It’s hard to look away from the Lord Mandelson scandal. Starmer looks finished, following today’s resignation of right-hand man Morgan McSweeney. Labour MPs certainly think so. These days they talk of nothing else except who replaces him. His fall from grace since that electoral landslide 18 months ago is astonishing. It takes real political incompetence to pull that off, but Sir Keir had it in him.
Speculation about his successor has gripped Westminster. Wes Streeting? His cosy relationship with Mandelson might sink him too. Ed Miliband? The country turned him down flat in 2015. Andy Burnham? He’s not even an MP. Angela Rayner? She’s tainted by her tax troubles, but activists still adore her. What a mess.
Watching Labour fight this out might by funny if the consequences weren’t so grave. Because the UK isn’t just embroiled in a political crisis. It’s on the brink of a full-blown economic one too.
Labour has already inflicted serious long-term damage. Growth has stalled. Unemployment is rising. Businesses are closing. Pubs are on the brink. Inflation remains sticky. Public spending is out of control. Welfare ballooning. And the public sector keeps demanding more money while delivering less.
These problems need urgent attention from competent politicians. Instead, we have a party consumed by internal warfare.
What’s getting lost amid the drama is just how fragile the UK’s finances have become. Rachel Reeves may be taxing Britain harder than any Chancellor before her, but she’s nowhere near balancing the books. Borrowing is heading towards £150billion this year, and her fiscal headroom has just evaporated again. More tax rises look inevitable.
Westminster may be distracted by the leadership debt, but there’s a price to pay. Bond markets investor are demanding a higher rates of interest to lend us money, due to the higher risk we represent. They call it the « moron » premium, because they think the UK is run by, well, work it out.
The Bank of England cut interest rates in December and has just hinted at another cut in March, yet 10-year gilt yields are climbing. Which makes it even costlier to service the national debt. The pound has been wobbling too. Investors may not rate Starmer or Reeves, but the thought of PM Angela Rayner terrifies them, and rightly so.
Rayner couldn’t even get her head around HMRC’s stamp duty rules. Imagine her running the world’s sixth-largest economy. With Ed Miliband as Chancellor. Our moron premium would go through the roof.
Rayner’s appeal to Labour die-hards is that she “says it like it is”. That would be lethal in Downing Street. One careless remark could trigger a surge in gilt yields or run on the pound. Possibly both. We had a glimpse of the danger recently, when Burnham stupidly said Britain needed to get over “being in hock to the bond market”. Gilt yields surged immediately. Message to Labour: The only way to avoid being in hock to the bond market is to stop tapping investors up for more and more money.
A Labour leadership contest would terrify gilt investors, as candidates woo party activists with promises of even more net zero spending, higher taxes and another public sector splurge.
It wouldn’t take much to spark another Liz Truss-style blow-up. Just one rash phrase from Rayner, or any other candidate, and gilt investor trust could collapse. Briton is on a financial knife edge, but the Labour Party is too busy naval gazing to even notice.
