Why Reeves will back down over her ‘tough decisions’

It seems an age ago, but the first speed bump that Sir Keir Starmer and Rachel Reeves hit in government was when seven Labour MPs voted against the King’s Speech, 17 days after the election. They wanted to lift the two-child limit on families receiving benefits, and were rewarded by being expelled — sorry, “suspended” — from the Parliamentary Labour Party. It was a brutal show of strength by the new prime minister, and a warning to Labour’s new MPs not to think of indulging themselves in the warm glow of voting with their consciences. When Starmer and Reeves said that they would have to take difficult decisions to rescue the public finances from the irresponsibility of the Conservatives, they meant it.

Since then, Labour consciences have been tested further. Means-testing the winter fuel payment for pensioners has been hardest challenge for them so far. But the inheritance tax rise for farmers has also made a lot of new MPs for rural constituencies uneasy. There are Labour MPs for seats such as Hexham, Bury St Edmunds and Stowmarket, and South West Norfolk — and many of them have little to lose if the party’s sweeping advance into places where agriculture matters is temporary. So the more that I hear Labour spinners insist that the “iron chancellor” is not for turning, the more I think a tactical retreat is likely. One Labour source told Huffington Post: “If we duck those tough decisions we will be doing precisely what the Conservatives did: party first, country second.”

This is the kind of briefing designed to stop journalists and MPs from speculating about the kinds of compromise that might be being considered. It appears to raise the cost of a U-turn by making it more embarrassing to execute — but it doesn’t really. If Reeves does retreat, people will be more interested in the substance of the policy than in close textual analysis of all the times her people said she wouldn’t. For obvious reasons, then, I have no inside information on what Reeves is likely to do. I can only observe the pressures on her and what chancellors have done in the past in similar situations.

I think she will give ground on family farms. There are only two pieces of information needed to reach this conclusion. One is that the inheritance tax changes are planned to take effect in April 2026. That is a year and a half (or two Budgets) away. The other is that there is a watertight case against certain people buying farms as a way to avoid inheritance tax. It should be fairly straightforward, therefore, to exempt small farms that have been in the same family for generations, while still raising revenue from people buying up farmland for the tax advantages. (“Small” being a relative term for a farm that could be worth millions but which produces a low income.)

The winter fuel payment is more difficult, but it is also more urgent. Reeves tries to suggest that the issue is closed: the legislation has been passed; the political pain has been borne; she cannot afford to throw away the reputation she has gained for sticking to a fiscally responsible decision. But there is more pain to come. The recent cold weather could be a warning. Some pensioners will die of cold, and the government will need a better line than encouraging the survivors to apply for pension credit. Again, most of Reeves’s case is strong. There is overwhelming support for taking the payment away from comfortably off pensioners who don’t need it. The problem is those pensioners on incomes as low as £12,000 a year who are not poor enough to qualify for means-tested benefits. It is, we are told, impossible to use HMRC systems to identify this cohort and deliver the winter fuel payment to them.

But the Treasury’s pandemic response showed that things that were thought to be impossible turned out to be doable — and remarkably quickly. I don’t know how it will be done, but I am sure that Reeves has asked for a plan. Some scheme for a winter payment targeted at pensioners just above the pension credit level, and which preserves most of the savings from better-off pensioners, seems likely. Reeves, Starmer and anonymous Labour sources will continue to insist that it will not happen, until a few days before it does. The crudest reason for thinking that it will happen is that Reeves’s chances of ever succeeding Starmer as prime minister depend on it.