When Sir Keir Starmer addresses Labour MPs at the behind-closed-doors weekly meeting of the Parliamentary Labour Party next Monday evening, he will tackle his colleagues’ concerns over slashing foreign aid and cuts to welfare benefits head on.
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.
“There are knots of MPs who are feeling awful,” a Labour MP told The i Paper. “People are going around saying they don’t want to be ministers because they can’t do anything as there is no money to spend. Of course, it’s just moaning; they don’t really mean it. But there is a lot of frustration in the party – people asking: ‘What do we stand for?’”
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.
Some Labour MPs have been eyeing events in Germany. There, chancellor-to-be Friedrich Merz has agreed with his probable coalition partners to borrow billions to inject extra funding into its military in the wake of Donald Trump’s threats to unwind European security guarantees.
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.
“If Germany can move their debt targets, why can’t we?” a second Labour MP told The i Paper. “What’s more, if I were Rachel, I’d borrow even more so we don’t have to cut welfare too. What was it Tony Blair said – you’ve only got one shot.”
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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Read MoreA 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.
According to a fourth Labour MP, Reeves could borrow more to fund defence but cautioned that the international money markets would be unforgiving if the Government borrowed to finance welfare spending.
“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.
The MP said there is an economic case for borrowing more to boost defence spending, pointing to the fact that stocks in US defence companies have slumped after Trump withdrew security guarantees for Europe. Meanwhile the opposite is true for European firms.
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.
While most Labour MPs expect their calls for extra borrowing to go unheeded and won’t speak publicly for fear of looking disloyal to Reeves, whom they admire, the fact that they are making suggestions about her fiscal direction even in private speaks to a wider frustration in the party at the situation they find themselves in.
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.
“Going for growth is such a hard sell for the public. They don’t understand what ‘growth’ is. The trouble is you can’t change your messaging to make it all about getting the number of jobs up because of the NIC [national insurance contribution] rises. So, we are where we are,” the MP said.
“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.
“I can definitely see the case for welfare reform, but I’m worried we are going to mis-sell it and do some sort of blanket crackdown which will look like the mistakes we made on winter fuel or Waspi women,” the MP added.
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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“You can’t just borrow to fund this additional spending, because this is not just a one-off thing,” Reeves told The Electoral Dysfunction podcast. “We’re going to have to keep spending at these elevated levels. You can’t just borrow to fund something like that because this is ongoing expenditure. And that’s why we made the decision to reduce development spending and put that money into our defence budget.”
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.
No 10 is well aware of the strength of feeling in the party. On Thursday morning Starmer concluded his final strategy session for all MPs, having had the whole party in to see him in batches to explain his thinking on a wide range of policies.
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.
Moreover, he reassured worried colleagues, there is a strong progressive case for welfare reform and creating good work for all who can work.
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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