Can Rachel Reeves hold the Labour Party together?

Defence spending is going up and welfare spending is being squeezed – which is at odds with why a lot of Labour MPs thought they were elected, writes John Rentoul

Most Labour MPs are shockingly loyal, even in private. It is possible, but surprisingly difficult, to collect anonymous quotations that are rude about the prime minister or his senior colleagues.

All the same, any conversation with a Labour backbencher reveals a gulf between their priorities and those of Rachel Reeves, the chancellor. Most Labour MPs are interested in child poverty, special educational needs, social housing and families in temporary accommodation. Reeves is interested in how she is going to make her sums add up when the Office for Budget Responsibility puts a line through her homework next month.

It is not yet clear what the issue will be that will trigger the coming Labour split, but it is clear that it is coming.

The debate about the two-child limit on benefits, for example, will emerge from cryogenic suspension at the time of the spending review in June. Seven Labour MPs were suspended from the parliamentary party for voting against the King’s Speech on this issue immediately after the election. Four of them have been reinstated, but unhappiness about the policy, which punishes children in larger families who did not choose to be born, spreads far wider among Labour MPs.

Dan Bloom of Politico reports that there are intense discussions going on behind the closed doors of the child poverty review that Keir Starmer set up to get the issue out of the headlines. “If we have a child poverty strategy, it has to actually reduce child poverty,” one backbencher is quoted as saying.

‘Even the cheapest options, such as a three-child limit, would add to the welfare bill, which Reeves is trying to cut’ (House of Commons/UK Parliament/PA)

Even the cheapest options, such as a three-child limit, would add to the welfare bill, which Reeves is trying to cut. In a separate part of the ministerial forest, Liz Kendall, the work and pensions secretary, who also co-chairs the child poverty review, is fighting hard in negotiations with the Treasury, which wants to make savings in the growing bill for sickness benefits.

As far as I can tell, Kendall is trying to keep some of the savings from slowing the rise in future sickness benefits for her budget now so that she can afford things such as some softening of the two-child limit. If history is a guide, she will fail. The Treasury will accept more spending now only if it is certain to produce savings later.

So the gulf will yawn wider. More children will grow up in poverty. Special educational needs provision will not improve. Nor will social housing. The things that most Labour MPs care about – apart from the NHS – will have to wait until the miracle of economic growth arrives, who knows when.

Not only that, but defence spending is going to have to rise. Starmer will have to repeat his promise to raise it from 2.3 per cent of UK national income to 2.5 per cent, but without a date, when he visits Donald Trump next week. His inability to say when he will fulfil that promise will be embarrassing enough at the White House, but Starmer still hasn’t agreed it with Reeves.

The prime minister wanted to announce the timetable for reaching 2.5 per cent in the spending review, but the chancellor is resisting – even after President Trump’s threat to withdraw US support from Ukraine.

Everyone seems to agree that British defence spending should rise, even though we already spend more, for the size of our economy, than France, Germany and Canada. And even though it might make more sense to find out what the Ukrainians need to guarantee their security, and then to work out who will pay for it, rather than targeting an arbitrary percentage of GDP.

But the path is set. The Labour government will spend more on defence, while imposing what its MPs regard as “austerity” on unprotected budgets – that is, those departments other than health and education.

That is not what a lot of Labour MPs thought they were elected to do. So far, the crisis has been postponed, and if Reeves is lucky she may be able to fudge it one last time in the spending review in June. But – unless the economy defies all expectations and picks up sharply – the crunch is coming.