There was nothing in the autumn statement that Rachel Reeves and her shadow Treasury team did not expect. The headline moves by Jeremy Hunt, the chancellor, were tax cuts for voters and businesses while stating that the share of public spending in GDP will fall slightly to 42.9 per cent by 2027-28.

He failed to mention, of course, that the tax burden was at its highest level since the Second World War and we are grappling with the largest reduction in living standards since records began in the 1950s, according to the Office for Budget Responsibility. Nor that the UK has the highest debt-interest costs of any big economy.

Hunt has an emollient style, but is ruthless. He wants Labour, the self-styled party of the NHS, to answer a simple question: would it be prepared to reverse the tax cuts or recalibrate its public spending commitments? If not the former, then how will it fund the Labour state in straitened times?
Reeves understands the traps the Tories are setting, which was why, in May, she pulled back on the proposed £28 billion-a-year plan for capital spending on green growth, saying it would not be implemented at least until later in the next parliamentary term. “No plan can be built that is not a rock of economic and fiscal responsibility,” she said in June.

Reports yesterday that Keir Starmer wants to scale back the plan even further — or abandon it altogether — were dismissed by aides close to both the Labour leader and his shadow chancellor. “There is nothing between Keir and Rachel on this issue,” I was told. “We are fully committed to our plan and the speculation is nonsense.”
Is it really? Starmer and Reeves are nothing if not pragmatic and, I suspect, commitment to the £28 billion a year green pledge will remain open-ended rather than have a fixed date of delivery: Reeves has said that a Labour government would not borrow to fund day-to-day spending and would also reduce the national debt as a share of the economy. She believes in the potential of the energy transition to create jobs and revitalise regions, but will not make promises she cannot fulfil.

Her next move? Ahead of the general election, I expect she will rule out raising income tax, VAT and national insurance in the next parliament.

That would be a defensive move consistent with the leadership’s caution. What about something radical such as wealth taxes — on land, property and other static assets, as many on the left would wish? When I asked Reeves about wealth taxes, she ruled them out.

But Labour remains anxious — and the question of tax is at the heart of the matter. The leadership is haunted by past defeats: not just the abject collapse of the Corbynites in 2019 but more pertinently Neil Kinnock’s 1992 loss to John Major. That election has been studied obsessively by Morgan McSweeney, Sir Keir Starmer’s chief strategist, who also urges colleagues to read Edward Fieldhouse’s recent book Electoral Shocks: The Volatile Voter in a Turbulent World.
The fundamental message Labour has taken from the 1992 defeat is: don’t raise taxes. John Smith, then shadow chancellor, proposed to do just that by pledging during the first week of the campaign to increase the top rate of income tax from 40 per cent to 50 per cent, as well as national insurance for higher earners. “Higher taxes and higher prices” — that was “Labour’s double whammy”, as the Conservatives framed it in a ubiquitous campaign poster featuring a pair of boxing gloves. The punches landed. Major returned to Downing Street with a 21-seat majority.

In May, when I travelled to New York and Washington with Reeves, we spoke about why Labour would not make the same mistake. She was in the US to introduce herself to Janet Yellen, the first female US treasury secretary, and other financial leaders. But she had another purpose: to show that she belonged in this company and had a serious economic plan for Britain.

Early one morning, at the Peterson Institute in Dupont Circle, Washington, she gave a speech in which she declared the end of liberal globalisation “as we know it” and outlined her vision for what she called “securonomics”. We had entered a new era of geopolitical competition and active government, she said. Labour believed in an interventionist state and the new modern supply-side economics (which the Harvard economist Dani Rodrik calls “productivism”) and was more in tune with the spirit of the age than were the Sunak Conservatives.

The day before, as we talked on the train to Washington, Reeves cried a little when she mentioned a girl called Natalie who had been the first pupil from her state school to go to Oxford. As a teenage chess champion, Reeves had competed against public schoolboys who blithely discussed the Oxbridge colleges they were going to. She was intimidated by their sense of entitlement. They came from a world she did not know nor understand. Her parents were not graduates and Oxbridge, for Reeves, seemed out of reach. Until Natalie showed her, through discipline and hard work, it was not.

What does this tell us about the kind of chancellor Reeves will be? First, she is deadly serious when she says she wants to create an economy that empowers “working people”. She is scornful of the carelessness of Liz Truss and Kwasi Kwarteng and of their reckless tax-cutting mini-budget. She despises incompetence and profligacy. But she also accuses Jeremy Corbyn and John McDonnell, his shadow chancellor, of making unfunded spending commitments during their 2019 campaign.
Second, she dislikes unearned privilege: she is entirely relaxed about imposing VAT on private schools as well as abolishing wealthy “non-dom” status for foreign nationals.

But she knows “closing tax loopholes”, as she calls them, will not be enough to rebuild the diminished public realm. She knows too that the Tories are no longer trusted on the economy but that Labour must win people’s trust. “If people don’t trust us, we will not make it,” said one adviser who has the word “trust” written on a Post-it note on their computer.

In the months ahead, Reeves’s message will be more of the same: fiscal discipline, a strategic state powering the nation’s productive capacity, and public-service reform. And she will keep asking voters the same question: do you feel better off than you did 13 years ago?

None of this will excite the left, which has been inflamed by the Gaza conflict and yearns to govern a country that does not exist, but it should be enough to win an election against an exhausted and fractious Conservative Party.