“Season’s Streeting’s”

• It has begun.
  • Last night No10 briefed lobby journalists that the PM would fight any leadership challenge in the wake of the Budget, warning that to bring one risked destabilising financial markets.
  • Specifically the finger was pointed at longtime young pretender, the Health Secretary Wes Streeting, who according to the Guardian, has “50 frontbenchers willing to stand down if the budget landed badly and the prime minister did not go”. 
• We already knew that Starmer’s enemies had means, motive and, with the Budget, opportunity. We now know that the Prime Minister knows.
  • Briefing such specific information smacks of desperation, rather than strength. 
  • It reveals the inevitability of a challenge.
    • It forced Streeting’s official spokesman to issue a rebuttal that any plotting was “categorically untrue”. 
• By pinning his survival on the financial markets, it also leaves the PM vulnerable to those self-same markets.
  • The UK has been the high beta on any global government bond sell-offs due to the precarious state of its finances for some time.
  • Despite a short-lived rout stopping in the wake of Rachel Reeves’ tears, Gilt prices are not embodied in the persona of one politician.
  • Rather, the markets have judged that Reeves/Starmer still have a huge majority and on a relative basis will pursue a more credible plan than any other leadership combination.
• This assumption will now be challenged.
  • The expected manifesto-breaking rise in income tax is set to be used to buy off restive Labour MPs, with indications from both Starmer and Reeves that the two child benefit cap will be lifted in full and the WASPI women compensation to be resurrected.
  • Following the u-turn on the Winter Fuel Payment and failure to pass welfare reforms, the “black hole” just keeps rising. 
• This is classic tax-and-spend.
  • Reeves set out her ideology in her 2024 Mais Lecture, arguing Brown and Blair didn’t go far enough.
    • As she said of New Labour: “the analysis on which it built was too narrow. Stability was a necessary, but not a sufficient condition to generate private sector investment. An underregulated financial sector could generate immense wealth but posed profound structural risks too”.
• The government is returning to its roots.
  • Having plummeted in the polls without doing anything very unpopular, they are now about to raise income tax for the first time in 50 years.
    • Even lifting the two child benefit cap is opposed by a majority of their own voters, according to YouGov:

Markets must price in more political volatility ahead, including risks of a more left wing government.