Truss’s lack of fiscal responsibility is a huge chance for Labour – but can they rise to the challenge?

With the exception of the Blair-Brown era, in recent times Labour has struggled to convince the voters it can be trusted to run the economy

Liz Truss’s decision to abandon the Conservatives’ commitment to fiscal responsibility is a huge opening for Labour. But it also carries huge risks for Keir Starmer’s party.

With the exception of the Blair-Brown era, in recent times Labour has struggled to convince the voters it can be trusted to run the economy. The party’s traditional weakness was predicated on the Tories’ belief in “sound money” and balancing the nation’s books.

With Truss and Kwasi Kwarteng promising a borrowing splurge to fund tax changes in a way even Jeremy Corbyn shied away from, the Tories have foolishly allowed Labour to trumpet tougher fiscal rules than them. This is a remarkable turnaround. The pound’s slump on the financial markets since last Friday’s mini-Budget adds to the sense of topsy-turvy politics, with Labour looking serious and sensible and the Tories the incompetent party.

As Labour’s sudden run of luck would have it, its shadow chancellor Rachel Reeves can advertise her background as a Bank of England economist just as the Bank might have to clean up the chancellor’s mess by raising interest rates again.

In a powerful speech to the Labour conference today, Reeves inevitably pressed home her party’s advantage. Her claim that Labour is the party of both “economic responsibility” and “social justice” is a familiar one but now feels credible for the first time since the New Labour era.

Reeves promised the country the best of both worlds: Labour would be “proudly pro-worker” (with the national minimum wage raised to reflect the real cost of living to show Labour is “on your side”) but also “proudly pro-business”. She promised to be the “first green chancellor”, with a “green prosperity plan” to secure growth. She said the Tories had now broken their fiscal rules for the tenth time in “12 years of failure”.

She delighted conference delegates by promising to bring back the 45p top tax rate on earnings over £150,000 (rashly scrapped by Kwarteng) and spend the revenue on the NHS, with a doubling of the number of medical students. A neat contrast between Labour and Tory priorities.

However, Reeves will need to maintain her fiscal rectitude. Like Truss, she will have to be prepared to be unpopular – in Reeves’s case, with shadow cabinet colleagues itching to make spending pledges to highlight the growing divide with the Tories. “We have got to resist temptation,” one Starmer ally told me. “Rachel will have to be tough to hold the line.”

While understandably relishing the Tories’ self-inflicted wounds, the Labour high command is wisely not getting too carried away. It doesn’t believe Truss and Kwarteng have deliberately designed a strategy full of traps to ensnare Labour, but thinks they are pursuing an ideological crusade with a by-product of setting some traps for the opposition.

The biggest is on tax. Starmer is right not to overturn the cut in the basic rate from 20p to 19p in the pound. Figures such as Andy Burnham – dubbed the “king of the north” and who is due to address 18 fringe meetings at the Liverpool conference – and left-wingers want to reverse the move to raise funds for public services. But the Tories would love that because it would mean “a Labour tax rise” for millions of working people.

However, Labour has some explaining to do on public services. It emerged today that the squeeze on them is going to get tighter before the general election because Kwarteng has scrapped plans for a spending review promised by Truss during the Tory leadership election.

With both main parties cautious about raising taxes and borrowing already stretched to the limit, public services face a £35bn black hole by 2026-27, according to the Resolution Foundation think tank. The problem of how to fill it is just as acute for Labour as for the Tories.

Of course, both parties will rely on their new friend – economic growth. Reeves argues that Labour has “a serious plan for growth” while the Tories do not. But privately some Labour insiders do worry about how credible Labour’s version is and think further work is required.

The radar of some senior Labour figures detects another trap in the Tories’ turmoil. “There is a danger we become the prophets of economic doom,” one admitted. “That would play into the Tories’ hands; they are aching to accuse us of running the country down.”

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So Labour must spell out a positive vision for a better country, denying Truss a fight between “boosters and doomsters”. Even before last Friday’s seismic shift, Labour intended to fight the election on a “fair tax” strategy. Truss might have inadvertently given it booster rockets with her patently unfair tax cut for the rich. Everything seems to be coming up red roses for Labour.

The opposition still has lots of difficult questions to answer; closing tax loopholes and higher taxes on unearned income from share dividends and property will only raise so much. But here in Liverpool, with the unexpected help of its old enemy, Labour feels like a party with the wind in its sails.