When Keir Starmer said ‘painful’, he meant it. Prepare for years of ‘austerity’

The prime minister and his chancellor have already made their toughest decision of all: to keep a tight squeeze on public spending, writes John Rentoul

The prime minister’s plans go beyond the two-child limit and fuel payment cuts (PA)

Rachel Reeves faces a “Whitehall revolt over spending cuts” according to the Financial Times. The chancellor gave government departments until this coming Friday to submit plans to stay within the spending limits she inherited from the Conservatives. “The message will be very clear that the cuts that the Treasury wants are just not possible,” according to one official.

In the Treasury, such submissions are dismissed as “shroud waving”. One former special adviser adapted Stalin’s words, waving aside warnings from the Pope, asking me: “How many divisions do the departments have?”

There is no doubt that the Treasury will win this battle, as long as Keir Starmer and Reeves remain firm in their political purpose. So the question is how much pressure they can bear, and from which parts of public opinion.

Many commentators did not take Reeves seriously when she said she had come into the worst economic inheritance since the Second World War. One group of commentators was particularly indignant about Reeves’s claim: Jeremy Hunt and the Conservative Party became quite heated in their insistence that they had actually left a golden economic legacy, which Labour was threatening to squander.

It is true that the economy is not in the worst shape since the war. Of course it isn’t. Unemployment and inflation are low and earnings are rising again. But the public finances are in unusually bad shape, mainly because the Tory spending plans for the next five years were so unrealistic.

To be fair to Hunt and Rishi Sunak, they are not wholly to blame. Labour are exaggerating the claim that the finances are in an even worse state than they expected. And this year’s deficit, the “£22bn black hole”, is not really the problem. The problem is the yawning gap between spending and revenue over the next five years, and for Reeves, that crisis is partly self-inflicted because she promised not to increase any of the main revenue-raising taxes.

The immediate focus is on the cut in pensioners’ winter fuel payments, not least because MPs will vote on it on Tuesday. But it is only one tough decision of many. Indeed, the focus on it has become so intense that people are in danger of forgetting the previous tough decision, the refusal to lift the two-child limit on benefits – a decision so tough that seven Labour MPs, including John McDonnell, the former shadow chancellor, were suspended over it.

The outcome of the vote on Tuesday is not in doubt. Although Labour MPs have not yet been given their instructions by the whips, they have to assume that if they vote against the government they will join McDonnell and his comrades in the sin bin, probably permanently.

The real pressure will be put on MPs to discourage them from abstaining. New MPs will no doubt be told that failing to vote will damage their chances of promotion. That is unlikely to be effective with Rachael Maskell, the Labour MP who has been almost literally shroud waving, warning that pensioners will die, but Alan Campbell, the chief whip, will try to keep the number of abstentions down.

Nor will the vote on Tuesday be the end of the matter. One consequence of having the Budget after the Labour party conference is that there will be a lot of highly visible lobbying for measures to compensate the poor-but-not-poorest pensioners who will lose out. But then, in the Budget at the end of October, there will be worse to come.

It is almost as if people were not listening when the prime minister warned in his speech in the Downing Street garden that there would be “painful” decisions in the Budget. He did not mean winter fuel, or keeping the two-child limit, as those decisions have already been taken. He meant new painful decisions. When he said “things will get worse before they get better”, he meant it.

Some commentators, including me, thought he was being too gloomy and that he could at least offer a bit of the shining city on the hill, even in the far distance, to give the people hope. But that is an argument about presentation rather than substance.

On the substance, there is no doubt that the public finances are in a parlous state and that there are no easy answers. We know that because when Ed Balls, another former shadow chancellor, urged Reeves to find an “escape route” from the winter fuel decision, he didn’t suggest what it might be. “They need to find a creative way,” he said. You could almost hear the Treasury eye-rolling from here.

We should listen to what the prime minister said in the Downing Street garden speech and take him at his word. Just before that speech, I wrote that he and Reeves faced a choice: either boldly break their promise not to raise taxes, or rely on stealth taxes and expedients and keep a tight squeeze on public spending. They have made their choice, and it will be called “austerity”.

Whatever Starmer said during the election campaign – “there will be no return to austerity with a Labour government”, he told the Big Issue – he would rather return to austerity than break an explicit promise on tax.