By James Kirkup, Partner, Apella Advisors
Keir Starmer is safe – for now
It’s worth remembering that the PM went into the conference facing a challenge to his position from Andy Burnham and significant anger among Labour MPs about missteps including the hiring and firing of Peter Mandelson. Add in polls showing Starmer is the most unpopular PM in history and the result was significant political-media speculation about his position.
That speculation can be shelved for now. It was always slightly fanciful to think that the Labour Party was psychologically prepared to move against a leader who last year won a landslide election victory, but the events of conference confirm Starmer’s position is secure. He rallied his party by attacking Nigel Farage, and was helped by Burnham’s clumsy manoeuvring, which only underlines the fact that there is no clear or obvious alternative to Starmer as Labour leader. Until that changes, he’s safe. But some Labour MPs are watching Angela Rayner with great interest, expecting her to feature in the next bout of leadership speculation that is likely to come before or after May’s local elections.
Labour enjoys attacking Reform, but is still deeply divided on strategy
Focussing the conference on Nigel Farage and Reform had the desired effect of rallying Labour people against a common enemy, but the fundamental tensions around Labour’s political strategy remain unresolved.
Is Labour’s priority winning back voters it has lost to the Greens, Lib Dems and potentially Jeremy Corbyn’s party? Or is it trying to persuade some of Farage’s backers to vote Labour? The first group of voters is more numerous but it is Reform backers who remain the key audience for the “Blue Labour” faction, driven by Downing Street Chief of Staff Morgan McSweeney.
Despite an outwardly happy conference, the tension between these aims runs deep in Labour.
Starmer’s attack on Reform’s migration policies as “racist” cheered many Labour people, who believe there is a moral case for condemning Farage’s movement. But a significant minority of Labour MPs were extremely uneasy about this approach.
“It’s stupid and makes it too easy for Farage to say we hate his voters,” said a minister close to the Blue Labour view. An MP from the same faction says the PM’s insistence that he called Reform policies racist – rather than the party itself – is a “pointless distinction”. The MP says: “All voters have heard is that we think they’re racists for wanting to control immigration.”
Yet the McSweeney strategy is losing traction with Labour MPs, who increasingly subscribe to the view that Labour must win back “progressives” and has nothing to fear from condemning Reform in stark terms.
The result is confused messaging. Is the “line to take” that Reform are incompetents who would crash the economy? Or that they a malign force promoting racist policies?
People on both sides of this debate put their hope in tactical voting: by framing the next election as a choice between Prime Minister Starmer or Prime Minister Farage, Labour planners hope to encourage those progressive voters accept Labour as the best way to stop Farage.
Expect this messaging to become more explicit in time: “a vote for the Greens is a vote for Nigel Farage in Downing Street”, perhaps. But the tensions around Labour’s strategy and messaging will only grow, especially as next year’s local elections approach.
The Downing Street “reset” hasn’t worked yet
In early September, the PM rejigged his office (again) seeking to build machinery of government that would allow the centre to assert itself on Whitehall departments and push through “delivery”. It hasn’t worked. Talking to ministers and special advisers in Liverpool, a common theme was that the No 10 operation still lacks clarity and force.
One Cabinet minister was strikingly critical: “Even in the worst days of Gordon [Brown], No 10 set the direction for government. Now there’s none of that, no sense of direction or anyone being in charge.”
A special advisor said: “It’s all WhatsApp groups where too many people chip in with opinions and any final decision depends on who sends the last message.”
Another special adviser glumly notes that fixating on personnel and even structures in Downing Street is a way of avoiding talking about the ultimate issue: the PM and his approach. “It doesn’t matter who you hire or how you set the place up. He’s the problem and he’s not going to change.”
Rachel Reeves holds the fate of the Government in her hand
Even amid an inward-facing conference, wiser Labour figures remained focused on the event that really matters to the Government’s trajectory, the November Budget. If that Budget is followed by significant falls in gilts, rising yields could well spell the end of the Starmer project. So Rachel Reeves can reasonably be expected to focus on fiscal consolidation above all else, even if it upsets some – and possibly many – Labour people.
