Welfare versus warfare: Sir Keir Starmer’s unresolved question – and why the PM’s pinned his hopes on economic growth

Published

1 month ago

July 24, 2025

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Welfare versus warfare: for decades, it’s a question to which successive prime ministers have responded with one answer.

After the end of the Cold War, leaders across the West banked the so-called “peace dividend” that came with the end of this conflict between Washington and Moscow.

Instead of funding their armies, they invested in the welfare state and public services instead.

But now the tussle over this question is something that the current prime minister is grappling with, and it is shaping up to be one of the biggest challenges for Sir Keir Starmer since he got the job last year.

As Clement Attlee became the Labour prime minister credited with creating the welfare state after the end of the Second World War, so it now falls on the shoulders of the current Labour leader to create the warfare state as Europe rearms.

Be it Donald Tusk, the Polish prime minister, arguing last year that Europe had moved from the post-war era to the pre-war era; or European Commission chief Ursula von der Leyen calling on the EU to urgently rearm Ukraine so it is a “steel porcupine” against Russian invaders; there is a consensus that the UK and Europe are on – to quote Sir Keir – a “war footing” and must spend more on defence.

To that end the prime minister has committed to increase UK defence spending to 2.5% of GDP by 2027, raiding the overseas development aid budget to do so, and has also committed, alongside other NATO allies, to spend 5% of GDP on defence by 2035.

That is a huge leap in funding and a profound shift from what have been the priorities for government spending – the NHS, welfare and education – in recent decades.

The Institute for Fiscal Studies’ Carl Emmerson said the increase, in today’s terms, would be like adding approximately £30bn to the 2027 target of spending around £75bn on core defence.

Sir Keir has been clear-eyed about the decision, arguing that the first duty of any prime minister is to keep his people safe.

But the pledge has raised the obvious questions about how those choices are funded, and whether other public services will face cuts at a time when the UK’s economic growth is sluggish and public finances are under pressure.

This, then, is one of his biggest challenges: can he make sure Britain looks after itself in a fragile world, while also sticking to his promises to deliver for the country?

It is on this that the prime minister has come unstuck over the summer, as he was forced to back down over proposed welfare cuts to the tune of £5bn at the end of this term, in the face of a huge backbench rebellion. Many of his MPs want warfare and welfare.

“There’s been a real collision in recent weeks between those two policy worlds,” explains Jim Murphy, who served both as a welfare minister under Tony Blair and shadow defence secretary under Ed Miliband.

“In welfare, how do you provide for the people who genuinely need support and who, without the state’s support, couldn’t survive? What’s the interplay between that and the unconditional strategic need to invest more in defence?

“For the government, they either get economic growth or they have a series of eye-watering choices in which there can be no compromise with the defence of the state and everything else faces very serious financial pressures.”

He added: “No Labour politician comes into politics to cut welfare, schools or other budgets. But on the basis that defence is non-negotiable, everything else, unfortunately, may face those cuts.”

While the PM sees this clearly, ask around the cabinet table and ministers will admit that the tough choices society will need to take if they genuinely want to respond to the growing threat from Russia, compounded by the unpredictability of Donald Trump, is yet to fully sink in.

There are generations of British citizens that have only ever lived in peace, that do not, like I do, remember the Cold War or The Troubles.

There are also millions of Britons struggling with the cost of living and and public satisfaction with key public services is at historic lows. That is why Labour campaigned in the election on the promise of change, to raise living standards and cut NHS waiting lists.

Ask the public, and 49% of people recognise defence spending needs to increase. But 53% don’t want it to come from other areas of public spending, while 55% are opposed to paying more tax to fund that defence increase.

There is also significant political resistance from the Labour Party.

Sir Keir’s attempts to make savings in the welfare budget have been roundly rejected by his MPs. Instead, his backbenchers are talking about more tax rises to fund public services, or even a broader rethink of Rachel Reeves’s fiscal rules.

