gladhanding the UK’s boardrooms and persuading business leaders they could be trusted with the nation’s economic levers. To drop her would be a signal that the project they tried so hard to sell simply isn’t working. Reeves herself has kept her own counsel over whether Starmer should stay or go during the last few days of leadership uncertainty. On Thursday morning, however, she broke cover on the back of better-than-expected growth figures – and made a pitch to whoever may take over that she should keep her job. Reeves pitches to keep her job Talking to the BBC on Thursday morning, she said a leadership election would “plunge the country into chaos at a time when our plan to grow the economy is starting to bear fruit”. “Today’s numbers show that the economy is growing strongly,” she said. “The numbers show the economy is growing because of the decisions I have made as Chancellor.” The economy grew by 0.6 per cent in the first three months of the year, despite the conflict in Iran and against experts’ predictions. Where Reeves is concerned, however, there is a twist, which is that she is so personally identified with breaking the trust established with businesses by unexpectedly raising the employers’ national insurance levy in her first budget. It was Starmer’s policy as well, but it was Reeves who was on the airwaves and in speeches and articles explaining the rationale. They have never forgiven her for that, and blame her for the extra costs for the struggle to boost growth, as well as heaping more pressure on struggling pubs, hotels and restaurants. When you put it alongside other measures aimed at taxing the wealthy and the private sector, the sense of breakdown is compounded. The country might have stopped listening to Starmer; the City ceased paying regard to Reeves a long time ago. Miliband is the name most ‘dread’ This does not mean, however, that those in the economy’s financial engine room, would welcome a change. If she went then, there might be a cheer. But only momentarily. Because the thought would immediately turn to her successor. The most alarming scenario would be if both Starmer and Reeves fell. “If Starmer stays and Reeves goes, the reaction will be mixed; but if Starmer and Reeves go, it will be negative.” That was the view of a City analyst and it’s widely shared in the Square Mile. A new leader would wish to make a splash, to recapture lost Labour voters. That would be bound to be some form of tax giveaway and public expenditure commitment, which would have to be funded, either from increased Government borrowing or higher taxes on others or both. The current touted front-runners as replacements for Starmer, said one City analyst, are seen as “terrible”. Angela Rayner and Andy Burnham would move the Government leftwards. Streeting less so, but the City would still see him as worse than Starmer. The name that fills the City with the most dread is Ed Miliband. There is speculation that he could be Burnham’s choice. He’s seen as a left-wing ideologue, someone who is not easily persuaded. What the City terms “sensible” names – which is code for “to their liking” and someone who “gets” commerce and capitalism – are being bandied around. John Healey, the Defence Secretary, is one. Pat McFadden, Work and Pensions Secretary, is another. Darren Jones, the former chief secretary to the Treasury and a favourite of Starmer, now installed as chief secretary to the Prime Minister, is mentioned. As is Douglas Alexander, the Scottish Secretary. “We’re hearing lots of names, it’s hard to pick one”, said an economist. Starmer is ‘sensible’ Any one of those would add heft, which has been lacking since Reeves’ own qualifications took a beating, earning her the mocking nickname of “Rachel from accounts”. (This may appear trivial to those outside the City, an excuse for a bit of a laugh. Inside, though, they regard such things extremely seriously. Not least, because overstating your experience is a red line in most institutions. It also destroys respect. Saying you’re a former economist from the Bank of England commands a ready, heavyweight audience; merely having worked there does not.) The one word that crops up time and again when discussing Starmer with City chiefs is that he is “sensible”. His natural, steady-as-he-goes, personality may be interpreted as a weakness in some quarters but there, it is a strength. They do not appreciate surprises and uncertainty, and the expectation is that a new broom would provoke upheaval and upset. The last premier who tried to make an instant splash was Liz Truss and look what the City did to her. Some in Labour, sections of the media, and social media may be demanding change. The City’s preference is better the devil they know. It’s hardly a ringing endorsement but neither is it thumbs down. They would like Starmer and on balance, Reeves, to remain.