Labour’s willingness to accept the discipline of the bond markets remains unclear. Andy Burnham’s misjudged intervention, appearing to question the need to retain investor confidence, proved mildly helpful for Reeves, allowing her scope to warn of the risks to the UK of higher yields: expect to hear more warnings of the Liz Truss-style disasters that could result from uncontrolled borrowing as the Budget approaches.
And Reeves’ own position was solidified by the conference – her speech wasn’t rabble-rousing, but it was well-crafted to link Labour themes of strong public services to the need for fiscal discipline.
But her ability to land a Budget that keeps the markets calm without provoking unmanageable Labour uproar remains the decisive factor for the Starmer government.
There are some positive signs for Reeves here. Her conference reception suggests she still has some residual support from the party. And the Budget Board that formalizes No 10 – HMT conversations about the Budget is generally agreed to be working well (though some members are exasperated with pensions minister Torsten Bell “being so rude to everyone”.)
But on the negative side for Reeves and fiscal restraint, Labour’s approach to welfare spending remains mixed at best. The inevitable retreat on the two-child limit could add another £3 billion to spending. On the other hand, Starmer has started to signal new willingness to curb spending on mental health benefits. The welfare story is not over.
The more immediate question is how Reeves will close the latest fiscal gap. Will she break manifesto promises on income tax or VAT? Our bet is that she won’t: yes, the big taxes raise big money (which is needed to reassure the markets) but the political cost would be huge, and could well raise doubts about the Government’s stability (which would alarm the markets). So, based on conversations with a range of Labour contacts, our guess is a package of tax rises on pensions, banks, gambling firms and maybe even tech businesses.
The Bank of England is in the firing line
In the quiet corners of the conference, it was possible to hear knives being sharpened for the Bank of England. For a growing number of Labour MPs, the Bank is culpable in the UK’s economic malaise, and therefore Labour’s political woes. An argument that is increasingly popular with Soft Left MPs is that the Bank has favoured the financial services sector – and retail banks in particular – at the expense of the wider economy.
A few Labour MPs are also muttering darkly about the Office for Budget
Responsibility, whose imminent downgrade of its forecasts for UK productivity will worsen its fiscal forecast and push the Treasury towards greater fiscal consolidation.
To be entirely clear, none of this unhappiness comes directly from HM Treasury: Rachel Reeves and team are scrupulous in their support for independent economic institutions, and will do nothing to question their role. But her colleagues are grinding their teeth and some suspect the Chancellor herself is privately unhappy too – even if she’d never say so.
Apprenticeships matter even more
Starmer’s decision to end the – notional – commitment to sending 50% of 18-year-olds to university was a big deal for Labour, and matters to business. It’s part of that debate about Reform voters, who tend not to have degrees and place higher value on vocational routes. The new pledge (two-thirds going to HE or a “gold standard” apprenticeship) will bring new focus on apprenticeships and the levy that’s supposed to help fund them. This is both an opportunity and a risk for the businesses that pay the levy and employ the apprenticeships. Especially since this is driven by one of the Government’s most effective ministers, Pat McFadden.
Mayors are open for business – investors take note
Amid extensive commentary about Labour’s relationship with business, it was striking to note how positive Labour’s elected mayors are about the private sector and the need for investment in their areas.
Tracy Brabin, mayor of West Yorkshire, champions Leeds as the home of the “Northern Square Mile” financial services hub. “As mayors, we have to deliver growth to prove our worth,” she said.
Claire Ward, the mayor of the East Midlands, was pushing for a return to public-private partnerships in the tradition of the Private Finance Initiative. That might be controversial, she noted, but Labour has no choice but to use private capital to deliver public policy aims. “People want delivery. We haven’t got the money. Let’s look at these models – we just need to bite the bullet.”