This was the single event that ended Starmer’s premiership

A prophet is not without honour, but in his own country, and among his own kin, and in his own house.” Pat McFadden, born and raised in the Catholic Church and an annual attender of graveyard mass in Donegal, would never call himself a prophet. But for some friends, those words from the Gospel of St Mark came to mind when they saw the work and pensions secretary pilloried for telling the truth about his Labour colleagues.

“Every meeting I have is ‘who can we tax in order to pay benefits to others?’ They’re asking the wrong questions,” McFadden told Peter Mandelson, referring to meetings with Labour MPs. That WhatsApp message revealed last month in the so-called Mandelson files was undiplomatic and – self-evidently – unwise, but also deadly accurate.

For the story of welfare is the story of the Starmer’s failure – and possibly the story of Labour’s future too.

Last summer, Labour attempted to trim about £5bn from the bill for working-age health-related benefits, reducing rates of the personal independence payment for disabilities and tweaking the health-related element of universal credit. The cost of these health-related benefits was £36bn in 2019-20. Unreformed, it is estimated to reach £66bn by 2029-30, according to the Institute for Fiscal Studies.

Those numbers are important, but they are also why that attempt to reform welfare failed. The Starmer team framed its case for reform as being about saving money, rather than reforming a broken system, and so provoked a violently allergic reaction from Labour MPs.

When Starmer retreated on welfare, his premiership was effectively over, because Labour MPs learnt that even on the biggest, toughest questions, he could be made to back down. The leader became a follower, and his fate was sealed.

This was the context for McFadden’s imprudent candour to Mandelson last summer. His quote about tax and benefits is now famous, but the second part – “they’re asking the wrong questions” – is the more important part, and the one Labour should ponder as it tries to work out where to go next.

The right question about welfare is: what is the best way for the state to make people better off, healthier and happier? And in many cases, the answer is: get them off welfare and into work. This is something that has been gravely neglected in the Labour conversation about welfare. And this is a sad omission for a party that was founded and named for work and workers. Shouldn’t Labour want more people to labour?

Currently, around 7 per cent of the working-age population is getting incapacity benefits, the highest proportion for 25 years. Worse, that proportion is rising and could soon pass 8 per cent, a record.

To be clear, this isn’t the same as simply saying “welfare harms people” – it is inactivity, not welfare, that is directly associated with harm

Incapacity is part of Britain’s dismal story of post-pandemic inactivity. Most developed economies have returned to pre-Covid levels of employment, but the UK’s share of potential workers who aren’t working remains stubbornly high. Health conditions are recorded as the biggest driver of that inactivity, but how much of this is because more people are sick, and how much is because more people are seeking to be classified as too sick to work?

It is uncontroversial to say that the structure of the welfare system gives financial reasons to claim incapacity benefits rather than benefits that require claimants to seek work.

For pre-existing claimants, the “health element” of universal credit was worth an extra £5,000 a year and relieved claimants of at least some requirements to look for a job. Changes in April cut that to about £2,600, but the fundamental problem remains.

In the words of a Resolution Foundation study about young people in April, “changes to the benefit system in recent years may have increased the incentive to claim incapacity benefits”, because the health-related part of universal credit pays more money and comes with fewer requirements to seek work.

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Those requirements are becoming rarer. Overall, around 4.1 million universal credit recipients now have no requirement to seek work, up by more than 1 million since 2024.

The fiscal costs of welfare are significant, but even if there were unlimited public money to spend, there would remain a strong moral case for reforms that do more to encourage more people to work. Because, on the whole, working is better for people than not working.

Good work is generally associated with better health, wellbeing, confidence, income, social connection and future earnings. Inactivity fosters depression, illness and early death.

To be clear, this isn’t the same as simply saying “welfare harms people” – it is inactivity, not welfare, that is directly associated with harm. The causations are also complex and multi-directional; for example, some people who are inactive develop mental health problems as a result; some people with mental health problems become inactive as a result.

But, in general terms, two things are true. First, inactivity is bad and work is better. Second, our welfare system too often incentivises inactivity rather than work.

Of course, not all work is “good” – a minority of roles are unstable, exploitative and harmful. But too many in Labour have come to regard work as something that people should be protected from. That’s not my view; it’s the verdict of a Labour minister who describes Labour MPs’ approach as one of “ruinous empathy – too many colleagues think they’re being kind by helping people stay on welfare and out of work. It’s the dead opposite.”

Whether it’s Andy Burnham or another Labour figure, whoever replaces Starmer in No 10 will want to tell a story of change, to prove that things will be different

The sad irony in McFadden’s Mandelson message surfacing is that it came just days after he oversaw a moment that might just have started moving Labour back towards a pro-work position. Alan Milburn’s review of young people and work painted a grim picture. More than 1 million 16- to 24-year-olds are now not in education, employment or training. There are multiple reasons for this, but one is welfare.

Milburn’s most damning conclusion is worth quoting at length:

“The UK does not have a welfare system that treats participation as a core objective for young people … It is designed in such a way that many young people can feel they are risking a secure income of £2,000 or more in benefits each month if they do try work.”

Too often, that “secure income” is a path to a lifetime on benefits, with lost confidence, lost opportunity and permanently weaker earnings.

And operating a welfare system that creates this financial incentive for young people to claim welfare instead of training or earning is not kind. It is cruel, since it encourages circumstances that do long-term harm to those people.

This is what made Starmer’s fatal failure on welfare reform so striking and so revealing. A man whose own mother and brother were disabled gave the impression that his main aim was penny-pinching cruelty towards the vulnerable. Despite his background, the PM was still unable to make an argument that helping people into work where possible is the compassionate option.

Whether it’s Andy Burnham or another Labour figure, whoever replaces Starmer in No 10 will want to tell a story of change, to prove that things will be different. That story should start with a return to root-and-branch welfare reform – not just because it’s economically necessary but because it’s good for people.

It should also include leaving Pat McFadden in his job to deliver that reform. To regain its political and moral purpose as the workers’ party, Labour needs to change its attitude to welfare, not its welfare minister.

James Kirkup is a senior fellow of the Social Market Foundation