They were the words that destroyed John Major‘s premiership and government, consigned the Tory Party to decades in the political wilderness and changed the course of British history.
With sterling facing mounting pressure within the European Exchange Rate Mechanism, the Prime Minister rose to his feet at the Forte Crest Hotel in Glasgow to address the Confederation of British Industry (CBI).
‘All my adult life I’ve seen British governments driven off their virtuous pursuit of low inflation by market problems or political pressures,’ he defiantly declared. ‘The soft option, the devaluer’s option, the inflationary option. In my judgment that would be a betrayal of our future at this moment, and I tell you categorically that is not the Government’s policy.’
A week later – on the day that would for ever be known as Black Wednesday – Major ordered withdrawal from the ERM, the pound crashed and inflation let rip.
His political and economic reputation, and that of the Conservative Party, never recovered.
This morning, in the wake of an internal Labour rebellion that has seen his economic strategy upended, and the reputation of his Chancellor shredded, Keir Starmer is facing his own Black Wednesday.
Or rather, a Black Autumn. Last week, hours after Deputy Prime Minister Angela Rayner had launched an astonishing assault on Chancellor Rachel Reeves’s fiscal approach, Sir Keir announced he was U-turning on the cuts to winter fuel payments. The new policy, he revealed at PMQs, would be unveiled ‘as part of a fiscal event’.
That event will be the Budget. And it will mark the moment the Starmer government’s economic, fiscal and political authority officially implodes.
Rachel Reeves is set to break her promise that she wouldn’t be ‘coming back with more taxes’
To date, the Government’s strategy has been based around three cast-iron principles.
The first, published by Rachel Reeves in her imposingly titled Charter of Budget Responsibility, centres around the ‘golden rule’ that the public finances should be in balance or surplus by 2030.
And according to senior Labour sources, this supposedly inviolate statute is set to be ditched. ‘The winter fuel announcement was part of preparing the ground to shift on the fiscal rules. They’re ploughing the road for the Budget,’ one minister told me. Another revealed: ‘The fiscal rules will go. I was in the room when it was discussed. They will be changed.’
The second principle was articulated by the Chancellor in her own fateful address to the CBI in the wake of last November’s Budget. ‘I’m not coming back with more taxes,’ she vowed.
Again, that promise is set to be broken. As one Cabinet minister revealed to me last week: ‘Everyone knows Rachel is going to have to U-turn now and raise taxes.’
Another minister agreed. ‘The backbenchers are not going to put up with additional spending cuts. You’ve seen Angela [Rayner] leading the charge. And now they’ve made Rachel retreat on winter fuel she won’t be able to hold the line. There’s blood in the water.’
The final pillar of Labour’s strategy, this time revealed by Reeves in the recent BBC documentary The Making Of A Chancellor, related to her commitment to keeping a steely grip on the public purse. ‘We can’t tax and spend our way to higher living standards and better public services,’ she opined. ‘That’s not available in the world we live in today.’
But tax and spend is about to become her new credo. As one minister explained: ‘Rachel has been badly shaken by the backlash against her strategy. She’s started to feel very isolated. So she’s begun ringing round colleagues asking them what they think she needs to do, and what programmes they want her to implement.’
Reeves’s growing fiscal flexibility was demonstrated last week by the announcement of a new inflation-busting pay rise for teachers and doctors. It’s now widely believed within government that she is preparing fresh concessions on disability cuts. And there is mounting speculation that No 10 and No 11 are preparing to ditch their opposition to lifting the two-child benefit cap.
‘We don’t believe there is a silver bullet to ending child poverty,’ a senior government insider told me, ‘but we are looking for solutions that could form part of a wider strategy. Keir and Rachel are seeking an holistic approach.’
Downing Street officials insist the Prime Minister and Chancellor remain wedded to their commitments to bear down on spending and borrowing. And they insist no additional tax rises are planned.
A Cabinet ally of Reeves told me she is ‘really obsessed with sticking to her fiscal rules’.
But the reality – as many members of the Government now privately acknowledge – is that the Chancellor and Prime Minister provided too many hostages to fortune with their bullish statements about fiscal probity. And that a reckoning is now coming.
Reeves was desperate to craft herself as Labour’s Iron Chancellor. But she is now in danger of becoming the Plywood Chancellor.
She pledged to get a grip on inflation. But inflation is now well above the level she inherited from the Sunak government.
She pledged to get control of borrowing. But last week it was revealed borrowing last month soared to £20.2 billion, the fourth highest April figure since records began. The predicted cut in interest rates is now expected to be placed on hold.
And similarly bad news is expected from upcoming growth figures, as the impact of the Trump tariffs begins to be felt.
So Reeves will soon have no option. Some, if not all, of her pledges, promises and golden rules will have to be ditched.
And when they are, the impact on her standing – and that of her government – will be similar to that felt by that soft, sorry devaluer John Major.
If and when she amends her fiscal rules, the final shreds of her credibility with the markets will be gone.
And the slow but ominous rise in UK gilts show how little leeway she has before market uncertainty flares into a full-blown crisis.
The inevitable abandonment of her pledge not to raise additional taxes will destroy her remaining authority among business leaders. And those rises, coupled with a perceived return to the days of tax, spend, squander and tax again, will see public trust evaporate just as swiftly.
A black economic autumn is coming for Keir Starmer and his Plywood Chancellor.
Both will do well to survive to see the spring.
