After winter fuel decision, Labour is now at war with itself

Keir Starmer’s partial U-turn on the winter fuel allowance has not resolved his problems. He was right to do it — but it has opened the door to further such demands. It has also thrown a spotlight on a debate raging inside his party, which goes to the highest level of the government. Labour is at war with itself over tax and spending. The relief among Labour MPs about Starmer’s retreat is palpable. They tell me they will finally have something to say on the doorsteps when voters put their hand up and tell them they are wasting their breath because of “winter fuel”. As one put it: “We will now get past the hand and at least get a chance to make our case.” Ministers admit privately that the government was not getting a hearing. However, there is dismay on the Labour backbenches that Starmer announced his about-turn without being able to say whether it would take effect in the coming winter. Labour MPs are demanding immediate clarification on the timing, saying any gain from the U-turn will be wiped out if the pain of uncertainty is not lifted until the Budget in October — which might be too late to implement it this winter. That would be untenable.

Rachel Reeves will now come under intense pressure to say more about winter fuel when she unveils her government-wide spending review on 11 June. The chancellor doesn’t want to turn it into a “fiscal event”, after vowing to have only one each year in the Budget, but the public does not give a fig about Treasury niceties. As a bare minimum, she must confirm that more old people will definitely get the winter fuel payment this winter, and ideally reveal how many. Another rethink is coming — on child poverty. Labour MPs insist the party cannot fight the next election with graphs showing it has risen over this five-year parliament — and, rightly, judge that a last-minute push to reduce it a year before the election would be seen as cynical by voters. Ending the controversial two-child benefit cap introduced by George Osborne is at the top of their list, as it drags more children into poverty each year. Starmer himself is now said to be in favour of scrapping the limit — unusually, putting him at odds with his chief of staff, Morgan McSweeney, according to Bloomberg. Insiders tell me it may be softened rather than abolished, at a cost of £2.5bn — for example, by turning it into a three-child cap or excluding the under-fives.

Far from the winter fuel move defusing the backbench revolt over disability and sickness benefit cuts as ministers had hoped, Labour MPs feel emboldened to demand concessions ahead of a vote on them next month. They are increasingly hopeful of winning some concessions to reduce the number of people pushed into poverty by the changes — 250,000, including 50,000 children, on the government’s own figures. The deal to spend £3.4bn on handing the Chagos Islands to Mauritius will only increase such pressure. “When are we going to start acting like a Labour government?” one MP asked wearily. There are tensions between Reeves and cabinet colleagues as the spending review negotiations reach a climax. Some ministers insist they will struggle to meet the pay rises of between 3.6 per cent and 6 per cent for two million public sector workers announced on Thursday. The Treasury will fund a 2.8 per cent increase, leaving departments to stump up about £2bn. The tensions have been heightened by the explosive leak of Angela Rayner’s proposals to raise taxes for the better-off. That they would potentially raise enough to make the £5bn of welfare cuts unnecessary is surely purely coincidental.

The battle for the succession is underway and won’t stop now. Although Starmer will almost certainly lead his party into the next general election, Rayner has put down a marker as the question could be reopened if the dire poll ratings of the PM and his party have not improved in two years. Everything the deputy prime minister does from now on will be viewed through this prism, which will not help Labour display unity. She must walk a fine line. She has made her point to establish herself as leader of Labour’s soft left. My guess is that her detailed tax plans are intended to allay fears among doubters that she lacks the credibility to be prime minister. But repeated disloyalty could damage her chances in the future leadership stakes.

Starmer is desperate to talk up an improving economy so the government can take off its self-imposed spending straitjacket and point voters to some tangible benefits of Labour rule. After overdoing the doom and gloom, ministers seem to have swung to the opposite end of the spectrum. But there is no guarantee that one quarter of economic growth, at 0.7 per cent, will be repeated. Reeves still faces a difficult struggle to stick to her fiscal rules, so the scope for good news announcements will be limited. After the winter fuel decision, Labour MPs have got the taste for sweeteners. But as a spending squeeze looms next month, followed by tax rises in the next Budget, Starmer and Reeves will have to take more unpalatable and unpopular decisions.