How did
it come to this? Labour’s journey from landslide victory to ‘deep unhappiness’
Rachel
Reeves’s speech next week is being crafted as a ‘re-education’ on Labour’s
achievements amid gloominess and sinking poll ratings
Pippa Crerar
Pippa Crerar
Political editor
Sat 22 Mar
2025 11.14 GMT
When Rachel
Reeves takes to her feet in the Commons to deliver her spring statement next
week, she will try to pull off what her inner circle describe as a
“re-education” exercise over how Labour has used its early days in power.
“We want it
to be a re-education on all the good things we’ve already done in office,” said
one, listing achievements including increasing the minimum wage, cutting NHS
waiting lists and improving workers’ rights. “We want everybody to hear it.”
That the
chancellor feels she has to remind Labour MPs – and the wider public – that
their first nine months in office have not been as bad as the polls might
suggest is telling, reflecting concern at the top of government about
gloominess over the party’s direction of travel.
Many on the
left are deeply anxious about how, as they see it, things have turned sour so
quickly for a Labour party which swept into power with a huge majority of 174 –
just short of Tony Blair’s 1997 landslide.
Since then,
Labour has dropped eight points in the national polls, and Keir Starmer’s
personal approval ratings have plummeted 22 points, although both have been
going slowly upwards since the turn of the year.
Few Labour
MPs believe there is much reason for cheer, as there is little sign of the
economy improving anytime soon, with growth forecasts expected to be downgraded
again next week and Reeves announcing the biggest spending cuts since
austerity.
The despair
came to a head this week after Liz Kendall, the work and pensions secretary,
announced £5bn of cuts to disability benefits. Despite No 10 arguing that it
had a “moral case” for welfare reform as well as an economic one, many Labour
MPs responded with dismay.
Diane
Abbott, the veteran Labour MP, told Starmer at PMQs the decision was “not about
morality” and instead “about the Treasury’s wish to balance the books on the
back of the most vulnerable”.
Afterwards,
one minister said: “It’s just not the sort of thing a Labour government should
be doing.” Another added: “If we can’t protect the most vulnerable, regardless
of the fiscal circumstances we inherited, then what are we for?”
The welfare
cuts are just the latest example of a series of decisions that have sent
ripples of discomfort across the wider Labour movement, starting with the
winter fuel payment cut last July and more recently the halving of the
international aid budget to pay for defence spending.
The decision
over disability benefits has cut particularly deep, even though there is
support for the principle of reform. After a meeting with Kendall and Stephen
Timms, the social security minister, MPs reported “deep unhappiness” across the
party, including on the right.
“It isn’t
every day I find myself agreeing with Diane Abbott,” said one MP. “But we all
have people in our constituencies who will be hit by the benefit cuts.”
No 10
officials argue the welfare system will collapse unless it is reformed, with
the cost of working-age sickness and disability benefits forecast to rise to
£70bn a year by the end of the decade. The polls suggest voters are in favour.
What they miss, however, is that people do not support targeting the most
vulnerable.
Government
insiders are frustrated that much of what does chime with Labour values –
nationalising the railways, imposing a windfall tax on oil and gas, and VAT on
private schools – has been overshadowed.
“It’s such a
gloomy national picture that people just bank the good stuff,” one said. Some
feel the country – and despondent Labour MPs – need a wake-up call about how
tough things actually are.
“We won
because people had a sense that the country was broken and things weren’t
working. The change they voted for doesn’t come without difficult decisions.”
There is,
however, an ongoing internal debate that Labour was not bold enough in its
ambitions going into the general election, given they anticipated a difficult
inheritance. The party is now, in part, dealing with the fallout from that.
“It’s not
that we knew things were really hard and the public didn’t,” said a cabinet
source. “But you have to argue the case for your mandate. That didn’t happen,
and that has now weakened our capacity to do difficult things.”
Specifically,
some Labour MPs feel that Reeves boxed herself in on the economy by ruling out
tax rises on working people or changing her fiscal rules. It has meant that as
her fiscal headroom has shrunk, so too has her room for manoeuvre.
But Downing
Street defends the decision. “We didn’t have any option,” one source said.
