The Guardian view on Labour and the economy: the legacy was grim but voters need hope, not excuses | Editorial

"At the start of this month, Sir Keir Starmer initiated phase two of his government, with a view to turning its fortunes around. Then the deputy prime minister resigned over unpaid taxes. On the eve of a state visit by the US president, the ambassador to Washington was sacked over his friendship with a convicted paedophile, and this week a senior adviser to the prime minister resigned over offensive text messages."

"Those are just the personnel problems. The new phase is supposed to focus on policy delivery, but that is hard to achieve with a sluggish economy, sticky inflation and shrinking fiscal headroom. This week it was reported that the Office for Budget Responsibility expects to downgrade its estimates of UK productivity in advance of the budget in December. The knock-on effect would be to narrow the chancellor's capacity for funding public services."

"The shortfall could be up to 30bn. Much of that will have to come from tax rises. Rachel Reeves's last attempt to plug a fiscal hole with spending cuts led to a raid on benefits that had to be largely aborted to quell a mass rebellion of Labour MPs. The government still intends to find savings in that area. It is the unenviable job of Pat McFadden, the new work and pensions secretary, to find a way that doesn't reignite backbench fury."

Multiple ministerial resignations and scandals have destabilised the government just as phase two begins. Political turbulence combines with a weak economy, persistent inflation, and reduced fiscal headroom. The Office for Budget Responsibility is expected to downgrade productivity estimates ahead of the December budget, potentially reducing fiscal capacity by as much as 30bn. Much of the shortfall may require tax rises, forcing difficult choices between spending cuts and benefit reductions. Finding savings without provoking backbench rebellion falls to the new work and pensions secretary. Any tax increases will trigger intense opposition and media criticism.

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