Anneliese Dodds, who quit as development minister over cuts to the overseas aid budget, wrote in her resignation letter that she had “expected [cabinet] would collectively discuss our fiscal rules and approach to taxation, as other nations are doing”, as part of a wider discussion about the changing threats.

In an interview for our Electoral Dysfunction podcast, which will be released later this summer, she expanded on this idea.

She said: “I think it’s really important to take a step back and think about what’s going to be necessary, looking 10, 20 years ahead. It looks like the world is not going to become safer, unfortunately, during that period. It’s really important that we increase defence spending.

“I think that does mean we’ve got to really carefully consider those issues about our fiscal rules and about taxation. That isn’t easy… nonetheless, I think we will have to face up to some really big issues.

“Now is the time when we need to look at what other countries are doing. We need to consider whether we have the right system in place.”

For the Labour MP, that means potentially reassessing the fiscal rules and how the fiscal watchdog assesses government spending to perhaps give the government more leeway. She also believes that the government should look again at tax rises.

She added: “We do, I believe, need to think about taxation.

“Now again, there’s no magic wand. There will be implications from any change that would be made. As I said before, we are quite highly taxing working people now, but I think there are ways in which we can look at taxation, not without implications.

“But in a world of difficult trade-offs, we’ve got to take the least worst trade-off for the long term. And that’s what I think is gonna be really important.”

Those trade-offs are going to be discussed more and more into the autumn, ahead of what is looking like an extremely difficult budget for the PM and Ms Reeves.

Not only is the chancellor now dealing with a £5bn shortfall in her accounts from the welfare reform reversal, but she is also dealing with higher-than-expected borrowing costs, fuelled by surging debt costs.

Plus, government borrowing was £3.5bn more than forecast last month, with June’s borrowing coming in at £20.7bn – the second-highest figure since records began in 1993.

Some economists are now predicting that the chancellor will have to raise taxes or cut spending by around £20bn in the budget to fill the growing black hole.

Jeremy Hunt, former Conservative chancellor and now backbencher, tells me he was “massively disappointed” that Labour blinked on welfare reform.

He said: “First of all, it’s terrible for people who are currently trapped on welfare, but secondly, because the risk is that the consequence of that, is that we get trapped in a doom loop of very higher taxes and lower growth.”

‘This group of politicians have everything harder ‘

Mr Murphy says he has sympathy for the predicament of this Labour government and the task they face.

He explained: “We were fortunate [back in the early 2000s] in that the economy was still relatively okay, and we were able to reform welfare and do really difficult reforms. This is another world.

“This group of politicians have everything harder than we had. They’ve got an economy that has been contracting, public services post-COVID in trouble, a restless public, a digital media, an American president who is at best unreliable, a Russian president.

“Back then [in the 2000s] it was inconceivable that we would fight a war with Russia. On every measure, this group of politicians have everything harder than we ever had.”

Over the summer and into the autumn, the drumbeat of tax rises will only get louder, particularly amongst a parliamentary party seemingly unwilling to back spending cuts.

But that just delays a problem unresolved, which is how a government begins to spend billions more on defence whilst also trying to maintain a welfare state and rebuild public services.

This is why the government is pinning so much hope onto economic growth as it’s escape route out of its intractable problem. Because without real economic growth to help pay for public services, the government will have to make a choice – and warfare will win out.

What is still very unclear is how Sir Keir manages to take his party and the people with him.

Business

Coca-Cola brews up sale of high street coffee giant Costa

Published

15 hours ago

August 23, 2025

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Coca-Cola brews up sale of high street coffee giant Costa

The Coca-Cola Company is brewing up a sale of Costa, Britain’s biggest high street coffee chain, more than six years after acquiring the business in a move aimed at helping it reduce its reliance on sugary soft drinks.

Sky News can exclusively reveal that Coca-Cola is working with bankers to hold exploratory talks about a sale of Costa.

Initial talks have already been held with a small number of potential bidders, including private equity firms, City sources said on Saturday.

Lazard, the investment bank, is understood to have been engaged by Coca-Cola to review options for the business and gauge interest from prospective buyers.

