Rachel Reeves has warned that she could trigger Labour’s biggest donors to disaffiliate from the party if she continues to “pander to the right” in the Budget.
The warning from a trade union boss comes as the chancellor gave an interview to Bloomberg TV, confirming that she is pushing for more spending cuts, including on welfare.
Fire Brigade Union (FBU) general secretary Steve Wright told The Independent that Labour is at a crossroads, with unions like his debating whether they should financially back the party any more.
The loss of union donations ahead of the next general election would cost Labour millions. In the first quarter of 2025 alone, the party received almost £1.2m from trade unions.
But despite this threat, the chancellor has made clear that in a turbulent economic period, she needs more headroom than the £9.9bn she gave herself previously.
This will mean both tax rises and cuts in a crucial budget, which the chancellor concedes will not be popular with the public, but many believe could decide the fate of Keir Starmer’s government.
Addressing the economic volatility caused by the war in Ukraine and Trump’s tariffs, Ms Reeves told Bloomberg TV: “The headroom has been lower in the past. It was as low as six and a half billion pounds in the last parliamentary session. Obviously, more headroom would be good, but there’s always trade-offs, because, of course, to build more headroom, you would have to increase taxes further or cut spending further, but we'll continue to manage that balancing act.”
She insisted that she wants a “pro-growth Budget” and she confirmed that she is looking again at cutting welfare despite the massive rebellion by Labour MPs before the summer, which derailed previous efforts.
She said: “It is important to make sure that all budgets included in the welfare budget are well managed, and we do need to see reform of our welfare system. We will continue to make the case with that reform.
“We’ve already brought in some changes to something called the universal credit system to reduce the incentives to get the health-related elements of that.
“Just a couple of weeks ago, I announced a youth guarantee to help young people not in education, employment and training get back into work. Like many countries around the world, particularly since the pandemic, we have experienced challenges in terms of youth unemployment and youth inactivity, and we’re determined to turn that around with particular programmes targeted at those young people.”
However, the mention of welfare cuts are fuelling a rebellion against the government within the trade union movement.
But trade unions, who are pushing for increased spending funded by wealth taxes on banks, big corporations and the super rich, were already fearful of the drift of the government after Sir Keir’s last reshuffle, which many saw as “a rightwing coup” within Labour.
Added to that, revelations of a cabinet push against further wealth taxes, with influential ministers even privately criticising VAT on independent school fees and the abolition of non-dom status.
Speaking to The Independent, Mr Wright said that while he does not personally support disaffiliation, it has a lot of backing in his FBU union as well as in unions such as Unite, the Communication Workers Union (CWU) and Aslef.
He said: “I think most unions are facing calls from our members about wanting to leave [Labour]. I think they’ve got different reasons for that. But in many cases, there are people on the left that want us to leave due to the failure to introduce wealth taxes or lift the two-child benefit cap, or cutting welfare.”
He admitted that union members are looking at Jeremy Corbyn’s Your Party, while new Green leader Zack Polanski has said his party is attracting many former Labour supporters.
Mr Wright said: “A wealth tax is popular amongst our members. People understand that actually, if you took a bit more money off the super rich and invested it in the services, that would land well.”
But he warned Ms Reeves and Sir Keir are “pandering to the right” on the economy as well as issues such as immigration.
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