Rachel Reeves has begun the daunting task of restoring Labour’s lost credibility

To the relief of Labour MPs, the party conference spotlight moved on to policy today after Keir Starmer won approval for his watered-down reforms on how the party chooses its leader. The euphoria of Starmer allies here in Brighton was overdone, revealing their desperation for some good news. 

But the conference has not gone according to plan. Angela Rayner, Starmer’s plain-speaking deputy, complained privately that his reforms were a needless distraction from showcasing Labour’s policies but then eclipsed them herself by refusing to apologise for describing  Boris Johnson as “scum”. Several shadow cabinet colleagues believe this was a needless distraction.

Today Rachel Reeves, the shadow chancellor and, unlike Rayner, one of Starmer’s closest allies, got Labour back on track and began the daunting task of restoring the party’s lost credibility on the economy. In voters’ eyes, Labour is still blamed for the deficit that contributed to its loss of power in 2010, even though the main cause was a global financial crisis. Today the Tories are seen as the best party to manage the economy by 41 per cent of people, and Labour just 27 per cent, according to Opinium. Focus groups show voters fear Labour would borrow too much to spend money it didn’t have.

So Reeves is right to make her starting point different from Jeremy Corbyn’s plan to boost public spending by £80bn and capital projects by £400bn. She is resisting internal pressure to “go big” like Joe Biden now the coronavirus pandemic has turned the Tories into big spenders. Labour’s economic trust problem means that pledging to outspend Johnson would probably cut little ice.

As she attempts to win back faith, Reeves’s fiscal rules would “pay for day-to-day spending with tax receipts” and “get our debt falling as a share of our national income”. That is very similar to the 2019 Tory manifesto, an approach to which Rishi Sunak is likely to return in his Budget next month as he tries to reclaim the mantle of fiscal responsibility after spending more than £400bn on the pandemic.

Left-wingers will argue that if the two main parties are on the same fiscal-restraint page, the public will vote for “the real thing” and back the Tories. But in fact, Reeves’s approach would give Labour a little more flexibility since the party would be likely to balance the books over a longer period than the Tories and spend more on investment. She pledged £28bn a year extra on tackling the climate crisis, promising to be “Britain’s first green chancellor” in a well-received speech that finally landed some Labour blows on an “incompetent, in denial” government she held responsible for the “chaos” of the fuel and energy crisis.

Reeves will review tax reliefs to ensure they provide value for money for taxpayers – her guiding star. Labour is tiptoeing towards a wealth tax without calling it that for fear of damaging headlines. The party would ensure “those with the broadest shoulders” paid their fair share, and target income such as share dividends and buy-to-let properties. Labour insiders note that Corbyn’s plan to raise income tax for those earning over £80,000 a year remains popular. Whether to return to that will be a big decision taken closer to the next election.

For now, Johnson’s decision to raise national insurance by 1.25 percentage points for the NHS and social care hands Labour an important dividing line: Reeves told the conference she would “not balance the books on the backs of working people”. A fruitful Labour attack line will be that the Tories waste public money on government contracts for their “friends and donors” funded by tax rises on ordinary workers, as Reeves put it. She promised a Labour government would claw back every penny possible from PPE contracts that did not deliver – a conference-pleaser but which itself would be hard to deliver.

Starmer and Reeves are keen to rebuild Labour’s broken bridges with business. Hence her pledge to freeze and eventually scrap business rates, shifting the burden from struggling high-street stores to the internet giants, though there was no detail about how it would work.

The former Bank of England economist pledged not to “make promises I cannot keep” or pay for or shrink from “difficult choices”, insisting Labour could win the battle on economic competence.

Reeves has taken advice from three predecessors as shadow chancellor – Gordon Brown, Ed Balls and John McDonnell. Brown told her: “You have got to have the discipline but you have got to have something that is worth being disciplined for.” That is her approach – what Brown called  “prudence with a purpose”. Reeves showed today she can deliver the prudence. In his conference speech on Wednesday, Starmer must give us a sense of the purpose.