What’s Labour’s governing philosophy? That was the question posed at a dinner I went to with some MPs and former staffers during the party’s annual conference in Liverpool last week. Is Keir Starmer more influenced by the communitarian blend of leftwing economics and socially conservative values that is “blue Labour”, or is he driven by the Fabian democratic socialism that was at the heart of his campaign to become Labour leader?
A prime minister’s motivating beliefs are always pored over by those interested in what direction a particular government might take. But in this case I’m not sure how much it matters, because there is a third governing philosophy dominating Labour that renders almost everything else moot. Fiscal conservatism.
In adopting her Tory predecessor’s fiscal rule – that the national debt should be predicted to fall as a share of GDP in five years’ time – Rachel Reeves essentially manifested the Conservative macroeconomic worldview that growth can be achieved through tax cuts and the private sector alone, rather than through using public investment in key infrastructure to leverage in private investment, a lack of which has held the British economy back for decades. That may have been a good election-winning strategy, but it’s a terrible growth strategy. So it was very welcome to see her hinting last week that she will loosen the definition of debt in that rule to create more scope to borrow to invest; that nugget alone was far more important than anything Starmer said in his speech.
But there is a second fiscal rule that Reeves has shown no sign of resiling from: that total day-to-day spending on things like the NHS, education and the police will not exceed annual tax receipts; she told a conference fringe meeting last week that this rule will require “tough decisions” in the October budget. Given that Labour has also ruled out increases in most taxes, this implies no significant increases in spending – apart from a few earmarked proposals, such as paying for 6,500 extra teachers by scrapping the VAT exemption for private school fees – until and unless the economy starts growing healthily again, boosting tax revenues.
There is a chicken-and-egg dilemma here: what if meaningful growth also cannot be achieved without spending more on NHS services to help the long-term sick back to work, or adult education to improve skill levels, for example? And it is this rule that hampers an understanding of what, exactly, ministers want to achieve in their respective areas – because the truth is that, after years of public spending cuts, reform without extra resources is almost impossible.
Even more importantly, this rule begs the government-defining question of what Labour is going to do about rising rates of child poverty. Almost one in three British children now live in relative poverty, and one in six in families that are affected by food insecurity. These dreadful figures are the toxic product of the rising cost of living, including housing, coupled with the cruel impact of Tory changes to taxes and benefits: between 2010 and 2024, the poorest tenth of families with children lost £6,000 a year on average as a result of reforms including the two-child benefit limit and an overall benefit cap, while most families in the top half of the distribution were net gainers.
Successive Conservative chancellors effectively undid the decision of the previous Labour government to give more financial support to low-income parents. And, partly because more families will be caught by the two-child benefit cap in future, child poverty is predicted to grow even more over the next five years: an extra 400,000 children are forecast to be in relative poverty by 2029, putting the child poverty rate at its highest since the 1990s. Growing up in poverty not only blights childhoods; it affects health, education and employment outcomes for the rest of those children’s lives.
Listening to cabinet ministers in Liverpool last week, there is no doubt that they see addressing child poverty as a moral priority. Backbench MP Rosie Duffield cited the decision to keep the two-child cap in yesterday’s resignation letter. The problem is that, apart from free school breakfast clubs, Labour has no policy to make this a medium-term reality. The government has set up a taskforce to develop a child poverty strategy – fine. But writing a strategy cannot substitute for the only ways to immediately reduce child poverty, which is to put more cash in the hands of poor parents, or directly reduce their outgoings.
The biggest character test for this government is not its decision to means-test the winter fuel payment for pensioners, or ministers’ acceptance of hospitality where there are potential conflicts of interest, as badly handled as they have been. It is whether the cabinet looks at the fact that each week hundreds more children will be tipping over the poverty threshold, and decides to do something meaningful about it.
The Resolution Foundation estimates that a package of measures, including removing the two-child limit and scrapping the benefit cap, would cost about £3bn in its first year, rising over time, but would in one fell swoop take 600,000 children out of poverty. No one needs a child poverty strategy to understand that.
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Reeves could either raise the cash to do this through specific increases in wealth taxes, like capital gains tax, or recognise that, while she cannot significantly increase spending across the public sphere, borrowing a few billion to take hundreds of thousands of children out of poverty is a no-brainer. That’s true both on a moral level but also because the long-term costs of child poverty to the exchequer that result from poorer employment and health dwarf the upfront investment of wrapping children in a better financial security blanket from the start.
Either way, she must deliver something significant on child poverty next month. For if a Labour government does not see its core mission as trying to improve the lives of some of our poorest children in good economic times or bad, what, then, is it really for?