Labour's economic illiteracy is dragging us into a doom loop

A debt disaster is looming — and too many backbenchers just don't understand the grim reality.

- By Jonathan Prynn

Sir Keir Starmer rewrote the history books on July 5 last year when he delivered a majority of 174 for Labour in the House of Commons.

The scale of the landslide meant it was widely assumed that, as the Institute for Government put it, he would “find operating in Parliament more straightforward than recent prime ministers”. But it has not come to pass. Less than a year after inflicting on the Tories the biggest defeat in their electoral history Starmer was forced to climb down on a central plank of his promise to voters: “fixing the broken welfare system”.

A rebellion of about 120 fractious Labour backbenchers gave the Government no option but to offer up a £5 billion watering down of proposed cuts in disability benefits, seen as essential if Rachel Reeves was to have any chance of getting a grip on the deficit. No Government has lost a vote on a second reading of one of its own legislative measures since Margaret Thatcher was defeated on the Shops Bill reforming Sunday trading hours in 1986. Labour high command simply had to retreat.

But the concessions triggered alarms through the City and, briefly, led to a sharp increase in Government borrowing costs when the Chancellor made a tearful appearance on the front bench during Prime Minister’s Questions. Investors are now recalibrating their expectations that Labour will be able to deliver the sort of cuts that will allow Reeves to avoid a further round of tax rises in the Autumn Budget. Indeed, those hikes are now pretty much baked in. Even worse, from a Treasury point of view, emboldened Labour rebels are now turning their sights to other policies such as scrapping the two-child benefit cap.

Political writer and analyst Michael Crick said the success of the rebellion would encourage Labour backbenchers to demand more concessions from the Government. He said: “Once you've committed one murder you might as well go and commit a few more.”