By John Rentoul

Copyright independent

Everyone knows that Rachel Reeves has made mistakes, Rachel Reeves included. One of those mistakes was to have claimed to have fixed the foundations of the public finances with last year’s tax rises. Another was to have chosen a tax rise – employers’ national insurance – that ensured that business leaders turned against her.

Rarely in history has a government come into office with such goodwill behind it and thrown it away so quickly. And rarely has a chancellor been regarded as so strong and prudent only to lose that reputation, especially among the wealth creators on whom her hopes for growth depend.

But if she was overestimated when she took over the Treasury, she may be underestimated now. The chancellor has left some wriggle room in her messaging on tax hikes this morning, telling the BBC that Labour’s “commitment stands” not to increase VAT, but refuses to rule out extending the freeze on income tax thresholds

Reminded of her pledge after last year’s Budget that she would not need to come back for more earlier this morning, she said: “Everyone can see that in the last year the world has changed and we are not immune to that change.”

The voters may not like it, but they may know, deep down, that there is some truth in it. She mentioned wars in Europe and the Middle East, US tariffs and the rise in the global cost of borrowing. Everyone knows that the economic outlook has indeed worsened over the past year.

She might as well take Tony Blair’s advice. The former PM’s used to say to senior ministers facing adversity that they should do the right thing and not worry about the opposition, either outside the party or within it. I hear that he tells them: “Good policy is good politics.” In other words Reeves should work out what needs to be done and get on with it, in the hope that there is now more scope for her reputation to improve than there is for it to fall further.

What is perfectly clear is that she needs to raise more money. It was obvious last year that, even though she had put up taxes a lot, she was cutting it fine on meeting her fiscal rules – so that any adverse changes, such as the ones she listed this morning, would require further tax rises or reductions in planned spending.

As it is, she needs to do both. She needs to put up taxes in ways that are not seen as anti-growth, and that are seen as fair. In theory, a rise in income tax would fit the bill, although she would prefer any other tax increase that is related to the ability to pay in order to avoid an explicit breach of the manifesto promise.

But she also needs to restrain the growth of public spending. The Labour rebellion over disability benefits cannot be the end of the matter. That attempt to curb the growing welfare bill was rushed and badly designed, but welfare spending does need to be curbed and Pat McFadden, the new work and pensions secretary, has to be, if not tough on benefit claimants, tough on the causes of rising benefits claims.

None of this is going to do much for Reeves’s popularity in the short term. But at some level the voters realise that there are no easy alternatives. It is not just that the global economy has become worse in the past year. People also realise that the long-term effects of borrowing vast sums during coronavirus lockdowns might be worse than previously thought, which is why the Office for Budget Responsibility has downgraded its productivity forecast – something that Reeves can rightly say has nothing to do with decisions she has taken as chancellor.

The voters also know, although this knowledge may be well hidden at times, that imaginary policies touted by politicians such as Andy Burnham launching imaginary leadership bids are not the answer. You do not need to know the ins and outs of Reeves’s fiscal rules or whether the OBR should do two forecasts a year or just one to know that a candidate for prime minister who says we should ignore the bond markets is a danger to the public good.

In private, Reeves seemed surprisingly buoyant and confident as she prepared to deliver her speech to the Labour conference in Liverpool. Perhaps she realises that if she tries to do what is right for the country, her popularity will take care of itself.