turning a weak economy into a strong hand

Chancellor Rachel Reeves was this week hit by a growing Labour party backlash over her plans to cut state spending and news that the economy shrank in January. After seven months in the job, a YouGov poll found just one in nine voters think she is doing a good job.

And yet for all her woes, there is a growing view at Westminster that Reeves is enjoying a surprising moment of imperium: even some Conservatives confess to admiring the way she is using the Treasury’s muscle to try to dig the country out of its economic hole.

“Every month that goes by without strong economic growth strengthens the hand of the Treasury,” said one Tory veteran, arguing that Reeves is using weak growth as a lever to force colleagues to make tough reforms.

“It must be painful for the Conservative party to watch a Labour government doing the things they only ever talked about,” said Wes Streeting, health secretary, this week. One Tory adviser texted the Financial Times to say simply: “It is.”

Conservatives argue that Reeves is herself largely responsible for putting the economy on its back, notably with her £25bn tax increase on business in last year’s Budget and a new package of workers rights. But some grudgingly admit she is not letting a crisis go to waste.

Downing Street on Friday said the government had to go “further and faster” to boost growth and a range of initiatives are being deployed ahead of Reeves’ March 26 Spring Statement.

The chancellor and Prime Minister Sir Keir Starmer hammered out their economic plan “line by line” at an “away day” on March 7 — for some Labour MPs, it looks worryingly like a Conservative strategy. “We look like we are trying to out-Tory the Tories,” said John McDonnell, former shadow chancellor, currently suspended as a Labour MP for rebelling against the government over the two-child benefit cap.

Reeves, according to allies, is drawing up plans to further squeeze public spending to try to make her fiscal sums add up, with billions of pounds of welfare cuts to be announced next Tuesday.

The cabinet is growing uneasy and Labour MPs are warning of a voter backlash, but Reeves’ allies say the die is cast: the final list of proposed reforms was this week handed to the independent Office for Budget Responsibility to be “scored” ahead of the Spring Statement.

Meanwhile, the chancellor will on Monday again call in regulators as ministers look to shrink the state. Starmer this week axed health quango NHS England, to the delight of former Tory health minister Lord James Bethell, who said: “I wish we’d had the guts to do this.”

Planning reforms to clear barriers to building echo changes once advocated by Liz Truss during her micro-premiership, while reforms to an unwieldy civil service tread in the footsteps of Tory rightwingers such as Jacob Rees-Mogg.

Bim Afolami, former Tory City minister, said there are “two chancellors” — the Reeves whose Budget caused “significant damage to business confidence” and the one who now talks about slashing red tape for financial services and going all out for growth.

“The country needs the second chancellor,” he said. “The Treasury is incredibly powerful at the moment. I don’t know why they aren’t bolder. They have a country and a business community that wants them to succeed.”

Another Tory Treasury veteran said: “The chancellor is trying to rectify her mistakes and she’s doing it very well. Labour can do things that we couldn’t do because people don’t question their motives: they can wrap up tough stuff in social democratic language.”

Reeves has deployed such language, arguing that welfare reforms are morally justifiable to stop people being trapped on benefits. Tories concede that regulatory reforms that tilt the playing field in favour of business and away from consumers are more easily delivered by Labour.

Jeremy Hunt, former chancellor, told the FT the “sadness is that they didn’t start on this last July”. He claims that if Reeves had shown more ambition in cutting welfare and other public spending earlier she could have avoided a damaging Budget last year.

To the public eye, Reeves does not look especially strong. Her Budget was widely criticised, her approval ratings are dismal and she has faced questions about exaggerated claims on her LinkedIn profile about the time she spent as a Bank of England economist.

There was also speculation that Starmer might soon sack her. But few chancellors have enjoyed more support from a prime minister — or a freer hand — than Reeves.

“There isn’t any tension between Number 10 and Number 11 because Number 10 isn’t interested,” said one former Treasury official. “That sort of works. But there is a big hole in Number 10 where economic expertise used to be.”

The normal rule in British politics is in a period of zero growth and cuts to public services, prime ministers get frustrated and start pressing their neighbour to turn on the spending taps to buy some political space.

That has not happened this time: Starmer and Reeves are both committed to sticking to their fiscal rules. “The markets are still testing us,” said one government insider.

Starmer’s allies deny that the prime minister is uninterested in economics, but say that he trusts his chancellor. “We always want to make sure the PM has strong economic advice,” said one. But they added: “We are not interested in creating a rival power base.”

Lord Nick Macpherson, former Treasury permanent secretary, says this is an unusual state of affairs, but it is invaluable in strengthening Reeves’ hand as she forces reforms through cabinet.

He said a parallel was the support given by Labour premier James Callaghan to his chancellor Denis Healey during the 1976 IMF crisis when he had to make hard spending decisions to “pull Britain back from the brink”.

Macpherson added: “Similarly, the strength of Reeves’ relationship with Starmer could deliver the difficult and necessary decisions to pull the British economy out of the economic doldrums. There is all still to play for.”

Such is Reeves’ apparent willingness to confront difficult choices that figures from the last Tory administration “have been in touch with ideas of what we can do”, according to the chancellor’s allies.

The fact that Reeves is being egged on by Conservatives is unlikely to reassure Labour ministers and MPs who are starting to wonder whether this is the agenda upon which they were elected. To which Tory MPs reply with the words of Margaret Thatcher: “The facts of life are Conservative.”