Last Sunday, Sir Keir Starmer and Rachel Reeves met at 10 Downing Street to finalise plans for their long-anticipated government “reset”. Throughout the summer, they had discussed how Starmer could revive his struggling project as some aides still describe it - one key idea being the appointment of his own chief economic adviser. Starmer was entering what he calls the defining “second phase” of his premiership, aiming to project optimism and a renewed sense of purpose. He was aware he had lost the trust of many of his MPs, following a series of mishandled U-turns, Labour’s sharp decline in the polls, and his own dismal personal approval ratings.

But within 48 hours, the prime minister was facing a crisis over Angela Rayner’s tax affairs. After a week of mounting speculation, she released a personal statement on Wednesday admitting that she had underpaid £40,000 in stamp duty on an £800,000 seaside flat she had recently purchased in Hove, East Sussex. She expressed deep regret and referred herself to the prime minister’s independent ethics adviser, Sir Laurie Magnus.

Despite claims from her supporters that she was being unfairly targeted by the “right wing press”, it emerged that the deputy prime minister — and housing secretary, no less — had indeed failed to pay the additional stamp duty owed. She attributed the error to incorrect legal advice that, she said, had not “properly taken account” of her circumstances.

Labour’s “Red Queen” was in serious trouble. While in opposition, she relished denouncing Tory opponents like Jeremy Hunt and Nadim Zahawi for alleged financial misconduct, and now she was being accused of hypocrisy. What comes around goes around.

At prime minister’s questions on Wednesday, she sat next to Starmer, who defended her robustly, citing her status as a “working-class woman” as if her social background conferred some kind of special status on her. On his other side was Reeves, the chancellor. Here were the two most powerful women in government and, for different reasons, they both seemed utterly miserable, reflecting the wider mood of unhappiness on the Labour benches.

Rayner was expected by some colleagues to resign on Wednesday. She did not, and Starmer did not want her to. But then on Friday, Sir Laurie concluded that she had breached the ministerial code because she had ignored advice to apply for expert tax advice on the purchase of her flat. It was over. She resigned as both deputy prime minister and, most significantly, as the elected deputy leader of the party.

A difficult week for Starmer was getting worse. He had already been forced into an emergency cabinet reshuffle and now faced a deputy leadership contest – one likely to expose all Labour’s internal divisions, unless a unity candidate emerges.

The feeling among Labour MPs is despondent. “I’ve never known the mood to be so openly seditious,” one influential MP told me, adding: “Keir has no authority in the PLP [parliamentary Labour party]. But the PLP has never removed a sitting Labour leader. We have this bizarre gap between the analysis of the problem – ultimately it starts at the top - and a willingness to act.”

As the party’s elected deputy leader, Rayner commanded her own power base, which is why it was politically expedient for Starmer to keep her inside the cabinet. She was popular with members and also served a strategic purpose: her presence subtly reinforced the message — if I go, she is next in line.

Rayner had built an infrastructure of support among the trade unions that enabled her rise and has been adept at courting all factions of the parliamentary party, along with wealthy donors. “Unlike Starmer, she knows how to build relationships,” one longtime donor told me.

Rayner is out but not finished. Freed from the constraints of collective responsibility, she will now be able to manoeuvre and machinate more freely, which means Starmer will need a “Rayner strategy” to deal with her inevitable interventions.

Labour MPs are openly speculating not only about who the next elected deputy leader will be but about who might replace Rayner as the next leader-in-waiting and, therefore,prime minister if Starmer goes before the end of the parliament. Mahmood, Wes Streeting, the health secretary, and Andy Burnham, mayor of Greater Manchester, are the three leading names.

Since standing down as an MP, Burnham has reinvented himself as the self-styled king of the north. He is liked by the soft left, who want higher taxation and a more left-wing vibe, and has evolved a more direct, populist style – plain speaking, a bit cocky. He is kind of political version of the fast-talking footballer-turned-entrepreneur Gary Neville; they are friends. He and Starmer have clashed before, although recently they have reached a more pragmatic working relationship.

+++

Starmer is always being asked what his vision is but, as an unsigned paper on strategy called “What did we learn on our summer holidays?” which has been circulating among MPs and aides bluntly puts it, “Keir Starmer has no vision and he will never have one. The government has no purpose and the cabinet is not capable of defining it.”

Its author told me, “This government is not a tragedy, it’s a farce. There’s no dignity in the project or moral stature.”

These harsh words reflect the exasperation of those who have been working assiduously behind the scenes to provide the government with an intellectual framework and something approaching a public philosophy. Is Starmer even listening?

