Labour in turmoil over 2-child benefit cap

We’re less than 3 weeks into this new Labour government, and already the party looks less than united.

Keir Starmer has suspended 7 of his MPs from the Labour party for voting for an SNP amendment to the King’s speech that supported scrapping the two-child benefit cap.

Some context

Opposition parties always try to amend the King’s speech to include their policies in the next parliament, but they are very rarely successful.

Supporting an opposition amendment to your own party’s King’s speech is a sure fire way to get yourself suspended, as happened to the 7 MPs in question.

They will now sit as independents for at least 6 months, when the decisions will be reviewed.

MPs rejected the SNP’s amendment by 363 votes to 103, with the SNP, Lib Dems and smaller parties voting for it, and 362 Labour MPs voting against it.

To be clear, the cap in question is not about the money the government gives to parents on a weekly basis for each child they have, which is currently ￡25.60 for a 1st child, and then ￡16.95 for each subsequent child. This benefit is not capped.

The current conversation concerns those on Universal Credit, a benefit payment for people on low incomes or not in work. The cap means that receivers of Universal Credit get no extra allowance for their 3rd and subsequent children.

It is estimated that lifting the cap could lift 250,000 children out of poverty, and the Institute for Fiscal Studies says it would cost the government an extra ￡3.4bn a year.

A headache for Starmer?

In the first full week of the new parliament, Starmer has already had to suspend 7 MPs. Given his enormous majority, he can afford to do this, but it is likely that many Labour MPs who either abstained or voted with the government are also eager to see the cap removed.

It will also be alarming for him that the 7 rebels in question are mostly from the Corbynite faction of the party, like former front benchers John McDonnell and Rebecca Long-Bailey.

It also doesn’t look good nationally to instruct your MPs to vote against a policy that could address child poverty.

To make matters even worse, Labour’s Home Secretary Yvette Cooper cancelled her morning media interviews today, much to the annoyance of Sky News’ Kay Burley, who said Cooper was “running for the hills”.

It looks cowardly to appear strong in parliament by suspending rebels, and yet run away from pre-arranged media interviews the next day. If they are against scrapping the 2-child benefit cap, Labour ministers should appear in front of TV cameras and defend their decision.

Deputy PM Angela Rayner actually advocated to scrap the cap back in 2020, which makes it all the more confusing why the government are so reluctant to budge.

It appears that Starmer and Reeves are so paranoid of making extra promises, shown by their unambitious manifesto, that they are willing to ignore something the majority of left-leaning Brits would support.

When challenged at PMQs by the SNP’s Stephen Flynn, Starmer pointed to the government’s new child poverty taskforce as evidence that he was taking action to address child poverty. The problem for Starmer is that this a long term strategy, and he is ignoring the ‘quick fix’ that his opponents are advocating.

My personal take

Ideally the existing child benefit system, with the aforementioned weekly payments, would be enough to support parents. If the cost-of-living to family income ratio were more favourable, ie a stronger economy with more affordable housing and goods, we would have no need for extra Universal Credit payments based on number of children.

It is likely that the entire benefits system needs reworking, especially given how it is taking up a greater proportion of treasury expenses each year, and that more and more people are being signed off as ‘unfit to work’ since the Tories took office in 2010.

But in the current circumstances, it makes no sense to place an arbitrary limit based on the number of children. If the first 2 children are provided with extra help, then subsequent children should also receive the same.

My position still remains that the Treasury’s, the therefore the taxpayer’s, benefits bill needs to be reduced. This entails:

• more measures to get people into work
• removal of benefits for those blatantly refusing to work
• less people incorrectly declared ‘unfit to work’
• accommodations made for those with disabilities but still able to work in certain settings
• a lower overall tax burden.

But these measures are long term, and while this Universal Credit/Child Tax Credit system exists, the arbitrary 2 child limit should not be in place.

Labour say that they can’t fund this policy, but I believe this is because they are scared of making large scale promises of this kind. During the election campaign, they promised not to increase VAT, national insurance or income tax, and are clearly worried that they might have to roll back on that promise, or invent an entirely new tax in typical Labour fashion.

What needs to be done is not extra taxes, but savings. Reform UK policies to stop the Bank of England paying voluntary interest on its QE reserves, and saving ￡5 out of every ￡100 in government spending, would save billions, helping to fund this policy and many others.

Perhaps most ironically of all, Starmer committed last week to sending ￡3 billion a year to Ukraine for “as long as it takes”. This is a similar amount that it would cost to scrap the 2-child benefit cap. The message Labour are sending to votes is:

“There’s money to fund a foreign war, but not money to help poor children"

A very bad look indeed…

Conclusions

Starmer’s first test in parliament saw Labour disunity revealed, and it is likely that there could be more to come. Given his commitment to economic growth, and reluctance to commit to extra spending, I imagine that many backbenchers will quickly grow frustrated with the government.

If one issue will tear the Labour party apart, this could be it. It could go one of two ways; either the government sticks to its guns and the backbench rebellions increase, or Rachel Reeves is forced to increase taxes, despite previously promising not to.

Currently the Chancellor is trying to work out how fund above inflation pay rises for virtually all public sector workers, and really can’t afford another ￡3 billion of extra spending. A last minute U-turn is now impossible, and Starmer is probably committed to keeping the cap for at least until the autumn or even perhaps the spring statement.

Both the Labour backbenches and wider country are not impressed with Keir Starmer. The party that traditionally prides itself on helping those most in need appears to be ignoring what could be a ‘quick fix’ to child poverty.

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