It’s been more than two days since Keir Starmer told the BBC’s Laura Kuenssberg that Labour would keep the two-child benefit cap, yet the party seems no closer to finding resolution on the issue. The pushback within the party has been intense, with plenty of people (including, reportedly, members of the shadow cabinet) asking how the opposition leader can keep a benefits cap that he once railed against.
But Starmer isn’t budging. Speaking on a conference stage with former prime minister Tony Blair this evening, Starmer insisted this wasn’t an issue of changing hearts, but rather a changing set of circumstances. Speaking about spending commitments more generally, Starmer noted that:
We keep saying collectively as a party we’ve got to take tough decisions. And in the abstract everyone says, that’s right, Keir… And then we get a tough decision— we’ve been in one of those the last few days – (and) they say, ‘we don’t like that, can we not just make that one?’ … but we have to take the tough decisions.
Strip away the name, and you might think it was a quote from the Prime Minister, Rishi Sunak, who is often talking about the need for difficult choices and trade-offs. Perhaps that’s Starmer’s intent: promoting fiscal discipline and costing every policy proposal may well be an election strategy – one that makes it much more difficult for the Tory party to accuse Labour of fiscal sloppiness.
But put that to one side. Even if Starmer wanted to throw fiscal restraint to the wind, and embrace the calls of everyone wanting him to endorse a more generous welfare strategy, would he realistically be able to do so?
Markets suggest not – or at least, not on any kind of big scale. Inflation remains stubbornly high and that means more interest rate hikes are almost certain to follow, with market expectation still for rates to peak around one percentage point higher than the current base rate (at 5 per cent).
As rates rise, so does the cost of borrowing, with five-year and ten-year gilt yields back at 15-year highs: back to where they were the summer of the financial crash, and back on par with where Liz Truss’s mini-Budget sent them spiralling last year (albeit for very different reasons). Rising rates are also seeing the cost of servicing existing debt skyrocket by tens of billions of pounds: that’s money being spent to cover old bills, rather than any kind of new investment.
Starmer and his shadow chancellor Rachel Reeves seem to have acknowledged that last year’s mini-Budget lessons apply to them just as much – if not more – than the current Tory party. (Starmer is trying to convince not just voters, but markets, that a Labour government would look nothing like the socialist spending spree Jeremy Corbyn proposed. Rishi Sunak, on the other hand, has had years to establish himself as a fiscal hawk.) This explains why costing a policy comes before the policy itself right now, whether that be abolishing the two-child benefit cap or having to water down green investment promises as Reeves did last month, despite that £28 billion becoming a centrepiece of her agenda.
This means anyone calling for more spending, whether that be on new programmes or abolishing limits on older ones, will have to account for the costs. This means saying who you would tax, or what you would cut, to credibly implement it. For Starmer and parts of his cabinet, this may have the benefit of seeming like a good way to compete with the Tories. But it’s an added benefit, really. First and foremost, it’s about economic survival.
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