Prime Minister’s Questions is often hard to watch, because it’s a brief and unedifying spectacle of competitive boasting and jeering. But yesterday’s PMQs was hard to watch because the Chancellor was crying. The image on the front of all of today’s newspapers shows a seemingly oblivious Prime Minister standing at the despatch box, failing to support his Chancellor as she struggled to maintain composure on the front bench. But while Starmer may not have backed Reeves at that point, the bond market did.
Starmer was asked by the leader of the opposition, Kemi Badenoch, if Reeves would still be Chancellor by the end of the parliament, and the Prime Minister answered with a standard, non-committal riposte. Financial markets, however, took this – and the Chancellor’s obvious distress – to mean that Reeves’ position was not secure. This led to a sharp repricing of government debt as investors sold off gilts (UK government bonds), causing their yields (the cost of borrowing) to rise. It should be pointed out that the yields on ten-year and 30-year gilts have both been higher in recent months, but the timing of the rapid increase in borrowing costs showed this move was clearly related to uncertainty as to whether Reeves would stay. The Chancellor has been the government’s clearest and loudest exponent of fiscal rules and spending discipline; the message from investors was that were she to go now, it would cost the UK more to borrow.
Shortly after PMQs, this was confirmed as Starmer’s office issued a more full-throated reassurance of Reeves’ position; yields reduced somewhat and the pound rose slightly. The recovery in bond prices and the value of the pound has continued this morning. Reeves is demonstrably an important part of investors’ calculations on the value of UK debt.
That said, like any piece of market theatre – including the Truss-Kwarteng episode of 2022 – this wasn’t really a move with a single cause. On Tuesday, the Office for Budget Responsibility had admitted that it had over-estimated how fast the UK economy has been growing; a downgrade in its forecast for growth could lead to Reeves having to find an extra £10bn-£20bn in order to meet fiscal rules in the autumn. And the previous night, the government’s attempts to save £5.5bn from the welfare bill had effectively been defeated by its own MPs. The government had therefore shown that it is not in full control of its finances, which are probably in an even more parlous state than was previously assumed. The prospect of a new Chancellor – perhaps one with less of an iron grip on the fiscal rules – clearly led some investors to conclude that it was time to change their exposure to UK debt.
Prime Ministers are advised, in preparation for their weekly grilling at PMQs, not to allow the opposition to bounce them into announcing anything about policy or the composition of their government. This was once good advice for retaining control of the message. But in a time of very high government debt, it no longer applies. Starmer should also have considered the need to send a clear signal of consistency to the market.
Last night, Starmer reiterated in a BBC interview that Reeves’ distress was a “personal matter” and that speculation over Reeves’ career being the cause of her distress was “absolutely wrong” – it had “nothing to do with politics”, he said, and “nothing to do with the matters of this week”. She would, he said, be Chancellor “for a very long time to come”.
This suggests that Reeves was put into a difficult position yesterday, one which was revealing of her character. Clearly, it would not have been good for Starmer or the government if she had skipped PMQs. And so she decided to appear on the front bench, whatever else was going on. How many of us would have the grit to put the job first in that moment – to agree to be humiliated by a baying crowd of political opponents, on live TV, in the middle of a distressing personal situation? Not many, I think.
It also says something about Badenoch that she chose to pick upon the Chancellor’s appearance in that moment, seeing it only as an opportunity to score a point. Politics is a contact sport, but Badenoch’s response to seeing an opponent in acute distress suggests either that she was not able to imagine that a person might be experiencing something more personally upsetting than the immediate debate, or that she did not care. Either way, it suggests a personality unsuited to power.
I make this point because the opposition, too, would have been a factor in the market reaction to the idea of Reeves being sacked. Market values are the expression of a wide range of risks. Gilt prices yesterday reflected not only the possibility that Reeves might be replaced by a Labour politician with an identical fiscal policy, but also the repricing of the risk that the Conservative Party might return to power. The market, like most of the population, appears highly sceptical that the UK economy would be better off in the hands of Kemi Badenoch.
[See also: It’s time for Starmer and Reeves to embrace the soft left]
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