11 March 2025

Labour’s collision course

Keir Starmer is in an economic bind. The fallout could fracture his party.

There is a smash coming. A paradox in politics right now is that Keir Starmer has never had more authority, internally and externally, since immediately after election day – and yet his government is heading for a confrontation with his own party and large parts of the public that could define it, unhappily, for the rest of its life.

It’s the economy. As Rachel Reeves prepares to unveil her tax and spending plans in the context of poor growth and Trump turbulence, the private mood among MPs and some ministers is growing very dark. “I think this may be the end of social democracy in Britain; we are heading straight back to austerity,” one not particularly left-wing MP told me.

The danger is that cuts to the civil service and in welfare will be made so quickly and naively that they produce a less effective and more inhumane state. While the fast growth in health benefits requires urgent action, it isn’t a short-term cost-saving measure.

Liz Kendall, the Work and Pensions Secretary, is doing a moral and progressive thing in trying to get far more people off sickness benefits and into work. But cutting £6bn in a way that ensures that genuinely disabled people aren’t pushed into poverty requires assessment, targeted help and training. All of that costs money up front. The danger is that, instead, the government opts for a general welfare “haircut”: a saving aimed only at the bond markets, and not the rest of Britain with our epidemic of poverty.

So the Chancellor must cast aside Treasury orthodoxy and find new ways to fund a big increase in defence spending while protecting the truly vulnerable. As she does, the Prime Minister must address the fundamental question posed by his party’s response to the age of Trump – what the New Statesman has called the “Labour Reformation”. This question is: where is the iron-clad distinction between Labour politics and fashionable right-wing populism? In short, as a party, a government, and a country, who are we?

Get the answer right, and we are living through the growing pains of a two-term, consequential and ultimately popular government. Get it wrong, and we are heading for chaos.

To complicate matters further, it’s becoming clear that Team Starmer don’t entirely like the government they head. They don’t like the union-driven education agenda; they don’t like net zero as a battle cry; they don’t like politically correct legalism. But they don’t yet know how far to unwind these parts of the project. This has produced heavy briefing against particular cabinet ministers; Bridget Phillipson, Ed Miliband and Richard Hermer – even though the latter two, at least, were early and helpful supporters of Starmer as he rose to the leadership.

In each case, the counsel for the defence has a brief. Phillipson may have listened, as one educationist puts it, to “all the wrong people” for a Schools Bill that rolls back Gove- and Blair-era academy reforms. But she is doing exactly what any old-right Labour minister would have done: consulting the unions and tilting instinctively towards comprehensive-school thinking.

There was no proper review of this approach as Labour came into government from No 10, the Treasury or anyone else. It’s only since the Blair-supporting Liz Lloyd entered Downing Street in January – as director of policy delivery and innovation – that education has fully come under the spotlight again. Now the department needs another shake up.

Ed Miliband has done everything he could to show that he has got the memo. In public he rarely uses passionate “climate crisis” rhetoric. It’s all couched in terms of new jobs, energy security, and “[getting] Putin’s boot off our necks”. He has been loyal. He has swallowed Heathrow and Gatwick expansion and now faces a further Treasury cut in GB Energy’s already slashed £8.3bn budget. Then there are the Rosebank and Jackdaw North Sea oil and gas licences coming, and Reeves wants them to go ahead.

So how much more can Ed swallow? Fellow cabinet ministers expect him at some point to walk – but he loves his current role. His allies argue that he is already pursuing an “insurgent” agenda: “We will fight the Conservatives and Reform on an argument that they want to make the UK even more dependent on Putin. They don’t want to take back control – and they oppose British ownership of new clean power.”

Without Miliband, the government would lack any industrial strategy – something Starmer is very conscious of. But the net-zero argument, like the planet, is heating up. This week’s forthcoming planning bill means that when unpopular windfarms or solar-panel developments arrive in marginal constituencies, Downing Street will have no way of stopping them.

People living near new pylons will get discounts on their bills and Starmer needs to deliver on his promise to “build, baby, build”. But again, it is all complicated and there are up-front costs. Consider those new pylons, presumably not built from balsa wood: the future of Britain’s steel industry, just hanging on in Scunthorpe and heavily hit by green taxes, has become critical.

Hermer is another old friend who badly wants to persuade Starmer he is on board for the Reformation – no legal “blocker” but someone who wants to make government work more effectively from the centre. How would it be, one of his allies asks, if he allowed the government to constantly run into judicial reviews which they lost?

At this point, we must ask about the role of the cabinet more generally. Does it really exist? Anneliese Dodds, who resigned over the cut in aid, noted in her resignation letter that she agreed with the need for higher defence spending, but added: “I also expected we would collectively discuss our fiscal rules and approach to taxation, as other nations are doing… It will be impossible to raise the substantial resources needed just through tactical cuts to public spending. These are unprecedented times, when strategic decisions for the sake of our country’s security cannot be ducked.”

Privately, ministers now regularly quote Dodds. What they want is an honest U-turn on tax for “unprecedented times”; or a revision of the fiscal rules, as per conservative Germany; or the issuing of a wartime bond, as I have long argued for.

If there was a proper cabinet discussion, these would be talked about. But because Starmer rules through a tiny group of close advisers – in cabinet, he and Rachel Reeves, no longer even Pat McFadden, are the true power-holders – that kind of conversation has ceased. A climate of fear? No, but a chill of self-censorship. The cabinets of Attlee, Wilson and even Blair were nothing like this.

With a big argument over public spending looming, it feels unsustainable. Rival groups of loyalist and protesting backbenchers are mobilising. The fiscal arithmetic is taking Labour towards either an unconvincing mishmash of departmental cutbacks which, for instance, makes NHS reform harder and worsens the crisis in criminal justice; or else welfare cuts that the public, as well as back-bench MPs, will be horrified by. That is why I use the word “smash”.

As Reeves works on this domestic conundrum, Starmer must resolve the parallel one of how far he goes in domestic policies to answer Trump, and the conservative revolution upending the West. On online safety; attitudes to climate science; support for Canada; human rights; and belief in the rule of law, there are lines that cannot be crossed… in effect, the things that still make us British. Yes, we live in a world of competing empires and are not one ourselves. But local patriotism, founded in Labour values, could be as potent as ever.

[See more: Mark Carney can’t save Canada]