ALEX BRUMMER: The Labor Party is losing its way

Few opposition parties are given enough time to prepare for a government like Keir Starmer’s Labour.

The only surprise about the British general election on July 4 was the timing.

When Rachel Reeves outlined Labour’s US economic plans in May 2023, accompanied by a policy document, the central theme was “security”.

There was praise for Biden’s focus on economic management. That was long before the chattering classes believed in the return of Donald Trump.

Since Reeves arrived at the Treasury, any reference to security has disappeared and the Chancellor often seems strangely lost. Even the often pro-Labour Financial Times is confused.

For all the talk of change and growth, Reeves has (according to an editorial) undermined the “animal spirits” of the economy.

This is a phrase, stolen from Britain’s most lauded economist, John Maynard Keynes, that should be familiar to readers of this space.

It took four months for the Chancellor to reveal her £40bn tax rise budget on 30 October. The long term, with a series of poorly orchestrated leaks, undermined the confidence of consumers, companies and entrepreneurs.

Optimistic investment surveys have faded over the horizon.

We now learn that a proposed public spending review, due in March with the spring budget, will not take place until June.

The messiness of the process shows a lack of preparation and uncertainty when the private sector, and indeed workers, crave stability.

Governments have a duty to prepare an autumn statement (or Budget) and a spring Budget. Reeves has injected new chaos into the proceedings.

It is true that there are serious problems to be resolved, such as the disastrous state of local authority finances, as highlighted this week by the National Audit Office.

But it’s hard not to contrast Reeves’s zigzags with Gordon Brown’s start when Labor last came to power with a large majority in 1997.

The Bank of England gained its independence within days and pension funds and public services were quickly taxed to fund Brown’s plans to end youth unemployment.

In the last 48 hours much attention has been paid to France’s budget problems. French bond yields have jumped to just under 3 percent amid fears that Michel Barnier’s government is on the brink of collapse.

Borrowing costs are at a similar level to Greece, often seen as the eurozone’s weak link. Before anyone laughs out loud, it’s worth remembering that Greece has recovered memorably since the dark days of the euro crisis, when its ten-year bond yield peaked at 35 percent.

Furthermore, Starmer and Reeves have failed to calm UK bond markets despite Britain’s biggest ever tax hike budget.

Ten-year bonds are trading at a yield of 4.25 percent, one and a quarter percent higher than France, and at a level that has sent the cost of fixed-rate mortgages in the wrong direction.

Hopes that the Labor Party will show a confident approach to the economy, public finances and cheaper home loans have faded.

hidden gems

Missing from the Bank of England’s financial stability report is any direct mention of the car finance scandal and the compensation bill making its way through the courts and regulatory process.

However, the Bank’s regulatory tsar, Sam Woods, pointed out that when the Bank did its most recent stress test on commercial lenders, it was there, potentially costing £25bn used in the modelling.

This reminds me of the apocryphal story of a journalist sent on a mission to the Lake District who charged a pair of hiking boots on his expenses claim.

Fired with a flea in his ear, he resubmitted the expenses for the same amount without the boots. When asked what happened to the boots, he replied: “They’re there, it’s okay.”

Turning hostile

If Amanda Blanc thought the £3.3bn bid for Direct Line was going to be an easy sell, she must be very disappointed.

Information hostilities have begun with suggestions that Direct Line’s directors could be breaching their “fiduciary duty” if the board did not submit a bid, at a pre-bid premium of 57.5 per cent, directly to shareholders .

Guns at dawn before the Christmas Day deadline.