There are currently plenty of ruffled feathers in the Labour Party at Westminster. In the week after Starmer scythed the aid budget to fund a rise in defence spending, some of his MPs are feeling shell-shocked that their long-held progressive principles are seemingly being abandoned. Now, with Chancellor Rachel Reeves earmarking several billion pounds in draft spending cuts to the welfare budget, that misery has crystallised.
Restless Labour MPs concerned about wholesale cuts to the benefits bill and other unprotected departments are coming up with suggestions for Reeves in the run-up to her fiscal statement later this month. Some want her to borrow more to fund higher defence spending as it could leave other areas of Government less vulnerable to cuts.
Next week Merz will seek the German parliament’s approval for the plans. If successful it would allow the relaxation of tight constraints on defence spending. However, because of the announcement German government borrowing costs surged by the most in 28 years this week. Unlike the UK, Berlin’s debt at 63 per cent of GDP gives them more wiggle room for borrowing.
Under changes announced in October, Reeves has pledged to borrow only to invest, as opposed to funding day-to-day Government spending, and to get debt falling as a share of GDP. But the tide has turned in Europe, with president of the European Commission Ursula von der Leyen proposing to borrow up to €150bn (£126bn) to lend to European Union governments to drive rearmament.
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A third Labour MP pointed to Japan’s level of debt, which in January stood at a massive 263 per cent of GDP. “Rachel is going to have to do something… anything to stop these cuts being so awful. Look at Japan’s debt to GDP ratio, and they manage,” the MP suggested.
“There is definitely a window of opportunity in which Rachel could borrow more for defence, with cover from the Europeans. Of course, you’d have to pitch-roll the idea to the bond markets but it’s a good idea and could be managed. I don’t think Rachel will go for it, though,” the MP said.
Starmer himself has argued it’s vital that the Government’s decision to lift defence spending to 2.5 per cent of GDP “should be used to boost the British economy”. Some in Labour hope extra borrowing to fund defence projects in the UK could give growth a shove in the right direction.
A fifth Labour MP said one of Starmer’s key missions – to have the highest sustained economic growth in the G7 grouping of industrialised nations – is difficult to explain to their constituents.
“I just think we are going to have to end up spending more on defence than has already been suggested, so we need to be thinking about different ways to fund it in the future – will we need to slash aid even more? That’s not why I came into politics,” a sixth Labour MP said.
As of January 2025, the UK’s public sector net debt was 95.3 per cent of GDP. Reeves is understood to be keen not to take on new borrowing without a clear plan to pay for it.
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But not every Labour MP thinks UK debt should be extended. The sixth Labour MP said they agreed with raising defence spending but said extra borrowing is the wrong way to go about funding it.
The Prime Minister also met with frontbench colleagues this week to reassure them that there are plenty of proof points of Labour values that they can explain to their constituents. These range from more NHS appointments to raising the National Minimum Wage, alongside breakfast clubs and introducing VAT on private school fees.
When Starmer stands up to face his colleagues at the closed-door meeting on Monday that’s a message he’ll have honed again and again.
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