Why Starmer will be back for another stab at welfare cuts

Asked to name the worst moment of his first year as prime minister, Keir Starmer spoke movingly about the death of his brother. If he had given a political answer — well, an honest one — it would surely have been his humiliating climbdown over cuts to disability benefits after a revolt by 126 Labour MPs. Ministers still lick deep wounds, but tell me they have not given up on trying to reduce the ballooning welfare bill — set to rise from £313bn to £373bn by 2029-30. "It is unsustainable," one said. "Any government would have to address it. We can't give up on reform."

Starmer admitted to a recent meeting of Labour's national executive committee (NEC) his filleted legislation had not been handled well — a bit of an understatement. He promised a review by Stephen Timms, the minister for disability, would do better. Disabled people will play a key role, though, so it is hard to see how the review will recommend savings. Timms has said it is "not intended to deliver cuts". Fellow ministers are investing a lot of hope in the highly respected Timms. But he will need to be a miracle worker to keep everyone happy, producing a package supported by disability campaigners that also involves lower spending.

In fact, Labour has a better story to tell on welfare reform than it appears. It doesn't win headlines, but Alison McGovern, the employment minister, is overseeing a quiet revolution. She has ended the "blaming and shaming" of the jobless by the Conservatives, who split the unemployed into three groups: those "ready for work"; a support group needing help to find jobs; and people who would never work.

McGovern thinks her Tory predecessors concentrated on the low-hanging fruit to get as many in the "ready for work" group into any job to keep the unemployment figures down. Her “culture change” includes scrapping the three groups so everyone is helped to get the right job. She also wants to transform jobcentres from drab “signing on” offices into welcoming places where work coaches give personalised advice and children play with toys while their mums and dads speak to staff over a cup of tea. Jobcentres are getting more freedom to bring in new ways of working. Some now use text messages to tell claimants about vacancies or job fairs they might be interested in. Not a draconian “you must do this” to keep your benefit, but “you might be interested to know about this”.

Ministers will outline plans this autumn for the Department for Work and Pensions to use more AI so staff can switch from spreadsheets to helping people directly. McGovern is convinced the personal touch offered by work coaches can make all the difference. On a recent jobcentre visit, she met a woman who had battled mental health struggles and self-doubt, and is now happily working as a cleaner. She also heard about a man who didn't leave his home for a year who is now in full-time work. Although the unemployment rate (4.7 per cent) is at a four-year high — partly because of the hike in national insurance for business — there is a ray of hope. The past 12 months have seen a bigger drop in the "economically inactive" rate as more people make themselves available for work. At 9 million, the inactive group is still higher than before the pandemic, but 400,000 lower than its peak.

However, getting the jobless, sick and disabled into work requires upfront investment, and Rachel Reeves needs to find savings to stick to her fiscal rules, with experts forecasting a gap of up to £51bn by 2029-30. Starmer wants to spend more, not less. He told the NEC he wants to reduce child poverty by the next general election, as all previous Labour governments had done. The easiest way would be to abolish the two-child benefit cap at a cost of £3.5bn, as Gordon Brown proposed this week. Reeves seems to be warming to Brown's plan to raise gambling taxes. The prime minister should ensure the revenue is used to lift the two-child cap, rather than fill the hole in the public finances.

Such a move would unite the Labour Party and bring the vast majority of its rebellious backbenchers onside, as Starmer needs to. But it should be part of a grand bargain under which Labour MPs, in return, accept long-term measures to control welfare spending — including tighter eligibility criteria for future but not existing claimants. Crucially, such changes would have to pass the test of being genuine reform rather than another crude Treasury cost-cutting exercise like the abandoned £5bn savings on sickness and disability benefits.

Perhaps Starmer and Reeves might even offer a grand bargain with the public, too. It's an open secret that taxes will rise in the November Budget. Why not present this as everyone contributing something under a "rights and responsibilities" agenda? Under a "fair" tax and benefits regime, the jobless would have a duty to seek work, hard-pressed workers would be better rewarded — and the richest would bear the brunt of the tax rises. Difficult to sell? Yes. Impossible? No.