“After Liz Truss we had a moment of opportunity on the economy. We took it. If
we don’t show we’re serious about stability, we’ll be attacked as ‘same old
Labour’. We’ll lose the advantage.”
Yet despite
Reeves announcing she had looked at the books when she entered the Treasury and
concluded things were worse than expected, there was no suggestion that could
render any of Labour’s election promises obsolete.
“It feels
like there’s a lack of political imagination at the top,” one senior Labour
figure said. “There have been various moments over the last few months that we
could’ve turned round and said: ‘Things are worse than we thought, so we need
to take emergency measures.’ But we didn’t.”
Some Labour
MPs have pushed for the government to follow Germany’s lead and change the
fiscal rules to pay for further defence spending, which will be necessary in an
ever more volatile world.
Treasury
officials argue it would be impossible for the UK to do the same. “It’s
bollocks,” one said, adding that it would cost £4bn a year – the equivalent of
the annual prisons budget. While Germany’s debt is just 60% of GDP, the UK’s
stands at 100%, meaning borrowing costs are higher.
Others have
called for a wealth tax of 2% on assets over £10m, which they say could raise
£24bn annually. Again, officials reject the idea, arguing the UK is on par with
other G7 countries, with the top 5% of taxpayers projected to pay nearly half
of all income tax in 2023-24.
Reeves now
has few options left. She has chosen to go for more spending cuts, slashing
Whitehall budgets next week by billions of pounds more than previously
expected.
“It’s hugely
depressing and it’s not what we came into government to do,” said one MP. “It’s
also entirely counterproductive to our growth agenda. If we want to grow the
economy, we have to invest. More austerity is not the answer.”
There is
frustration inside government that their plans are characterised as austerity.
While officials do not deny deep cuts are ahead – with some departments facing
reductions of as much as 7% over the next four years – they say it is happening
at half the pace as under George Osborne.
“It’s just
lazy and unfair,” one source said. In the October budget the government
announced £190bn of spending, £140bn of borrowing and increased taxes by £35bn
more than forecast. “You can’t pour that amount of money into the state and
call it austerity.”
The
government has instead bet the house on growth. “We’re told it will be tough in
the early years but we’ll eventually reap the benefits. Let’s hope they’re
right,” said a cabinet source.
Amid all the
despair, MPs are taking some comfort from the fact that Downing Street – which
in the early months was buffeted by infighting, rows over freebies, and an
apparent lack of a plan – appears more in control.
Experienced
officials have been appointed – among them Jonathan Powell, who was Tony
Blair’s chief of staff – and the operation has been calling on thinktanks more
in an effort to drum up fresh ideas on reform of the state and saving money.
“It feels
like the government really began in January,” said one person involved. They
said No 10’s “mind has been focused by America” with a drive to pick up the
pace of government and be seen to be doing things.
International
volatility has also played to Starmer’s own strengths, with the prime
minister’s handling of the Ukraine crisis impressing many. Whether that
newfound purpose can be translated to the domestic sphere is another question.
And the US
could yet change everything: the looming threat of Donald Trump’s trade tariffs
has the potential to derail the government’s plans to get the economy growing.
For now, the
government is trying to focus on the future. Some insiders have been alarmed by
the despair that has seeped through the movement. “We do understand the
frustrations,” said one cabinet minister. “But we need to stay the course.”
Morgan
McSweeney, Starmer’s chief of staff, is said to believe that when push comes to
shove, Labour’s core vote will come back to the party to keep the Tories, or
even Nigel Farage, out. While some may simply choose not to vote, the polling
indicates a majority would return to the fold.
“Of course
MPs feel this is a daunting task. They should feel that because it is,” one
senior party strategist said. “But it’s so important to actually start
delivering again to give people hope for the future. That’s the price.”
But many in
the party remain uncomfortable. “Labour is creating a rod for its own back by
not being prepared to fight for a political economy of its own,” said one party
figure.
“They’re
sticking to their fiscal rules because they want to avoid a reputation for tax
and spend. But now they’re pursuing un-Labour measures. And they’ll be judged
on it.”
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