Despite being in opposition for 14 years, Labour was spectacularly ill-prepared for power. The hard work of stress-testing policy, of developing a theory of government, had not been done. Sue Gray, Starmer’s first pick as chief of staff, is blamed for the mess but it was a collective failure a decade in the making.

What is Labour’s equivalent of “Stepping Stones”, the wide-ranging 1977 policy report co-written by John Hoskyns, the businessman who later became head of Margaret Thatcher’s policy unit?

“Stepping Stones” provided an overarching analysis of British economic decline and an intellectual framework for radical reform and for what would become Thatcherism – the weakening of trade union power, deregulation, privatisation, tax cuts and tight monetary policy to combat inflation. Hoskyns and other free market ideologues told Thatcher that if she was to transform Britain, she would have to break taboos and think the unthinkable.

When you speak to Starmer’s aides and heads of left-leaning think tanks they use similar language about structural decline and the failure of state capacity. But when asked what Starmer is prepared to do about it, they don’t know and they’re meant to be providing the ideas and intellectual ballast.

The appointments made as part of the internal reshuffle of No 10 on Monday confused many: Tim Bell, the veteran Blairite and PR magnate, came in as head of communications (the third in less than 12 months); Minouche Shafik, a seasoned academic and bureaucrat (but with no experience of running a business or creating wealth), was appointed chief economics adviser, and Darren Jones became political secretary to the prime minister.

Jones previously served as chief secretary to the Treasury and led the inter-departmental negotiations on the spending review. He carries himself with the confidence of a newly appointed head boy, high on the thin air of his own self-importance. He is, however, capable with spreadsheets and has been tasked with improving delivery across departments. In Friday’s reshuffle he was garlanded with another additional title, chancellor of the Duchy of Lancaster.

I was told the internal No 10 “reset” was more about “competence and delivery” than political strategy. But this seems like the wrong way round: in government you first need a political programme and then you find the people to implement it.

One senior cabinet minister says the party will need “to do something queasy” on immigration to win the trust of voters. But why restrict it to immigration? What about welfare and the sclerotic administrative state?

Labour politicians are too complacent in their belief systems. It’s time they started thinking against themselves as progressives, of left and right, have done in Sweden and Denmark in response to mass public disaffection about open borders and societal fragmentation.

+++

What of the Reeves-Starmer relationship at the end of this traumatic week for Labour? There’s no doubt that they, plus Morgan McSweeney, the prime minister’s chief of staff, who is strengthened by the reshuffle with allies such as Mahmoud (from the Blue Labour right) and Pat McFadden (from the Blairite right) empowered, remain the three most significant figures in the government.

Reeves backed the appointment of Manouch (although she was ultimately Starmer’s choice) and championed the promotion of Jones. Her aides are adamant that there is no rift between the chancellor and the prime minister. They welcome more creative tension and more heterodox thinking on economic policy but don’t want outright conflict, as there was during the New Labour years when Gordon Brown exerted a mesmeric hold over the Treasury and even Tony Blair submitted to his will.

And they believe that, paradoxically, rising long-term borrowing costs will strengthen the chancellor’s argument about the need for fiscal discipline and greater control over public spending. And she will resist the pressure from MPs to lift the two-child benefit cap, a totemic campaign for the soft left.

But together Starmer and Reeves are bound on a wheel of fire: they accept that the budget on 26 November, in which taxes will rise again, will in large part determine their fate.

+++

This has been a terrible week for Starmer after a dismal first year in office. It has exposed the core weaknesses of his leadership: a lack of political instinct and any coherent political philosophy, a reactive rather than proactive approach (note the asylum crisis), and a tendency to manage the status quo rather than lead and pursue serious reform.

Perhaps Rayner’s fall - and the sweeping reshuffle it provoked – will, in retrospect, mark the moment Starmer finally changed direction and grasped the full scale of the problems facing the country in this new political era. Or perhaps not.

If the prime minister fails to set a clear direction for his government in his conference speech, and demonstrate it by clearly defined intentions and actions, Labour will be routed in next year’s Scottish, Welsh and English local elections.

Looming over this faltering government is the shadow of Nigel Farage’s Reform. Labour do not consider the Conservatives to be a serious electoral threat — “They scarcely have a pulse now,” one senior aide said — but Reform are viewed differently. “Reform can’t govern without the north,” one red wall MP said. “Who can keep it? It takes us to difficult decisions about the leadership.”

Call it sedition, or simply an expression of realism about the state of Starmer’s premiership - and how and why an increasing number of his own MPs believe it might end.