Keir Starmer rewrote the history books on July 5 last year when he delivered a majority of 174 for Labour in the House of Commons. The scale of the landslide meant it was widely assumed that, as the Institute for Government put it, he would “find operating in Parliament more straightforward than recent prime ministers”. But it has not come to pass.
Less than a year after inflicting on the Tories the biggest defeat in their electoral history Starmer was forced to climb down on a central plank of his promise to voters: “fixing the broken welfare system”. A rebellion of about 120 fractious Labour backbenchers gave the Government no option but to offer up a £5 billion watering down of proposed cuts in disability benefits, seen as essential if Rachel Reeves was to have any chance of getting a grip on the deficit.
No Government has lost a vote on a second reading of one of its own legislative measures since Margaret Thatcher was defeated on the Shops Bill reforming Sunday trading hours in 1986. Labour high command simply had to retreat.
But the concessions triggered alarms through the City and, briefly, led to a sharp increase in Government borrowing costs when the Chancellor made a tearful appearance on the front bench during Prime Minister’s Questions. Investors are now recalibrating their expectations that Labour will be able to deliver the sort of cuts that will allow Reeves to avoid a further round of tax rises in the Autumn Budget. Indeed, those hikes are now pretty much baked in. Even worse from a Treasury point of view emboldened Labour rebels are now turning their sights to other policies such as scrapping the two-child benefit cap.
Political writer and analyst Michael Crick said the success of the rebellion would encourage Labour backbenchers to demand more concessions from the Government. He said: “Once you’ve committed one murder you might as well go and commit a few more.” The Institute for Government believes there are many reasons why Labour has found it so hard to make its majority stick. It points out there has been a long-term trend across parties towards MPs becoming far more obsessed with their constituency role, and less on passing government legislation and the bigger national picture.
The Labour majority may have been huge, but in some respects it is fragile too
It adds: “Many Labour MPs are keener now to be seen to be representing the concerns of the constituents — who are jamming their inboxes with worries about losing their winter fuel subsidy — than to help Rachel Reeves balance the books.” The Labour majority may have been huge, but in some respects it is fragile too. More than 50 newly elected Labour MPs sit in seats with a majority of less than five per cent, making them even more likely to be sensitive to the demands of their constituents rather than the Parliamentary whips. Did the sheer scale of the landslide also suck in relatively inexperienced MPs less able to appreciate the bigger picture of a rapidly deteriorating fiscal outlook for the UK?
There are certainly concerns that the Labour MP conveyor belt — from union or lobby group political officer to ministerial special adviser to the green benches of the Commons — has delivered a Parliamentary party devoid of broader experience in the outside world, particularly in business.
The worry is that the obsession with constituency issues means Parliament is now incapable of giving the Government the support it needs to take unpalatable but necessary measures.
The fact that Starmer responded so severely with the suspension of four of the rebels show how worried Downing Street is about losing a grip of the Parliamentary party.
And there will be more difficult decisions ahead. Anyone who took the trouble to read last week’s Fiscal Risks and Sustainability report from the Office for Budget Responsibility will have been left in no doubt about the gravity of the current fiscal situation. The OBR is not known for its colourful language so when it concludes “the scale and array of risks to the UK fiscal outlook remains daunting” you really know things are bad.
The document lays out remorselessly how long-term trends, including the ever-rising cost of the state pension through the triple lock pledge, the economic consequences of climate change and the upward pressure on defence spending will lead to more and more debt being loaded on the public sector balance sheet. And that is all before taking into account the impact of any unforeseen shocks such as a financial collapse, a pandemic, or another energy crisis. Terrifyingly, on current trends, the OBR projects debt to rise to above 270 per cent of GDP by the early 2070s.
It seems unlikely that many of the rebel backbench Labour MPs who signed the “reasoned amendment” that effectively scuppered the Government’s welfare reform bill have read the OBR report. Probably not Richard Burgon, who accused the Government of making a “deliberate choice to balance the books on the backs of disabled people” and advocates a wealth tax instead. Perhaps Clive Lewis neither , who said of the proposed welfare reform: “You don’t start with a cut and work backwards.”
What was proposed was not really a cut as most people understand it
But as despairing City economists have pointed out, what was proposed was not really a cut as most people understand it. As Thomas Pugh, UK economist at accountancy firm RSM put it: “It was quite clearly not cutting by £5 billion, it was trying to ensure that a bill due to go up by £90 billion will only go up by £85 billion instead.” Simon French, of Panmure Liberum, one of the City’s best connected economic scribes, believes there are now very few credible paths away from a debt doom loop if the UK is to avoid drifting to an unpleasant and messy Greece or Argentina style crisis.
He says our political leaders must convince the markets, preferably in this Parliament, that it is serious — and can drag its backbenchers along with it — on difficult reforms. These could include such scorching hot potatoes such as increasing the state pension age, charging for more NHS services, replacing the current fuel duty and watering down public sector pensions.
French argues that a Government finally seen as grasping the fiscal nettle could persuade the long-term bond markets to start lending at slightly lower yields, allowing some respite from the “short-term doom loop that the UK finds itself in from fiscal event to fiscal event.”
He points to the bi-partisan approach to the pension bill that paved the way for the start of workplace auto-enrolment in 2012 during the coalition Government as evidence that cross-party agreement can deliver great results.
While these debates rage, Britain’s fiscal position continues to deteriorate
But these are different, angrier times. The noise from within the Labour ranks is more about punitive new levies, such as a wealth tax on people with assets worth more than £10million. The Government has yet to rule out this measure, despite the Treasury knowing that it would double down on the harm to Britain’s global image already caused by the non-dom reforms.
While these debates rage, Britain’s fiscal position continues to deteriorate. RSM’s Pugh points out that the cold hard mathematics of one per cent real GDP growth, national debt interest rates of around 4.5 per cent and debt at around 100 per cent of output mean, to paraphrase New Labour’s anthem, things can only get worse.
He said: “It is a very dangerous situation. If we are not careful in the next 10 years things will come to a head and could escalate very quickly. But I see no appetite whatsoever from politicians to do what is necessary to rein in spending, particularly welfare spending.” Meanwhile the fizzing fiscal hand grenade is lobbed from chancellor to chancellor, each one happy for his or her successor to be holding it when it finally goes off.
That may be next year, or, in a decade’s time. But unless MPs — and the public — wake up, read the OBR report, and start to get real about tackling Britain’s debt problem, it is a matter of when not if.
