Sir Keir Starmer finally moved to bolster Rachel Reeves on Wednesday after his chancellor wept through a tense PMQs session on live TV, spooking financial markets and knocking the value of the pound.
The prime minister said Ms Reeves will be running the country’s finances for “a very long time to come” after a Downing Street spokesman guaranteed her job at least until the next general election.
It came as he floundered over the £5bn black hole left in the public finances by his benefit cuts U-turn before refusing to offer a visibly tearful Ms Reeves comfort - or reassurance she was safe. Pressure had been building on the PM to sack her as chancellor, alongside controversial chief of staff Morgan McSweeney, over the welfare debacle.
But the adverse reaction in the bond markets to her tears appears to have shored up Ms Reeves’ position. And, intertwining his fate with his chancellor’s, the prime minister said: “She and I work together, we think together”.
Speaking on Wednesday night to the BBC’s podcast Political Thinking with Nick Robinson, Sir Keir said: “It’s got nothing to do with politics, nothing to do with what’s happened this week. It was a personal matter for her. I’m not going to intrude on her privacy by talking to you about that. It is a personal matter.”
Asked if Ms Reeves would remain in her post, the prime minister said: “She will be Chancellor by the time this is broadcast, she will be Chancellor for a very long time to come, because this project that we’ve been working on to change the Labour party, to win the election, change the country, that is a project which the Chancellor and I’ve been working on together.”
The Prime Minister told Virgin Radio: "She's fine. She's good... I had a long chat with her last night.
"She's very resilient and strong is Rachel. She's driven through lots of change in the Labour Party. We've had to change the Labour Party, fought an election together.
"I've seen her resilience first hand. I admire it. She's a really powerful woman, and she's also very widely respected.
"The sort of messages of concern that have come in over the last 24 hours or so show the great affection and respect in which she is held.
"People are held in respect for a reason, and that's because people know they're very good at what they're doing."
A senior Labour figure said the backbench revolt – and the last-minute concessions that hollowed out the welfare bill – were “terminal” for the prime minister’s political prospects. And there were renewed calls from backbench Labour MPs for the party to pursue a wealth tax after the welfare fiasco.
And after the Institute for Fiscal Studies revealed that the watered-down welfare reforms would end up costing money rather than saving billions as originally planned, the bond markets also became uneasy.
Ms Reeves appeared emotional at PMQs as opposition leader Kemi Badenoch mocked her as looking “absolutely miserable” and pressed Sir Keir on whether the chancellor’s job was even guaranteed.
“Labour MPs are going on the record saying that the chancellor is toast,” the Conservative leader said. “The reality is that she is a human shield for the prime minister’s incompetence. In January, he said that she would be in post until the next election. Will she really?”
Instead of confirming that Ms Reeves would stay, Sir Keir ignored the question and chose insult the Tory leader.
“I have to say that I am always cheered up when she asks me questions or responds to a statement, because she always makes a complete mess of it and shows just how unserious and irrelevant the Conservatives are,” he said.
Ms Reeves’s sister Ellie, a Labour MP and a minister, appeared to hold the chancellor’s hand as the pair left the chamber.
Downing Street later insisted Ms Reeves has Sir Keir’s “full backing”, while a spokesperson said Ms Reeves had been upset about a “personal matter”. Later still, it was claimed by ministers that Ms Reeves had been left in tears by an altercation with speaker Sir Lindsay Hoyle, who had complained to her about her performance at Treasury questions on Tuesday. The Speaker’s Office declined to comment.
The prime minister said on Wednesday evening Ms Reeves was doing a “fantastic job”, adding that it was “absolutely wrong” to suggest her tearful appearance in the Commons related to the welfare U-turn.
Just two days short of the first anniversary of Labour’s landslide election victory, the shambolic scenes came as pressure mounted on Sir Keir to perform a radical shift by sacking key figures and adopting wealth taxes.
Earlier, Labour backbench rebel leader Rachael Maskell had demanded that the prime minister “listen to MPs” and others in the wake of the bruising welfare debate. She insisted that Sir Keir and his chancellor now need to “consider a wealth tax” to fill the £5bn financial black hole left by the benefits concessions.
The proposal has strong cabinet support, with a memo leaked last month showing that deputy prime minister Angela Rayner, now being discussed as a replacement for Sir Keir, had suggested that eight different wealth taxes be levied on big corporations and the super-rich in place of the cuts.
The Trades Union Congress – which includes Labour’s biggest financial backers – is also running a lobbying campaign with MPs to push for a change in direction.
Concern in the City over the prospect of more tax rises was highlighted by Gordon Shannon, a fund manager at TwentyFour Asset Management, who warned: “Gilt investors wanted to see spending cuts. Now the government’s only exit is tax rises, risking a death spiral of growth destruction.”
The value of the pound and gilts dropped as Sir Keir spoke in the Commons, while yields on government bonds rose – meaning higher borrowing costs.
Kathleen Brooks, research director at XTB, said: “If yields continue to rise at this pace for the next few days, the PM and chancellor will have to decide if they want to have a sensible fiscal policy whereby public sector debt is reined in, or whether they want to please the Labour back benches, who don’t seem worried by rising debt levels and forget that we are in a new era, where bond investors can shun sovereign debt in favour of less risky, less indebted corporate debt.
“Overall, this could be the start of another fiscal crisis for the UK.”
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