Indicative offers are said to be due in the early part of the autumn, although one source cautioned that Coca-Cola could yet decide not to proceed with a sale.

Costa trades from more than 2,000 stores in the UK, and well over 3,000 globally, according to the latest available figures.

It has been reported to have a global workforce numbering 35,000, although Coca-Cola did not respond to several attempts to establish the precise number of outlets currently in operation, or its employee numbers.

This weekend, analysts said that a sale could crystallise a multibillion pound loss on the £3.9bn sum Coca-Cola agreed to pay to buy Costa from Whitbread, the London-listed owner of the Premier Inn hotel chain, in 2018.

One suggested that Costa might now command a price tag of just £2bn in a sale process.

The disposal proceeds would, in any case, not be material to the Atlanta-based company, which had a market capitalisation at Friday’s closing share price of $304.2bn (£224.9bn).

At the time of the acquisition, Coca-Cola’s chief executive, James Quincey, said: “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide.

“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand.

“Costa gives us access to this market with a strong coffee platform.”

However, accounts filed at Companies House for Costa show that in 2023 – the last year for which standalone results are available – the coffee chain recorded revenues of £1.22bn.

While this represented a 9% increase on the previous year, it was below the £1.3bn recorded in 2018, the final year before Coca-Cola took control of the business.

Coca-Cola has been grappling with the weak performance of Costa for some time, with Mr Quincey saying on an earnings call last month: “We’re in the mode of reflecting on what we’ve learned, thinking about how we might want to find new avenues to grow in the coffee category while continuing to run the Costa business successfully.”

“It’s still a lot of money we put down, and we wanted that money to work as hard as possible.”

Costa’s 2022 accounts referred to the financial pressures it faced from “the economic environment and inflationary pressures”, resulting in it launching “a restructuring programme to address the scale of overheads and invest for growth”.

Filings show that despite its lacklustre performance, Costa has paid more than £250m in dividends to its owner since the acquisition.

The deal was intended to provide Coca-Cola with a global platform in a growing area of the beverages market.

Costa trades in dozens of countries, including India, Japan, Mexico and Poland, and operates a network of thousands of coffee vending machines internationally under the Costa Express brand.

The chain was founded in 1971 by Italian brothers Sergio and Bruno Costa.

It was sold to Whitbread for £19m in 1995, when it traded from fewer than 40 stores.

The business is now one of Britain’s biggest private sector employers, and has become a ubiquitous presence on high streets across the country.

Its main rivals include Starbucks, Caffe Nero and Pret a Manger – the last of which is being prepared for a stake sale and possible public market flotation.

It has also faced growing competition from more upmarket chains such as Gail’s, the bakeries group, which has also been exploring a sale.

Coca-Cola communications executives in the US and UK did not respond to a series of emails and calls from Sky News seeking comment on its plans for Costa.

A Lazard spokesperson declined to comment.

Business

TikTok puts hundreds of UK jobs at risk

Published

2 days ago

August 22, 2025

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TikTok is putting hundreds of jobs at risk in the UK, as it turns to artificial intelligence to assess problematic content.

The video-sharing app said a global restructuring is taking place that means it is “concentrating operations in fewer locations”.

Layoffs are set to affect those working in its trust and safety departments, who focus on content moderation.

Unions have reacted angrily to the move – and claim “it will put TikTok’s millions of British users at risk”.

Figures from the tech giant, obtained by Sky News, suggest more than 85% of the videos removed for violating its community guidelines are now flagged by automated tools.

Meanwhile, it is claimed 99% of problematic content is proactively removed before being reported by users.

Executives also argue that AI systems can help reduce the amount of distressing content that moderation teams are exposed to – with the number of graphic videos viewed by staff falling 60% since this technology was implemented.

It comes weeks after the Online Safety Act came into force, which means social networks can face huge fines if they fail to stop the spread of harmful material.

The Communication Workers Union has claimed the redundancy announcement “looks likely to be a significant reduction of the platform’s vital moderation teams”.

