With three U-turns in a month, the Labour Government has lost its nerve and control

Less than a year after taking office there is already serious speculation over whether both the Prime Minister and the Chancellor will survive until the next general election. That’s a remarkable position.

It reflects the reality that voters in 2024 didn’t vote for Labour, but rather against the Conservatives. It also reflects the fact that Labour’s polling has collapsed from 34 per cent at last year’s election to around 22% today, with Reform now leading the pack on around 30 per cent. Keir Starmer’s net approval rating has also nose-dived, from around +10 per cent a year ago to around -40 per cent now, with the Chancellor on -48.

Reform’s surge has seriously spooked Labour MPs and in turn the Government. We’ve seen three U-turns confirmed within the last month. Before each of them was announced, the Government was adamant that it wouldn’t change course. The about faces on the winter fuel allowance and a national inquiry into grooming gangs were directly because of the push-back from Labour MPs’ constituents and Reform’s ability to leverage the issues to its own advantage. The result is that the Government has now self-immolated its authority.

Given that the Government was, to borrow Margaret Thatcher’s phrase, “for turning,” it was no surprise that growing discontent among backbenchers over welfare changes – partly aimed at curbing future spending increases – would eventually lead to some form of rebellion.

 But the scale and nature of it was astonishing. For over 120 Labour MPs to sign a motion to kill a piece of their own government’s legislation at Second Reading – which is about the principle rather than the detail of proposed change – within a year of winning an election is not something I’ve seen in my three and a half decades in public affairs.

Facing such a humiliating defeat, the Government has inevitably tried to compromise its way out of total embarrassment. It’s limiting the changes to new benefit claimants and the promise of a ministerial review might give it the numbers to get its bill through the Commons. Its compromise would, though, create a two-tier system for disability claimants, which will be difficult for it to defend. If it does pass the Commons, the House of Lords may well ask the Government to think again.

Labour MPs are exasperated at how this state of affairs has come about. Many think the Government has badly mishandled these issues, causing them maximum political pain for minimum gain and putting their (in most cases) new jobs at serious risk come the next election, even so early in the parliament.

The concessions on the winter fuel allowance and the welfare reforms have caused another headache for the Chancellor. She will now need to find an extra £4.5 billion or so from somewhere. It’s now clear that Labour MPs have no appetite for limiting the ballooning growth in the welfare budget. The idea of raising more money from the ‘wealthy with assets’ as the obvious alternative is growing in popularity. A recent survey shows most party members think Labour need to move further left to win the next election. But with the Government’s non-dom reforms already prompting an apparent exodus of wealthy individuals, a partial U-turn is expected to help stem the outflow, suggesting that any new wealth taxes may need to target other areas..

With all the drama about U-turns, the recent publication of the Government’s ten-year industrial strategy largely went under the radar. Its ambition is to galvanise eight ‘growth-driving’ sectors currently representing 32 per cent of our economy: advanced manufacturing, life sciences, clean energy, digital and tech, defence, creative industries, professional services, as well as financial services, which is considered a key enabler for the others.

The strategy emphasises place-based investment, targeting investment and initiatives in regional clusters around the country. In financial services it highlights the importance of fintech, the insurance and reinsurance markets, sustainable finance, capital markets and asset management as sectors with the most investment and growth potential.

The detail will be fleshed out in a ‘sector plan’ to be published alongside the Chancellor’s Mansion House speech on 15 July.

The Government has also recently launched three consultations on transition planning to support investment in clean energy; new financial reporting standards to provide investors with clear, comparable information on sustainability related financial risks; and the development of a registration scheme for providers of assurance services for sustainability-related financial disclosures.

The Treasury Committee has also just published a report calling into question the suitability of Lifetime ISAs for many savers, how well-targeted they are, and whether the tax breaks on them are the best way to use public money to help people onto the property ladder or save for retirement.

As ever, while big political dramas unfold in the media, important day-to-day policy development, discussion and implementation continues.