4 July 2025

This week has been a wake-up call for Labour

We were elected on a mandate for change. After this welfare fiasco, we must return to that mission.

Twelve months on from Labour’s return to office in the 2024 general election, 4 July should mark a moment to celebrate the party’s achievements and signal a decisive break from the 14 years of austerity under the Conservatives. After more than a decade of falling living standards, stagnant wages, and threadbare public services, Labour’s offer of change inspired real hope across the country.

In many areas, there has been cause for optimism. Labour has moved on pay, strengthened employment rights, and made progress on issues like free school meals and hospital appointments. There’s been a welcome clampdown on some of the most egregious forms of rip-off privatisation, and major infrastructure investments in the North promise long-term renewal. These are important steps.

But these positive have been overshadowed by a growing concern that the government’s self-imposed fiscal rules are limiting its ability to deliver the deeper economic transformation voters so desperately need. For a party elected on a mandate of change, to find itself mired in such damaging rows over welfare reform – in this week, of all weeks – should be a wake-up call.

The Universal Credit and Personal Independence Payment (PIP) Bill has proven especially divisive. Its publication followed a series of other decisions – on winter fuel payments, the women’s state pension age, and the delay to the child poverty strategy – which cumulatively sent a worrying signal about the government’s direction.

This technocratic and punitive approach to welfare reform risks alienating the very communities Labour promised to uplift. Front-loading cuts to those on low incomes, while delaying meaningful employment support, makes little economic or moral sense. It is already having a chilling effect on disabled people, children, and pensioners.

Last week, almost 130 Labour MPs signed a reasoned amendment to the bill, which would have halted the bill. In the end, nearly 50 voted against the bill at its second reading on 1 July, despite concessions which were made just hours before the vote. That level of opposition from within Labour’s own benches should not be ignored. These MPs are listening to their constituents, including those working in charities and advice services, who have warned about the devastating impact of these proposals.

These warnings were not new. Two months prior, a letter signed by 40 MPs had already outlined opposition to the proposed measures. Yet the government chose to tell Labour MPs – many closely connected to organisations like the Trussell Trust, Joseph Rowntree Foundation, and Oxfam – that they must back policies those organisations have publicly opposed. The proposed £4,500 average cut to PIP was particularly cruel. It is no wonder that deaf and disabled people’s organisations branded it a betrayal – and an insult to suggest they should help co-produce assessment systems without ever being consulted on the proposed cuts to the benefit itself.

The late-stage commitment to withdraw the PIP cuts and subject them to the Timms Review was a victory for campaigners for the disabled and their allies in Parliament. But this episode exposed deeper flaws in how the government works – not only with external stakeholders, but with its own backbenchers. The proposals would currently retain a two-tier Universal Credit health criterion, for people with the same conditions, but separated on the date they applied and the amount they’ll receive.

This must change. The government should now commit to a transparent framework for setting and uprating social security in line with basic human needs. And in disability policy, it must make “co-production” mean far more than rhetoric. The government must genuinely involve disabled people in the decisions that shape their lives. We must see these commitments when the bill returns to the Commons next week at its third reading.

At its root, the tension over the PIP Bill reflects broader concerns about the government’s approach to the public finances. The Pathways to Work Green Paper, from which the bill sprang, was rushed onto the parliamentary agenda to satisfy arbitrary fiscal targets. But rules that prevent us from investing in people and services aren’t neutral; they entrench inequality.

A wider debate about fiscal policy is overdue. The public doesn’t want technocratic arguments about OBR projections – they want to know whether their pay, their NHS, and their children’s futures are improving. Labour must make a clear break with Conservative economics. After years of stagnation, voters will not accept another cycle of wage restraint and underfunded services.

Inflation continues to bite, while pay settlements fall behind. Without bold action, we risk further strikes by nurses, teachers, and other essential workers. Labour must make it clear: we will not cut pay and services to satisfy abstract fiscal targets. Growth matters – but growth needs investment.

That means being honest: public investment is the cheapest, most effective way to drive change. Private finance can play a role but should never be a substitute for ambition. Nor should we shy away from rebalancing our tax system. There is no justification for taxing income more heavily than wealth. Capital gains tax should be fully aligned with income tax, and the case for a one-off or recurring wealth tax is strong. The super-rich won’t flee – they can’t take their housing portfolios with them.

Labour now has a rare chance to reset. To consolidate the coalition that brought it to power; to show that it listens; and to deliver the improvements in health, care, and income that millions have been crying out for. That means ending austerity – not just rhetorically, but in reality. The country is ready. Our movement is ready. Is the government ready too?