In a statement, it warned: “Alongside concerns ranging from workplace stress to a lack of clarity over questions such as pay scales and office attendance policy, workers have also raised concerns over the quality of AI in content moderation, believing such ‘alternatives’ to human work to be too vulnerable and ineffective to maintain TikTok user safety.”

John Chadfield, the union’s national officer for tech, said many of its members believe the AI alternatives being used are “hastily developed and immature”.

He also alleged that the layoffs come a week before staff were due to vote on union recognition.

“That TikTok management have announced these cuts just as the company’s workers are about to vote on having their union recognised stinks of union-busting and putting corporate greed over the safety of workers and the public,” he added.

Under the proposed plans, affected employees would see their roles reallocated elsewhere in Europe or handled by third-party providers, with a smaller number of trust and safety roles remaining on British soil.

The tech giant currently employs more than 2,500 people in the UK, and is due to open a new office in central London next year

A TikTok spokesperson said: “We are continuing a reorganisation that we started last year to strengthen our global operating model for Trust and Safety, which includes concentrating our operations in fewer locations globally to ensure that we maximize effectiveness and speed as we evolve this critical function for the company with the benefit of technological advancements.”

Business

‘Today is payday’: Union warns wages for workers at liquidated steel company must be a priority

Published

2 days ago

August 22, 2025

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'Today is payday': Union warns wages for workers at liquidated steel company must be a priority

A union has welcomed the government taking over a troubled steel company, but is warning that payment for workers must be a top priority.

Speciality Steels UK – which employs almost 1,500 people – was pushed into compulsory liquidation on Thursday, and is the third-largest producer in the country.

It is part of the Liberty Steel empire owned by metals tycoon Sanjeev Gupta, and operates from sites in Rotherham and several other locations across South Yorkshire.

The government has stressed it will cover staff wages and the running costs of the plants until a buyer is found.

Speaking to Sky’s Anna Jones, Community Union National Secretary Alun Davies said workers are “concerned” about the developments.

He added: “Today is payday – but because the bank accounts were closed, I think the special managers and the HR team now are working with the unions to get that pay in today or as soon as they can.”

With a bank holiday weekend fast approaching, workers may only receive their wages on Tuesday unless payments are made as a matter of urgency.

Mr Davies said he is confident that the plants have a future, telling Sky News: “If we use British-made steel for British infrastructure projects, it creates jobs, it grows economies and it gets our economy back on track, which is what this Labour government is trying to do.”

While he said government investment is valuable, the union official cautioned: “If we can find a decent buyer – a reputable steel company that knows what they’re doing – we’re open to all options.

“We’re not going to just say nationalise or part-nationalise, it’s what’s best for the business and gets the business up and running as soon as possible … if the government takes ownership, that is a significant cost to the taxpayer.”

Mr Davies explained that many workers have been staying at home and on 85% pay, which is having a big impact on their mental health and wellbeing.

In a statement, Community’s General Secretary Roy Rickhuss described it as an “extremely worrying time” for the union’s members – and said jobs must be protected in the event of restructuring or a transition to new ownership.

Calling for 12 months of pension contributions to be secured alongside this month’s paychecks, he added: “Steelworkers at Liberty Steel are highly skilled and hugely experienced; they are quite frankly irreplaceable and will be critical to delivering future success for the businesses.”

Mr Rickhuss said the union has received “firm assurances” that efforts to address pay and pensions are under way – and welcomed the government’s intervention.

“However, in taking control of the business the government has assumed responsibility for our livelihoods and our communities, and we will of course be holding them to account,” he added.

Bosses at Speciality Steels have said the move to wind up the business is “irrational” as a plan had been presented to courts that would have led to new investment in the UK steel sector.

“Instead, liquidation will now impose prolonged uncertainty and significant costs on UK taxpayers for settlements and related expenses, despite the availability of a commercial solution,” chief transformation officer Jeffrey Kabel added.

On Thursday, a government spokesperson said ministers “remain committed to a bright and sustainable future for steelmaking and steelmaking jobs in the UK”.