Labour U-turn on a modest policy could hit credibility hard

Good morning. The justice secretary, Shabana Mahmood, is set to back a series of sweeping changes to sentencing in England and Wales in a bid to tackle the crisis in the prisons. But the biggest and most important story is the government’s U-turn over winter fuel payments, in part because it is a commentary on the government’s ability to defend a controversial policy when the chips are down.

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The government’s U-turn over the winter fuel allowance embodies many of its problems — not least that it came as a surprise to Labour MPs.

Most members of the Parliamentary Labour party, particularly the mammoth 2024 intake, want to be loyal. (Indeed, the question I get, in varying tones of frustration, from the 2024 intake of MPs, is how best they can be loyal.)

For nine months, they’ve been taking brickbats in their constituencies over the government’s policy to axe £1.5bn in winter fuel payments for about 10mn pensioners. The benefit is worth either £200 or £300 a year.

But Labour MPs only learned of the government’s planned U-turn when Keir Starmer announced yesterday that his administration would raise the threshold at which the allowance is removed. One loyal Labour MP complained that they had written half a dozen replies to angry constituents in the run-up to the local elections explaining the case for means-testing, only to have the rug pulled out from under them. Other loyal MPs have described themselves as variously “at wits’ end”, “pushed to my limit”, and “completely frustrated at where we are now”.

Even some MPs who back the policy change are annoyed at the timing and the manner of it, because they still don’t know what the actual amendment will be. (The cuts limited the winter fuel payments in England and Wales to pensioners who get means-tested pensions credit — meaning it was removed from people with incomes of more than £11,800 a year or £18,000 for a couple). As one MP complains to our team in their story on where the U-turn has left Rachel Reeves’ authority:

“How does a partial U-turn help us? It’s all tactics and reactive management.”

The broader political problem here is that the government’s management of its MPs is bad, it creates irritation and ill feeling among Labour MPs, and makes it harder for the government to convince them that controversial plans are worth defending. Also, given that Labour MPs do need to be able to communicate the government’s strategy and agenda to their constituents, it is important that they actually know what that agenda is and how it will develop.

The big picture policy problem, in my view, is this: we don’t yet know where Labour will draw the new line for the winter fuel allowance, but it will probably require the best part of a billion pounds. Given that to avoid further reductions in what the UK’s public services do, Labour would have to increase spending (and therefore, taxes) by about £40bn. Why would “expanding the reach of the winter fuel allowance” ever be a good use of that money?

The Treasury is already locked in increasingly fraught negotiations with the spending departments about the looming comprehensive spending review. One departmental minister described their opening offer from the Treasury as “simply unrealistic”. An official complained that their department was being asked to work miracles. I hear similar complaints from essentially every part of Whitehall most days. How can they now expect anyone to see their plans as credible or defensible given they have reversed course on what is, in the grand scheme of things, a comparatively minor change?

Indeed, how could anyone look at Labour’s dreadful inheritance — at our economy from 2010, our public services from 1997 and our ageing population — and think that the best use of the government’s fiscal firepower was unpicking the means-testing of the winter fuel allowance? Just as a reminder, in order to keep to her fiscal rules, Reeves’ plans rest on the fuel duty freeze ending (which it hasn’t done for more than decade), on public sector pay increasing below inflation and on local housing allowance remaining frozen. We are really talking about very sharp cuts to public spending or hefty tax rises to meet the government’s fiscal rules.

Now, without preparing the ground among loyal Labour MPs, the government proposes that it wants to use its limited spending power to increase the scope of the winter fuel payment. It wants to do this at a time when the government is being forced to reimagine sentencing in our criminal courts, when child poverty is rising and when the Department for Education faces a series of cuts and spending pressures. As a plan to be re-elected in 2029 or to put the public finances on a sustainable trajectory, this is nuts!

But the big problem here is that the government has no direction other than the polls. It does things such as introduce means-testing of winter fuel (something which was popular 10 months ago, including in the government’s all-powerful focus groups) and then retreats under pressure. It now has to convince fractious MPs and markets that the rest of its spending plans can be taken seriously. It is almost certainly going to struggle with that.

Let me know your thoughts by email, or in our poll about where this leaves Reeves’ credibility as chancellor. Click here to vote.

Now try this

I am very much enjoying Kingdom of Rizia, the second game by the makers of the wonderful Suzerain, in which you play as the president of a country choosing between West and East, liberal reform or managed democracy in a world not entirely unlike ours during the cold war. In the downloadable content, you play as the new heir to a monarchy and have to navigate monarchical politics and your country’s growing protest movements. These are among the best and most sophisticated explorations of politics in any fictional setting and pleasingly they run on essentially everything.

In my first playthrough, I ended up misjudging the balance of forces and my attempt to secure my regime with a little measure of reform ended up in my exile. I am hoping for better on the second go around.

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