Rachel Reeves’ authority has not been dealt a blow by Sir Keir Starmer’s shake-up of his Downing Street team, No 10 has insisted as it sought to calm market jitters.
The Government’s “ironclad commitment” to its fiscal rules remains, the Prime Minister’s spokesman emphasised against a backdrop of soaring long-term government borrowing costs.
This week’s reshuffle saw the Chancellor’s deputy, Darren Jones, move into a new role as chief secretary to the Prime Minister.
Sir Keir also brought in Baroness Minouche Shafik, a former Bank of England deputy governor, as his chief economic adviser, and senior Treasury mandarin Dan York-Smith as his principal private secretary.
The reshuffle has been seen as a sign the Prime Minister is seeking to bolster No 10’s economic firepower before a tricky budget this autumn, with speculation rife over tax rises.
Sir Keir and Ms Reeves spoke “at length over the summer about how these changes would bolster their joint approach to the growth agenda,” the Prime Minister’s spokesman told reporters.
Asked whether Ms Reeves’ role has been diminished, the official said: “No, and as I say it reflects the strengthening of the relationship between the Prime Minister and the Chancellor, a determination to drive growth in the economy, a recommitment to our robust fiscal rules.”
But worries are mounting over the UK’s finances before the budget, with concerns that the Chancellor will be forced to hike taxes and slash spending to balance the books.
The yield on UK government bonds – also known as gilts – jumped to the highest level since 1998, at 5.698%, meaning it costs more for the Government to borrow from financial markets.
The pound also fell on Tuesday morning, down 1% to 1.34 US dollars and 0.6% lower at 1.15 euros.
Without commenting on specific market movements, Sir Keir’s spokesman said: “Our ironclad commitment to our robust fiscal rules remain.
“You’ll have seen since this Government took office that we have taken the necessary decisions to stabilise the public finances, drive growth.
“Our fiscal strategy has been backed by the IMF and others, and our approach has helped interest rates to be cut five times since the election, which is the best way to bring borrowing costs and inflation down.”
When she entered the Treasury, Ms Reeves set out two key fiscal rules: the first to ensure that day-to-day spending is matched by tax revenues by 2029-30 rather than borrowing, and the second to reduce net financial debt as a share of the economy.
Analysts have suggested the latest spike in gilts is a sign that investors do not have confidence the Treasury will stick to its borrowing rules.
The Prime Minister’s spokesman stressed that Mr Jones is “someone who has been involved in the work to stabilise the economy, invest in public services and an approach to the economy that’s brought borrowing costs down, brought interest rates down”.
Downing Street indicated that the Office for Budget Responsibility (OBR) has not yet been given the required 10 weeks’ notice to provide an independent forecast ahead of the budget, suggesting it will not happen before mid-November.
Sir Keir earlier brought together his senior ministers for their first Cabinet meeting after the summer recess and since the mini-reshuffle – on what was also the Prime Minister’s birthday.
Sir Keir told his Cabinet that “phase two” had begun, with changes made to the No 10 operation to help deliver higher living standards, improvements to public services and more secure borders.
“He said he and the Chancellor had spoken at length over the summer about how these changes would bolster their joint approach to the growth agenda and ensure it is a key factor when taking decisions,” the Prime Minister’s spokesman said.
Conservative leader Kemi Badenoch compared the shake-up to “shifting the deckchairs on the Titanic”, adding: “I don’t think it’s going to make any difference.”
Speaking to reporters on a visit to Scotland, she said: “I don’t know what this says about his confidence in the Chancellor, but the fact that he’s taken his chief secretary of the Treasury and put him into No 10 does not inspire me with confidence because he’s one of the people who’s been making the mess.”
Sir Keir, who turns 63 today, shut down an attempt by Cabinet colleagues to sing him Happy Birthday, according to his spokesman.
